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Framing Platinum Coin Seigniorage: Part One, Basics

8:00 pm in Uncategorized by letsgetitdone

How many times have you heard that the Government can only spend money after it raises revenue by either taxing or borrowing? Nearly every time someone talks or writes about the US’s public deficit/debt problem? How come nobody asks why, since Congress has the unlimited authority to create coins and currency, it doesn’t just create money when it deficit spends? The short answer is that Congress in 1913, constrained the Executive Branch from creating currency or bank reserves, delegated its power to do that to the Federal Reserve System, and never looked back when we went off the gold standard in 1971, even though this removed the danger of money-creation outrunning gold reserves, and also created a new monetary system based on fiat currency.

How It Works

But coins, it turns out are different from currency and bank reserves. They’re the province of the Executive. And Congress provided the authority, in legislation passed in 1996, for the US Mint to create one oz. platinum bullion or proof platinum coins with arbitrary fiat face value, having no relationship to the market value of the platinum used in the coins. These coins are legal tender. When the Mint deposits them in its Public Enterprise Fund (PEF) account, the Fed must credit it with the face value of these coins. The difference between the Mint’s costs in producing the coins, and the reserves provided by the Fed is the US Mint’s “coin seigniorage” or profit from the transaction.

The US code also provides for the Treasury to periodically “sweep” the Mint’s account at the Fed for profits. These then go into the Treasury General Account (TGA), the spending account of the Treasury, narrowing or eliminating the revenue gap between spending and tax revenues. So, for example, say the Secretary of the Treasury ordered the Director of the Mint to create a $60 Trillion (face value) coin; and deposit it in the PEF account at The NY Federal Reserve Bank. The Fed would credit the PEF with $60 T in reserves, and the Treasury would then “sweep” the seigniorage, nearly $60 T, into its spending account.


Platinum coins with huge face values such as $60 T, can produce seigniorage closing the revenue gap and technically end deficit spending, while still retaining the gap between tax revenues and spending that can add to aggregate demand and produce full employment. Platinum Coin Seigniorage (PCS) is also a way for the Executive to end debt ceiling crises, since the profits could be used to repay debt instruments when they fall due, without the need to issue any more debt.

The seigniorage from a $60 T platinum coin would serve as a potent symbol of the truth that the Federal Government can never involuntarily run out of money. This is one of the central ideas of MMT that the public needs to accept routinely, to understand that the Government’s budget isn’t like their household budget. The presence of the $60 T in the public purse would be a positive enabler of progressive legislation creating benefits that people want now, but austerians say we can’t pass because “we can’t afford it.”

If all debt instruments are re-paid by using PCS, then, eventually the US would have no debt subject to the limit, or presence in the bond market, and would pay no interest to bond holders. No one would worry about the public debt, or use its size to justify blocking legislation that fulfills public purpose and promotes the general welfare.

So, PCS-based elimination of debt can end the whole austerity mind set that provides our current budgetary process with its constraining conservative cast, focused on narrow monetary cost considerations, rather than on a broader progressive framework that weighs the real costs and benefits of proposed fiscal activities of the Federal Government. Congress and the Executive would then evaluate the substance of legislative proposals based on their likely direct impacts and side effects on the lives of Americans, rather than their impact on Federal deficits and surpluses. Then the issues will be about what people need, and what improvements we can make by working together through the Federal Government. That would be the fulcrum of a new, game-changing politics, not debt, deficits, and debt-to-GDP ratios.

Why we need to get it done right now!

It must be done now! If it doesn’t, then people who are against the use of PCS will have time to organize against it and get it repealed by the Congress. Now that the PCS capability is widely known, the FIRE Sector will be gunning for it with all the financial, political and propaganda power it can bring to bear. It will do that because using PCS, especially the $30 T or greater coin, High Value Platinum Coin Seigniorage (HVPCS) I propose, strikes at the domination of the financial and political systems by Wall Street and the big banks. Cullen Roche explains why:

The most interesting thing about the coin idea is that the biggest threat of the coin was to the existence of private banking. I am actually surprised that a major bank hasn’t come out very publicly stating that the coin was ridiculous. Why? Because the coin exposes a potentially enormous change in the way the US monetary system functions. Instead of having a money system that is designed almost entirely around private banks (who issue most of the money) the coin threatened to expose the reality that government could self finance if it wanted to. In other words, the government could become the permanent primary issuer of money (as opposed to choosing to use private bank money).

So the Fed’s role is of particular interest here. And we must again ask ourselves. What is the Fed? Is it a public entity or private entity? It’s a bit of both. The Fed is a strange sort of hybrid public/private entity. But the coin decision has to make one wonder where they stand on this issue and whether the Fed has imposed its will on a potentially important debate. Is this merely a case of the Fed being apolitical and independent? Or is this a case of the Fed siding with its true master – the private banking oligopoly? I don’t know, but one thing we know for sure is that the Fed is not merely serving public purpose at all times. After all, its existence as a support feature for an oligopoly that serves private purpose (banks are slaves to their owners) renders the Fed compromised on public purpose to some degree.

