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Neither “Manic,” Nor Monetary, Nor Just a Theory

By: letsgetitdone Monday June 9, 2014 9:27 pm

 

A closeup of adollar

A reply to a Firedoglake post on “Manic” Monetary Theory

When I saw Dan ps’s latest post, I set out to reply in the comments, but found myself unable to because the reply links were no longer there. Hence this post in reply.

My thanks to Boo Radley, stratocruiser, caleb36, bluedot12, sihlkee, and TarheelDem for their comments making common sense points about MMT. I think you set the stage well for what I’ll say below.

My main reservation with Modern Monetary Theory is probably this: It is named a monetary theory, yet its proponents expand its scope – in all directions, it sometimes seems – to include topics that have nothing to do with monetary theory. I think it’s reasonable to expect a monetary theory to describe the way money works, and nothing else. Here is how money is created. Here is how it is destroyed. Here is how it gains value. Here is how it loses value. Here is what governments must do to increase its value, here to decrease it.

Another name for the Modern Money Theory (MMT) approach is neo-chartalism. It is also sometimes called “functional finance” because it follows the orientation, emphasized so strongly, by Abba Lerner in earlier times. That said, Modern Money Theory, or alternatively, Modern Monetary Theory isn’t a name its developers chose. It is a label given the approach by others, which over a period of time in the 1990s, stuck. Once that happened its developers decided not to fight it, but to just live with it. Right now, some of us are using “Modern Money Theory,” in an effort to get away from the implication that MMT is about monetary policy, because the most important emphasis of our approach is on fiscal policy, rather than monetary policy.

Next, MMT is not, as Dan ps says above, a monetary theory. It is an approach to the subject matter of macroeconomics. The approach contains all sorts of propositions and sets of propositions. Definitions, value statements, conceptual frameworks, descriptive (fact) statements, theories, accounting identities, normative propositions, etc. So, when Dan ps objects to the proponents of MMT encompassing a lot more in their writings than just “monetary theory,” his objection, while based in part on fact, is just a reflection of his view of what the scope of something called MMT ought to be. But, unfortunately, his view is a purely personal one and is not shared by MMT, developers, practitioners, or writers.

So, what can one say about this? Only that MMT people think differently than Dan ps about what MMT ought to be and is about. So, who’s right about this, the guy who’s a “casual reader” of MMT work, or the various people who do MMT? :) :) :)

Yet proponents insist that other things, things that have nothing whatsoever to do with monetary theory, are part of Modern Monetary Theory. I’ll illustrate using my exchange with letsgetitdone since it’s fresh, but I think it’s also representative.
He writes that ’economics ought to be practiced, as Galbraith, the elder said, to fulfill the public purpose,’1 that Modern Monetary Theory ‘is an approach and not a theory’ (!!) and that ‘public purpose is core to MMT.’ Public purpose may be core to economics, but not a monetary theory. A monetary theory exists to describe how money works. One may advocate for public purpose, as one understands it, and show how it works under a given monetary theory – but that is no longer monetary theory.

Well, again, this argument may sound plausible, but it is based purely on Dan’s misinterpretation of MMT as a narrow value-free descriptive theory about money. If one actually looks at the MMT literature, something Dan as as “casual reader” has done to only a limited extent, then you will find that all the main MMT developers, as well as some less important writers such as myself, continually refer to MMT-based policies compared to alternative policies, such as neoliberal ones, in the context of the idea of public purpose.

We all agree that when we talk about “public purpose” proper we are not talking monetary theory or monetary policy. We know we’re talking about the purpose of macroeconomic policy and about fiscal and monetary policies in relation to public purpose. But so what? We think that’s what we should be talking about.

When Dan says: “. . . Public purpose may be core to economics, but not a monetary theory,” I say first, that MMT isn’t just a monetary theory, and second that public purpose isn’t core to most approaches to macroeconomics and particularly not to neoclassical and neoliberal approaches, but it is core to MMT, and that is one of the ways in which MMT differs from the other approaches.

 

Are We An Oligarchy Yet?

By: letsgetitdone Tuesday April 29, 2014 9:17 am

Matt Stoller believes that the recent pre-publication release of a study by Martin Gilens and Benjamin I. Page doesn’t support the idea that the United States is an oligarchy yet. He says:

A lot of people are misreading this Princeton study on the political influence of the wealthy and business groups versus ordinary citizens. The study does not say that the US is an oligarchy, wherein the wealthy control politics with an iron fist. If it were, then things like Social Security, Medicare, food stamps, veterans programs, housing finance programs, etc wouldn’t exist.