So, HVPCS threatens the banks’ domination of the Fed, and also their role in money creation, and with it some of their income. The more time that passes without using HVPCS, the more likely it is that the Executive Branch will lose this capability to Wall Street’s persistent political efforts at repeal, and become the actual, rather than only the pretended (kabuki) prisoner of debt instruments and austerity once again.

Already, some bloggers in the business press who want to use the TDC to avoid the debt ceiling have proposed and expressed support for the idea that the capability to use PCS could be repealed in a swap for repeal of the debt ceiling legislation. This is a very unequal swap, because the power to use PCS, along with the willingness to use it, already makes the debt limit a dead letter.

The only swap that makes any sense is repeal for legislation giving Treasury the same right as the Fed has now, to create money out of thin air, but only for the purpose of repaying debt subject to the limit and covering deficit spending appropriated by the Congress; because this, and only this, is the equivalent of the PCS power. The only thing that would be more preferable than either of those things is to end the “independent,” really big bank and Wall Street dominated, Fed, and make it accountable by placing it under the direct authority of the Executive Branch and the Secretary of the Treasury with the Fed’s current capabilities to create money intact.

Progressives need to fight for retaining the Executive’s capability to use PCS, because that is the quickest road to ending austerity politics and preparing the way for Modern Money Theory-based policies to deliver sustainable economic prosperity, full employment, low inflation, and fiscal policy devoted to the public purpose. Removal of the capability would require that austerity politics be ended through change in the Congress. That sort of change, however, is years down the road, whereas the President can make HVPCS happen right now.

(Author’s Note: h/t to Jack Foster for proposing a framing document for HVPCS. This is it; but divided into 6 parts for blogging convenience. The rest of the series will deal with objections made to HVPCS and answers to them.)

(Cross-posted from New Economic Perspectives.)

That’s Not All!

9:35 pm in Uncategorized by letsgetitdone

After opposing the Job Guarantee proposal as part of the broader MMT policy program in service of the goals of public purpose, full employment with a living wage and price stability, and for many weeks now, combining with Mike Sankowski and Carlos Mucha to found “Monetary Realism” and also saying:

“You guys see no need for unemployment. I do. I think it serves an incredibly important psychological component to any healthy economy. I’ve feared for my job and been unemployed. Those moments shaped who I am and what I’ve become. They were invaluable in retrospect. If I’d been able to apply for a JG job I might not be half the man I am today. Maybe it’s just personal entrepreneurial experience speaking here, but I know what it means to hunt and kill for ones dinner. Very little, aside from great parenting and education, was handed to me in life. My psychological development through having to earn things has been a building block that no govt program can ever provide. Ever.”

And then later saying that he’s for: “prosperity, increasing living standards,” and says that subsidiary goals are innovation, increasing productivity, and a “real goal” of “full productivity.” And also saying that:

“. . . . massive increases in living standards come from increases in innovation and productivity (which are MOSTLY pvt sector and profit driven). So my thinking is rather basic. Why obsess over FE (I am referring to low unemployment here) when the real goal is full productivity (which is a vague concept I know)?”

Cullen Roche, in a post entitled “I Am For Full Employment” says today:

“That’s All.”

To which I say: that can’t be all because:

The MMT normative structure is: JG in the context of payroll tax cuts, State Revenue Sharing, and selected anti-inflation measures such as higher taxes → Full Employment at a living wage with price stability → Public Purpose

while MR’s normative structure based on Cullen’s various posts appears to be:

Payroll tax cuts, State Revenue Sharing, other as yet undefined productivity enhancing measures, along with selected anti-inflation such as higher taxes and interest rate targeting by the Fed → Innovation → Full Productivity with Price Stability → Full Employment → Increased Prosperity, which appears to be MR’s top-level goal.

I think the MMT normative structure posits a much more direct connection between policy and FE with PS than the MR normative structure does. Also, the quotes above seem to indicate that MR values FP, Innovation, and Increased “Prosperity” much more than FE which we should not “obsess over.”

So, with all due respect I’d have to say:

That’s not all!

Update: After I posted this Cullen replied, in part by pointing out that he had “rescinded” the first quote I provided above in reply to a comment of mine saying:

“I shouldn’t have even bothered with the anecdotal. Lesson learned. It totally distracted from my main point which was not to say that we don’t need full employment, but that we should seek full productivity (and hence FE). The personal experience doesn’t prove anything….”

And he went on to claim that I was taking him out of context by not noting his reply. My response was and is:

I’m happy to have your amplification above and to acknowledge your further reply.

However, your reply doesn’t say that your previous comment about the virtues of unemployment is wrong, or that you prioritize FE over FP and are not advocating a variant of MMT that will not maintain an unemployed buffer stock rather than a full employment buffer stock. Nor do you question my characterization of the MR normative structure above. As I’ve already said to you in correspondence:

So, here’s a challenge. I say that your goal structure as so far stated is as I represented it in my post above. If you think I’m wrong then state what your goal structure is explicitly. Locate FE within it and prioritize FE relative to FP. I’d be very interested in seeing that and if you prioritize FE over FP then I’ll be happy tp admit I’m wrong, and agree with you that you favor FE even if you don’t favor the JG. Then I’ll further admit that you and I have very similar goal structures but only disagree on the means of achieving it.

Then we can go on to argue about means. In making such an argument however, I recommend that you tell us all what you mean by “full productivity.” As i said in another post to you:

So far, at least, I’ve not even seen a definition of FP from you. So how can I possibly tell whether FP will lead to FE, let alone whether it would be more effective than the JG at accomplishing that.

Finally on this bit:

“I am really stunned that you keep using that comment to try to prove your argument. It proves nothing and was rescinded in direct response to you because you and others kept taking it out of context.”

Readers can judge above whether your comment above “rescinded” your previous comment or not. I do not consider it taking back your previous comment that:

“You guys see no need for unemployment. I do. I think it serves an incredibly important psychological component to any healthy economy. . . . “

That part of your comment says that unemployment is needed, and implies that an unemployed buffer stock is more valuable than an employed one. I see your reply comment as saying that your anecdotal statement was a tactical error which distracted from your main point that we “should seek FP (and hence FE).” You have not shown us in anything you’ve written that FP implies FE either logically or empirically. That, right there, is a main point of the disagreement between us.

At this writing, Cullen and his new MR group have not clarified the goal structure of their MR knowledge claim network (KCN) nor have they explained why they think that FP leads to FE either logically or empirically.

The Job Guarantee and the MMT Core Series: An Introduction

9:42 pm in Uncategorized by letsgetitdone

This is an introduction to a series of 16 posts I wrote in reply to a number of posts by John Carney at the CNBC blog and Cullen Roche at Pragmatic Capitalism, and comments replying to them. The posts by Carney and Roche criticized the MMT Job Guarantee (JG) proposal. They did so by calling into question whether the JG would be effective in achieving Full Employment (FE) and Price Stability (PS), and also by calling into question the MMT goals of “Public Purpose”, and “FE with a living wage” as appropriate. The critics proposed that “Full Productivity” (FP) and PS be goals of MMT, and that “prosperity” be the higher level goal. They also proposed that MMT concentrate on description and avoid policy prescriptions, and that it deal only with “facts” and not with “theory.”

The first 13 posts in this series refute these proposals, and also discuss the question of the appropriate hourly rate for the JG program. They also discuss various fallacies of composition inherent in many of the objections made to the MMT JG program, the issue of whether an FE or an unemployed “buffer stock” is more in line with public purpose, and also the issue of whether it’s possible to deal only with “facts” and not with “theories.” In the 14th post, I introduce the idea of the MMT Knowledge Claim Network (KCN) consisting of Social/Value Gaps, Knowledge Gaps (problems), Descriptive Knowledge Claims, Prescriptions, and Narratives. I also argue that the MMT KCN is a fused fact-value network with important value commitments, that it was developed holistically by its originators. that it is not focused on descriptive aspects of economics alone, that it offers explicit value claims, and that it’s normative aspect is clear.

I also argue that many of its practitioners, offer policy prescriptions rather than simply concentrating on the way the world is right now. I note further that the social/value gap, problems, and prescriptive aspects of the MMT KCN are progressive and Second New Deal oriented, and that is why many people who are persuaded by parts of the descriptive aspect of MMT want to do what they can to place these aspects into a secondary role and drive them out of the KCN altogether.

In the 15th post, I offer my view of the current components of MMT in its five categories of knowledge claims as preparation for the concluding 16th post in the series, which answers the questions I posed at the beginning of the series; namely:

– What is part of the MMT core right now? and

– how ought we to change it in the future?

Since I finished the series, its importance as a resource was underlined by new posts from Cullen Roche and Mike Sankowski (Trader’s Crucible), and by Cullen’s revision of his earlier paper on MMT which is now an introduction to a new approach called “Monetary Realism.” Here’s Cullen on MMT and MR.

”As many of you now know, the divide within some of the MMT thinkers has grown fairly substantial. The schism over the Job Guarantee revealed several points of disagreement that lead to vastly different conclusions than those espoused by the primary MMT thinkers. Several commenters and vocal proponents of MMT have made it clear that my positions are not those of the MMT economists and founders and are in fact something different. I won’t do the developers of MMT the disservice of pretending that my ideas are completely in-line with theirs. That would only serve to confuse those learning MMT and could undermine the efforts of the MMT developers.