What the study actually says is that American voters are disorganized and their individualized preferences don’t matter unless voters group themselves into mass membership organizations. Then, if people belong to mass membership organizations, their preferences do matter, but less so than business groups and the wealthy.

Well, it’s true that Gilens and Page never say that United States is an oligarchy, and perhaps it’s also true that they don’t believe it. But they do say this:

What do our findings say about democracy in America? They certainly constitute troubling news for advocates of ‘populistic’ democracy, who want governments to respond primarily or exclusively to the policy preferences of their citizens. In the United States, our findings indicate, the majority does not rule — at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the U.S. political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.’

And they’re right. Their data refute the idea that the preferences of the majority are, by-and-large, or even frequently, enacted into law in today’s United States. Insofar, as that’s a necessary condition for having a constitutional democracy, it’s hard to avoid the conclusion that right now the United States doesn’t have one. That finding has further implications.

First, the US doesn’t have either mob rule or constitutional democracy. Nor does the study show that the political system is paralyzed, in spite of all the complaints about excessive partisanship and stalemate in Washington. So someone is ruling. Who is it?

Second, it shows that, mostly, economic elites and interest groups representing them, many of them virtual puppets of the economic elite and corporations, are getting their way. Also, it doesn’t show that one individual is getting his/her way. That means there’s no King or Queen ruling, and also that there isn’t a single tyrant ruling. So, we can conclude that, mostly, the economic elites and their interest groups are ruling. How are they ruling?

Well, third, even though there are legislative and judicial forms specified in the Constitution being followed; there are many elements of current elite rule that are neither constitutional nor legal. For example, is it legal and/or constitutional for the Executive Branch to use prosecutorial discretion as a tool to refuse to go after the big banks for their blatantly illegal behavior leading to the mortgage crisis, the failure of major financial institutions, and the world economy? Is it constitutional and legal for the President of the United States to use drones to kill US citizens without legal or constitutional due process? Is it legal or constitutional for the President to use drones to violate the sovereign territory of other nations through drone strikes without the consent of the authorities of those nations?

Is it legal or constitutional for the big banks to use fraudulent documents to implement foreclosures? Is it legal or constitutional for the Administration to refuse to prosecute officers and employees of the big banks for committing these frauds? Is it legal or constitutional for local governments and the DHS to violate the rights of free speech and free assembly of Occupy protestors across the country in order to protect elite financial interests? Is it legal or constitutional for Justices of the Supreme Court to interpret the 14th amendment as conferring the liberties of biological individuals on organizations whose legal existence is an artificial legal construct? Are the Justices who are doing this not the products of influence previously exercised by the economic elite?

Is it legal or constitutional for State legislatures to enact and attempt to enforce laws to suppress voting rights of minorities and other groups across the country; as well as laws effectively removing the right to choose to end their pregnanicies of women with limited financial resources to exercise that right? Is it legal or constitutional to apply the law harshly to racial and ethnic minorities, and the poor, while refusing to apply it at all to members of the economic elite and their companies?

The answers to all these questions suggest that the non-democratic, non-monarchical rule validated by the Princeton Study is also rule by the economic elite that is a good deal less than constitutional or just. In my book, that makes it rule by the relatively few that is unjust, and isn’t that the definition of oligarchy, whether Gilens and Page say so explicitly or not?

Did Canada’s Middle Class Just Get More Affluent Than the US’s, or Did That Happen Long Ago?

By: letsgetitdone Friday April 25, 2014 4:54 pm

The New York Times and Dave Leonhardt’s Upshot section made a big splash a few days ago by reporting on a study showing that the Canadian middle class had caught the US middle class in median income and likely surpassed it since. The study is based on an effort to measure median income per capita after taxes, and its results are presented as something truly significant.
DSC_5097 - Reflections of Canada
However, I think the study is biased in that in median income per capita after taxes, it selected the wrong measure. What is needed is a measure of income or affluence that takes account of the value of cross-national variations in Government benefits delivered to the middle classes. Since the United States has lower taxes than most comparable nations, but delivers much less in safety net and entitlement benefits, it’s pretty clear that the measure used in the study reported on by The Times overestimates the real median income of the US middle class in comparison with the middle classes of other comparable nations and provides a misleading impression of the relative affluence of the American middle class.