I feel that the core operational aspects of MMT are among the most important ideas in the world and my goal here has always been to help promote those ideas. Because I believe in those ideas I will not stop promoting them. So I’ve been working with Michael Sankowski, Carlos Mucha (who most of you probably know as reader Beowulf) and several others to help formulate our thinking. I’ve also been in detailed talks with Warren Mosler over the last several weeks hashing out some differences. It’s safe to say that we have his blessing even though he’s not 100% in agreement with all we’ve concluded.”

I’m not sure I agree with the claim that Cullen, Mike, and Carlos have “Warren’s blessing” beyond his wishing them luck in pursuing their orientation, which I also have done. Certainly, Part Seven of my series doesn’t indicate to me that they have his blessing in the normal sense of this term, and I also think that no group that departs from the core value of “public purpose” as the goal of Government economic policy would ever have his full blessing.

”Importantly, I want to be clear that I do not view Monetary Realism as a competing idea to MMT. Rather, it is merely the form of Mosler Monetary Theory that I wish to promote (without confusing readers into thinking that I am promoting the exact MMT ideas and prescriptions). After all, Warren is still the father of the theory and it’s incredibly important to note that he is, by far, the most influential thinker in this offshoot of MMT. If anything, I hope that by focusing on the operational realities of MMT via Monetary Realism that I will bring even greater credibility to MMT and its operational realities. The fact that we have differences regarding prescriptive uses, in my opinion, gives the idea even greater credibility. But in the end, it should be clear who gets the credit for these ideas – Warren and the other developers. Monetary Realism is merely standing on their shoulders.”

And Cullen also goes on to state that he has revised his introduction to MMT, so that it is now an introduction to MR. In that paper, he also has added “innovation” and “growth” to the goal structure of MR, and also stated that: “The core value of Monetary Reality is transparency of the global monetary system.” He also states that a new web site is being created to promote MR. Two posts have also appeared at the Trader’s Crucible web site here and here, announcing the new development.

My take on MR is that even though it tries to minimize the differences between MMT and its “offshoot,” these are at the core of the two systems and that if they were not there would be no MR. If MR proponents still accepted ‘public purpose” as the highest level goal in their KCN, and had not replaced it with “prosperity,” if they had not replaced FE with FP as a key second-level goal, then there would have been no split.

The replacement of FE as a goal indicates that MR doesn’t consider a job at a living wage as a right of every individual. That is a huge difference between the two approaches that cannot be minimized, as the MR adherents are trying to do.

Beyond these explicit differences there is the further implicit difference that the MMT commitments to public purpose and to FE are commitments to greater equality in American and global society. The abandonment of FE and the JG suggest that the MR proponents are much less concerned about social and economic justice than are the MMT founders and others who practice the MMT approach. In a time when democracy is threatened by plutocracy throughout the world, that difference between the two approaches is fundamental and will shape their future development.

In the future, I’ll try to clarify further the differences between MMT and MR and illuminate some of the foundational problems of MR that are already apparent.

The various posts in the series have been previously published on this blog. In addition, the series is available in blog book form with convenient sequential links among the various parts of the series.

The Job Guarantee and the MMT Core: Part Sixteen, Conclusion

7:00 pm in Uncategorized by letsgetitdone

This is the concluding post in this Job Guarantee and Modern Monetary Theory (MMT) series. After evaluating the specifics of the posts by John Carney and Cullen Roche criticizing the MMT Job Guarantee (JG) proposal in the first 13 posts in this series; in the 14th post I introduced the concept of the MMT Knowledge Claim Network (KCN) consisting of Social/Value Gaps, Knowledge Gaps (problems), Descriptive Knowledge Claims, Prescriptions, and Narratives. I also argued that the MMT KCN was a fused fact-value network with important value commitments, that it was developed holistically by its originators. that it is not focused on descriptive aspects of economics alone, that it offers explicit value claims, and that it’s normative aspect is clear. I also argued that many of its practitioners, offer policy prescriptions rather than simply concentrating on the way the world is right now. I also noted that the social/value gap, problems, and prescriptive aspects of the MMT KCN are progressive and Second New Deal oriented, and that is why many people who are persuaded by parts of the descriptive aspect of MMT want to do what they can to place these aspects into a secondary role and drive them out of the KCN altogether.

In the 15th post, I detailed my view of the current components of MMT in its five categories of knowledge claims as preparation for this post, which will answer the questions I posed at the beginning of the series; namely

– What is part of the MMT core right now? and

– how it ought we to change it in the future?

How Do we Tell What’s Part of the MMT Core Right Now?

I think the way we do this is to read the literature produced by the founders and their students, look at their videos, presentations, graphics, listen to audios, and then make an assessment about the components that capture most of their attention. In addition, one should look at writers who’ve entered the field after the founders and see where they are focused. But, of necessity, their concerns will initially have less weight simply because they haven’t defined the direction of the MMT movement, and will be viewed as proposals for changing it, to be evaluated by others.

So, what is the core of MMT right now? My assessment follows.

Social/Value Gaps:

– The goal of public purpose as a general organizing ideal;

– Closing the output gap;

– Closing the employment gap;

– Achieving price stability; and

– closing the gap between the minimum wage and a living wage.

I think these goals are part of the core because of their intrinsic value. And also because, if we reach them the MMT founders think the other social/value gaps will be greatly alleviated.

Knowledge Gaps/Problems: All the problems listed have solutions relating to the core social/value gaps, so all of them are part of the core.

Descriptive Components: All of these either are, or contribute to, solutions of the problems listed earlier, which, in turn, are related to the core social/value gaps.

Policy Prescriptions: Most of the policy prescriptions offered by MMT founders are core to MMT because they are closely related to the goals of Full Employment (FE) at a living wage, at least, along with Price Stability (PS). According to MMT, moving the Fed under the Treasury isn’t essential to FE/PS, or to getting around monetary constraints imposed by Congress. Proof Platinum Coin Seigniorage (PPCS) can be used to get around constraints on debt limits. It can also be argued that ending debt issuance isn’t essential even if PPCS isn’t used, as long as Congress gets rid of statutory debt limit constraints.

We can also say that: fixing the health care system, the energy crisis, and the housing crisis, are not, in themselves part of the MMT core because FE with a living wage and PS don’t require these proposals. However, a counter-argument to this is that all three categories of proposals are essential elements of Public Purpose, that they are part of the MMT core for that reason. This line of argument also suggests that such items could easily be added to the core if MMT writers start paying more attention than they have so far to these three issues.

Narratives: All of the narratives named in Part Fifteen are part of the MMT core, because they set the context for MMT’s descriptive components about how the financial system relates to Government fiscal and monetary policy.

How Should the MMT Core Change Over Time?

The posts by John Carney and Cullen Roche calling out the MMT Job Guarantee proposal raised the issue of what’s in the core of MMT, and also the issue of change in MMT’s knowledge claim network. How should MMT change over time?

Carney and Roche both delivered criticisms suggesting that the JG wouldn’t create FE and PS, but suggested that various unanticipated side effects would make the program unsuccessful. I replied to those criticisms in earlier posts in this series. But the significant point here, is that the first line of attack was to question whether the JG would be effective in meeting the MMT objectives. So, their objective was to move the JG out of the MMT core by refuting it through argument.

This is a THE BEST way of attempting to change the MMT knowledge claim network, but one has to present evidence that really calls the JG or any other conjecture one is trying to refute into question.

Carney and Roche, also tried to question Full Employment and Price Stability as appropriate goals for MMT. In doing this, they never mentioned Public Purpose but instead asserted that “prosperity” should be a primary social value that should be realized through attaining “full productivity” (in Cullen’s words). Cullen also claimed that the continued existence of the possibility of unemployment was needed as an incentive to reach “full productivity.”

Without arguing against this view here, it’s pretty clear that this goes after the JG program, by going after the higher level goals that make it desirable. It’s not a criticism of the truth of the proposition that the JG will facilitate FE and PS, but a criticism of whether FE is a desirable goal. Judging from the absence of any mention of public purpose, along with the assertion that “prosperity” should be the higher level goal justifying possibilities that would support the continued existence of an unemployment buffer stock, it also seems to be a proposal to replace “Public Purpose” with “prosperity” as the highest level goal in the MMT fact-value knowledge claim network.

Again, there’s nothing wrong with an attempt to change MMT this way from my point of view, since I think that MMT goals and objectives should be just as subject to criticism as its causal or prescriptive statements or designations of problems. However, in raising such questions, critics should be very direct in what they’re doing and should explain why they think that “public purpose” should be subordinate to some other high level goal such as “prosperity” and why prosperity is better served by an unemployed buffer stock rather than a fully employed one. Also, if they still consider “public purpose” the highest level goal in the system, and also think that “prosperity” is a better way to achieve it than FE with PS, then I think that they have to explain why that is and subject their views to critical attempts at refutation.

In his post on the difference between “theory” and “fact.” Cullen Roche says:

“. . . . we should focus on giving the world a better understanding of modern money by focusing on the proven factual pieces of MMT (monetary operations, monopoly supplier function, etc). If we offer policy proposals then that’s fine, but that’s secondary. I would expect the MMT economists to do that and it should be encouraged that they use their expertise in doing so! . . . ”

I think Cullen is here on the point of suggesting that MMT should restrict its core to those components in its descriptive category that he considers to be “fact.” John Carney also seemed to be suggesting something similar in his posts on MMT. He likes MMT’s description of fiat monetary operations, but he doesn’t like its policy proposals. So, he’d like to broker closer relations between Austrians and MMTers. But to do that he’d like to change MMT by restricting its core to its description of monetary operations, and ignore its social/value gap, knowledge gap, descriptive theoretical, and policy components. So, he wants to change MMT by cutting most of its core components out, so that Austrians and MMTers can agree on something.