Peterson/CBO Beat for Austerity Goes On!

By: letsgetitdone Tuesday April 22, 2014 6:53 pm

Recently, I’ve been writing about oligarchs advocating for entitlement cuts and austerity. I’ve discussed attacks on entitlement benefits for the elderly from Abby Huntsman (of MSNBC’s The Cycle) and Catherine Rampell (a Washington Post columnist), both the children of well-off individuals. These posts have come in the context of the English language release of Thomas Piketty’s Capital in the Twenty-First Century, and the more recent pre-publication release of a study by Martin Gilens and Benjamin I. Page using quantitative methods and empirical data to explore the question of whether the US is an oligarchy or a majoritarian democracy. They conclude:

”What do our findings say about democracy in America? They certainly constitute troubling news for advocates of “populistic” democracy, who want governments to respond primarily or exclusively to the policy preferences of their citizens. In the United States, our findings indicate, the majority does not rule — at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the U.S. political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.”

With this as a backdrop, today I want to de-construct a recent statement by Michael A. Peterson, President and COO, of one of the centers of American oligarchy, the Peter G. Peterson Foundation (PGPF), and the son of the multi-billionaire Peter G. Peterson, commenting on the CBO’s Report earlier this month, on its updated budget projections for 2014 – 2024.

More Misdirection from Rampell in the Service of Generational War

By: letsgetitdone Saturday April 19, 2014 11:28 am

In my last post, I took issue with a recent column by Catherine Rampell, who tries to make the case that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them. Rampell relies on an Urban Institute study to make her case. Since that post, she’s offered another that replies to some of the questions raised by commenters on her earlier effort. I’ll reply to that new post shortly, but first I want to present key points emerging from my analysis of Federal monetary operations in my reply to her earlier post. See that post for the full argument.

Catherine Rampell sets forth the position that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them.


First, once Congress mandates spending, there is no way that the Treasury can be forced into insolvency or an inability to pay its obligations as long as it is willing to make use of all the ways it can cause the Fed to create reserve credits in Treasury spending accounts which can then be used for its reserve keystroking into private sector account activities that today represent most of the reality of Federal spending.

Misdirection: Rampell Views Entitlements Through the Generational War Lens

By: letsgetitdone Friday April 18, 2014 9:28 am

Some of the favored children of the economic elite who have a public presence, work hard in their writing and speaking to divert attention from inequality and oligarchy issues by raising the issue of competition between seniors and millennials for “scarce” Federal funds. That’s understandable. If millennials develop full consciousness of who, exactly, has been flushing their prospects for a decent life down the toilet, their anger and activism might bring down the system of wealth and economic and social privilege that benefits both their families and the favored themselves in the new America of oligarchy and plutocracy.

Catherine Rampell sets forth the position that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them.

Here and here, I evaluated Abby Huntsman’s arguments for entitlement “reform,” and, of course, Pete Peterson’s son, Michael fights a continuing generational war against seniors in pushing the austerian line of the Peterson Foundation. Now comes Catherine Rampell, who, in a recent column, sets forth the position that seniors haven’t paid for their Social Security and Medicare because they “generally receive” more in benefits out of these programs than they pay into them. I’ll reply to all of the main points in Rampell’s argument, by quoting liberally and then replying to the points she makes in each quote. She says:

Yes, seniors paid into Social Security and Medicare during the years they worked, if they worked. But they generally receive much more out of the entitlement system than they paid into it.

She continues by citing an Urban Institute study and pointing out that earlier age cohorts received much more in benefits from Social Security than they paid in, and also says:

But let’s consider the average worker who turned 65 in 2010. Generally speaking, the people in this cohort will, more or less, break even on Social Security, according to Eugene Steuerle, an Urban Institute fellow who co-authors the annual report. (Earlier generations made out like bandits; for example, members of an average one-earner couple who turned 65 in 1990 receive twice as much in Social Security benefits as they paid in taxes.)

Medicare, on the other hand, is pretty much a steal no matter when you turned 65.”

After citing some details documenting “what a steal” Medicare is, Rampell concludes the first part of her argument with this:

”It boils down to this: Despite all the “we already paid for it” rhetoric popular among seniors, seniors did not pre-pay for their entitlements. If anything, they paid for their parents’ entitlements, which were more modest than the benefits today’s retirees receive.