This, however, isn’t a legitimate way to evolve MMT, while still retaining its identity. You can’t take a KCN, eliminate its social/value gap, problem, much of its descriptive theoretical, and also its policy context, and still claim that it is the same system, simply evolved over time.

For better or worse, MMT has a core that cross-cuts all of its categories of components. It can be changed, while maintaining its identity, by refuting claims in any of its five categories of components. But if one changes it by eliminating whole categories of components, or by changing the core aspects of its social/value gap or problem components, or the core aspects of its descriptive and policy components, then it is simply not the same KCN, framework, or approach, anymore

When Cullen Roche and John Carney critically evaluate the JG on grounds that it will not work, the kind of change implied by that kind of criticism is the right way of “evolving” MMT. Even their criticisms of Full Employment and “Public Purpose,” though more far-reaching in their implications for MMT’s KCN and its identity, may, perhaps, still not be so significant as to change its essential character. But at some point, a pile of sand grains becomes a heap, and likewise, a proposal about how to evolve MMT becomes not a proposal for its evolution, but a proposal for its replacement by something entirely different.

This is the case with the proposal that MMT be restricted to a core of descriptive propositions that Roche and Carney think are “facts.” Such a proposal simply rips MMT out of its entire developmental context, as well as the heart out of MMT, and the resulting network is no longer Modern Monetary Theory at all, but something offering an entirely different understanding of the world and how we ought to act in it.

The Job Guarantee and the MMT Core: Part Fourteen, MMT Is A Holistic Knowledge Claim Network

7:44 pm in Uncategorized by letsgetitdone

The recent extensive blogosphere discussion on the JG and the MMT core began with a post by John Carney that stated his opposition to the Modern Monetary Theory (MMT) Job Guarantee proposal and claimed it either wasn’t an essential component of MMT, or that if it was, then MMT was wrong. Cullen Roche, a well-known popularizer of MMT at his Pragmatic Capitalism blog then asserted:

”It’s not that I think the JG “cannot” be a component of MMT (Bill drew a very clear line in the sand saying that the JG is “central” to MMT and not “peripheral”), but that our knowledge, understanding and implementation of modern money need not involve the JG. The JG might be central to the idea the founders had when creating MMT, but that just means it’s central to the original concept of MMT as they saw it. . . .

This is true as far as it goes. But, it’s also true that the JG is still part of the MMT core, because MMT is committed to Public Purpose, the MMT developers have tied Public Purpose to Full Employment (FE) and Price Stability (PS), and the best knowledge we have at this point, after years of study of the JG, is that in the context of a program also specifying full payroll tax cuts and State revenue sharing, it is the policy that is most likely to produce FE and PS.

But Cullen is proposing that the JG should no longer be considered part of the MMT core because:

. . . they have by no means proven the JG to be the optimal usage of the government’s monopoly currency supplier powers (despite substantial evidence and persuasive arguments) . . . . and in fact could come at substantial long-term cost. Instead, I think there are better options which can also lead to price stability and full employment.”

In earlier posts in this series I’ve criticized the specifics of Cullen’s and also John Carney’s arguments against the JG, and, I hope and expect, that I’ve shown that there is little merit to them, and that they mainly consist of pointing to low likelihood side effects of the JG, disagreements with the objectives of FE and PS, and apparent lack of concern for the overall goal of Public Purpose.

Here I’ll add that MMT writers can’t possibly “prove” that the JG program is “the optimal usage of the government’s monopoly currency supplier powers”, because they’d have to prove that a better policy than the JG can’t be formulated, and proving this would be proving a negative, an impossibility.

Of course, it’s possible to “prove” that the JG program is not optimal for its purpose, since this can be done by proposing a single policy that works better than the JG. However, my previous posts have shown that rather than come up with such a policy, Carney and Roche have offered reasons why they think the JG won’t work, and then have moved on to attack the objective of Full Employment with Price Stability as less desirable than other goals, in Cullen’s case the goal of “prosperity” through “full productivity,” which Carney later concurs with.

My purpose now, however, is not to rehearse my earlier critiques of the views of Carney and Roche. It is to address the more general and important issues of how the core of any approach to economics, including MMT, emerges; what is part of the MMT core right now; and how such a core ought to be evolved over time. I’ll begin in this post by introducing the idea of holistic knowledge claim networks in economics and its general implications for what should be included in such networks and MMT’s knowledge claim network. My next post, will present my assessment of the components of the MMT network right now, and the concluding post in the series will state my view of what’s in the MMT core right now, and how MMT ought to be changed in the future.

The Knowledge Claim Networks of Economics Emerge Through Iterative, Incremental Value-impregnated Decision making

It’s worthwhile to reflect a bit on how economic Knowledge Claim Networks (KCNs) — networks of statements about the way the world is, works, ought to be, will be in the future, and how knowledge of it can be developed — for research and policy emerge.

First, the people who form them come to the task with ideas about the differences between the world as it is and the world as they want it to be. Let’s call these the social/value gaps motivating activity.

Gaps like these always exist. People meet them with action when they know how to close them. Where they think they need more knowledge to close them, they consider which social/value gaps accompanying these knowledge gaps (“problems”) they see are important enough to devote their attention to, and which aren’t worth their effort to try to close.

A choice like this, the selection of a knowledge gap to be addressed and closed, requires a decision, relying on the values people hold and the importance they attach to those values. There is nothing value-free or value-neutral about a decision. If an existing social/value gap seems particularly important to people, and if they have the resources to address the knowledge gaps associated with it, then they will select those as “problems” to be solved by the KCN, they will be creating.

Once problems are selected, the people formulating a new KCN create and select the categories, conceptual frameworks, hypotheses, models, facts, data, and “theories” that they will use in creating the solutions for those problems. Some of this activity will occur in conjunction with their attempts to formulate and choose the problems they will address, or activity in this area may motivate them to return to problem formulation and selection activity.

In other words, there’s no hard and fast temporal distinction between defining problems, conceptualizing and formulating categories and arriving at hypotheses, facts, models, etc that people use to solve, or try to solve, problems. The conceptual distinction between these different types of activities is important for understanding and analysis, but it doesn’t indicate that distinct stages, unmarked by overlaps and feedback relations exist in the actual process of creating a KCN in economics.

It’s important to notice, as well, that this process of conceptualizing categories, frameworks, theories, etc. is in no way a value-free process. Of course, it’s constrained by one’s ideas about what the important knowledge gaps are. So, the values affecting the problem phase of development certainly pass through to this one. But, additionally, when one considers that formulating categories, frameworks, theories, etc. always involves consideration of multiple alternatives of each of these things, then it’s also clear that there are decisions in other parts of the process of inquiry that values must effect. The formulations that intrigue people, that use categories resonating with them, that seem to speak to their moral and ethical concerns, or reflect on them, will certainly effect decisions people make about what theories, models, etc will be selected for attention in later investigations and testing.

Objectivity here is about fairness — the willingness to consider major conceptual frameworks (including value propositions), theories, and hypotheses bearing on a particular problem or problems that compete with and contradict each other, regardless of which alternatives one wants to consider. There’s also a balance between the need to cut down on all the competing notions that might be considered to a set of manageable alternatives, while still emerging with a set of competing theories that is reasonably complete and doesn’t exclude serious formulations that might prove to be true (from the descriptive standpoint), or legitimate (from the value standpoint).

The objective of this phase of the process is ending up with a fair comparison set of KCNs and their accompanying theories, hypotheses, data, etc. But there is never any guarantee that one has done so. It’s like the idea of maximizing profits in a business. One may try do that, but one can’t possibly tell whether one has failed after the fact, until others or yourself come up with counter-examples showing missed opportunities for making greater profits. On the other hand, if there are no counter-examples, that still doesn’t mean one has succeeded. That, you’ll never know, because nobody can exclude the possibility that the necessary counter-example won’t suddenly appear.

After conceptual categories, hypotheses, models, facts, data, and “theories” get formulated then the issues of testing competing formulations arise. In an open KCN situation everything is subject to criticism and refutation including even reconsideration of the important social/value and knowledge gaps. The issue here is arriving at a KCN that has been most successful in meeting critical attempts at refutation. It’s not ideological defense of it against all comers as a lawyer would defend a client that counts. Instead, what’s important is subjecting it and the alternatives to it in the fair critical comparison set, to the strongest attacks possible to see if the KCN is strong enough to withstand “the slings and arrows of outrageous fortune.”

When people do that they are generating their new KCN using a fair critical comparison process. To the extent they fail to meet that standard, the resulting KCN is likely to be of lesser quality and to have less adaptability to the challenges it will inevitably face. Of course, in reality, most approaches don’t emerge through a process of fair critical comparison. They deviate from this ideal in varying degrees.

But whatever the deviation, the main point is that even if the ideal of fair critical comparison is approached very closely, the process of critical evaluation still involves value judgments because decisions choosing one approach over its alternatives always involve value judgments about whether the critical grounds for preferring one alternative over all the others are strong enough, and whether the risks of selecting that alternative are low enough that one is making the best decision one can in choosing to rely on the KCN one ends up selecting.

So, there’s no escaping value judgments in arriving at KCNs in economics whether or not one is trying to be objective. Not that objectivity in a meaningful sense is impossible. I’m NOT claiming that. But, I am saying that value neutrality is impossible. It is a sham that denies the reality of the need to make decisions in developing knowledge including new KCNs in economics.