This argument of Rampell’s is disingenuous, because it takes the claim that seniors have already paid for their entitlements as saying that they’ve paid dollar-for-dollar, more or less, for what they’re getting in benefits. But seniors who know how SS and medicare works certainly don’t mean this when they say they’ve already paid for it. What they surely mean instead, is that Congress has legislated the SS and Medicare safety nets, and the benefits that currently exist, for the purpose of seeing to it that seniors have a minimum of economic insecurity during the period of their lives when a large proportion of them no longer have the capability to earn a decent living due to illness, other infirmities, or an extreme reluctance of private sector employers to hire them even when they are very skilled.

To draw on the benefits of these programs seniors were required to pay FICA contributions during their working lives. These payments, according to the law, give them the right, in other words, entitle them, to receive the benefits of SS and Medicare that were mandated by Congress.

No one ever said to today’s seniors that there was some rule in the SS and Medicare programs requiring that their payments needed to, or ought to, correspond to the amount of their total benefits, since that was never the deal legislated by Congress. No, the deal was: “You pay your FICA contributions, and you get your benefits at retirement.” Simple as that!

So, people who followed the SS and Medicare rules and made their payments over the years rightly view themselves as having paid for their entitlement benefits, regardless of whether their cumulative FICA payments fall short of or exceed the cumulative sum of those benefits. Why shouldn’t they, and why is Rampell implying that the deal implicit in our major entitlement programs is anything different?

Additionally, I’m afraid that Rampell is also wrong when she says that today’s seniors “paid for” their parents’ entitlements. They certainly paid FICA and Medicare-related contributions, of course; but it is not true that these revenues paid for anything, in spite of Federal reports that appear to link the two, or the accounting that shows that the Social Security Administration has built up a $2.8 Trillion credit against future expenditures, and that Medicare has a much smaller volume of credit to be used for such expenditures.

Is the MSM Blackout on Inequality, Plutocracy, and Oligarchy Ending?

By: letsgetitdone Friday April 4, 2014 11:29 am

The first occurrence of this I’m aware of was Chuck Todd, reacting on his Daily Rundown show to the spectacle of Republican candidates traveling to Vegas to seek funding from Sheldon Adelson and his well-heeled friends..

All of a sudden MSNBC cable commentators are talking about plutocracy and oligarchy. Surprisingly, the first occurrence of this I’m aware of was Chuck Todd, reacting on his Daily Rundown show to the spectacle of Republican candidates traveling to Vegas to seek funding from Sheldon Adelson and his group of hugely wealthy Jewish Republican donors. Todd began to explore the implications of that event. He seemed exercised, and more than the slightest bit upset, about its meaning for Democracy and used the words plutocracy and oligarchy. Andrea Mitchell also discussed it later and she, too, registered apparent dismay, while using the “p” and “o” words.

Chris Hayes has been on leave during this period, so we haven’t heard from him about this. But Chris Matthews, the “oh so very slightly left-of-center insider” has been making very unfriendly noises about Adelson, the Kochs, and the Supremes, culminating today (April 3rd) with nasty references to plutocrats, oligarchs, and candidates, kissing oligarchs somewhere or other, on both his program and Al Sharpton’s.

The Village Still Ignores the Most Important Point

By: letsgetitdone Tuesday April 1, 2014 8:48 am

In recent posts I reviewed two commentaries by Abby Huntsman on Social Security and other entitlements, also noting points made in other critiques of her narratives. Abby’s commentaries are here, and here, and my critiques are here and here. The most important point I emphasized in my two rebuttals is that there are no fiscal solvency or sustainability issues related to Social Security, or other parts of the safety net, but that the issues involve only the willingness of Congress to appropriate entitlement spending, and either the removal of current constraints on Treasury to spend appropriations such as the debt limit, or the willingness of the Executive Branch to use its current legislative authority either to a) generate sufficient seigniorage from platinum coins to spend such appropriations; or b) use a type of debt instrument, such as consols, which aren’t counted toward the debt limit.

The day before I posted my second reply to Abby Huntsman, Richard J. Eskow and WeActRadio posted this video clip from Eskow’s radio broadcast. In his critique, Richard shows that Abby Huntsman’s treatment of Social Security and entitlements is full of misleading information and hews closely to the narrative offered by Alan Simpson, Pete Peterson, and organizations supported by Peterson funding, and he calls for the MSNBC producers of “The Cycle” to issue statements correcting the facts, and to give Abby’s co-hosts on The Cycle a chance to reply to her about social security.