Our real choice in describing a particular KCN is whether we want to view and evaluate it only in terms of its descriptive aspects or whether we want to view and evaluate it as a holistic knowledge claim network, a fusion of fact and value claims, including social/value gap, problems, conceptual frameworks approaches, theories, models, measurement models, data, narratives, policy prescriptions, data, and also the whole track record of criticism, evaluation, and testing of various aspects of the network. I think the growth of knowledge is better served by a holistic approach that subjects everything to continuous criticism and evaluation, rather than an approach that restricts evaluation to the descriptive aspects of a KCN, considers a portion of that aspect of the network its core, and “pins down” the rest of the network as beyond criticism, evaluation, and test because it is assumed as a given.

So, the KCNs that emerge from the interrelated sequential and sometimes iterative decision making processes that produce them, assume not only singular and universal knowledge claims about the world, but also knowledge claims about intrinsic and extrinsic value. Such KCNs also contain prescriptive knowledge claims that combine claims about value with claims about the way the way world is and works. To understand those networks we have to understand all three. The value claims, the claims about the world, and also the prescriptive claims combining the two.

So What?

I’m sorry about all the meta-theory in this post, but I think I need it to make some very important points:

First, even though one can state a purely descriptive KCN in economics, that network will be taken out of context and so will be incomplete. Specifically, it will be missing

1) the context of value assumptions accompanying selection decisions relating to social/value gaps, knowledge gaps, hypotheses, models, theories, measurement models, and data;

2) the prescriptive propositions combining the descriptive and value portions of the KCN; and

3) any narrative or historical context that isn’t purely descriptive but contributes to the understanding of the KCN.

Second, one can’t easily decide what parts of the descriptive aspect of the KCN are at its core, if the value, prescriptive, and sometimes even the narrative portion of the network are missing. The reason for this is that some descriptive knowledge claims may not seem central to the KCN unless one can see their relationship to the value, prescriptive and narrative components of the network. That is, the full context of the descriptive portion of the network may be necessary to assess what is important to the full network and what is not.

– So, people having access to the descriptive portion of the network may decide to deemphasize development of parts of it that are not as interesting to them as other parts of greater theoretical interest.

– Or they may import their own private values into decisions about the way in which the network ought to be developed.

– Or, most importantly, they may fail to include attributes, properties, or variables in the network that are critical from the viewpoint of anticipating/measuring/evaluating side effects of private actions or public policies based on the purely descriptive “knowledge” offered by the network.

– Or finally, people developing the descriptive part of the network by testing and selecting among theories and hypotheses, may not be able to assess the relative risk of error in accepting a hypothesis or theory in preference to its competitors.

Third, decisions about what parts of a KCN are part of the core will be heavily affected by one’s value perspective on the network. In the history of science, the effort to banish values from inquiry and to isolate the descriptive aspects of science from the value and prescriptive aspects has resulted in people importing their own values into scientific processes and outcomes without being explicit about what their value knowledge claims are. These claims influence inquiry and its outcomes without having to face criticism, evaluation, and refutation.

In particular, they often result in decisions to write certain elements out of the descriptive aspect of the KCN because their implications may conflict with or expose implicit value commitments that people don’t want to fight about. The result of all this is greater subjectivity in inquiry than would be the case if value knowledge claims were explicit and their relationship to prescriptive knowledge claims was easily traced. The further result of it is the growth of unbalanced KCNs whose descriptive aspects are developed in distorted ways, whose value and narrative aspects are very under-developed, and whose prescriptive aspects are very partial, ignore consideration of side effects, and are all about continued vulnerability to “black swans.”

The MMT KCN has been developed holistically by its originators. It is not focused on descriptive aspects of economics alone. It offers explicit value claims, it’s normative aspect is pretty clear. Many of its practitioners, offer policy prescriptions rather than simply concentrating on the way the world is right now. In my next post we’ll take a look at its components. But for now, I’ll note that the social/value gap, problems, and prescriptive aspects of the MMT KCN are progressive and second New Deal oriented, and that is why many people who are persuaded by parts of the descriptive aspect of MMT want to do what they can to place these aspects into a secondary role and drive them out of the KCN altogether.

The Job Guarantee and the MMT Core: Part Thirteen, John Carney Is Full of Talking Points and That’s Polite

3:47 pm in Uncategorized by letsgetitdone

In a piece called “More Questions About the Job Guarantee,” John Carney provides some links to the continuing debate on the Job Guarantee (JG). All the links are to posts critical of the JG idea except a link to one of my four posts critical of Carney’s earlier work and supportive of the JG. The four posts are all at Daily Kos, but also at MyFDL,, and The links are here, here, here, and here.

Here’s Carney’s casual take on my critical efforts:

4.Over at Daily Kos, I get taken to task for “bias towards private sector employment.” Well, yes. I certainly do have a bias toward that.

But, as Randall Wray’s comments to Roger Mitchell make clear, so do the MMT economists. So does everyone who knows anything about economics and politics. Except, it seems, this guy at Daily Kos.

Well, thanks John, for noticing I’m out here. I’m glad you’ve deigned to notice. Too bad you’re too busy to pay attention to a pretty comprehensive critique of your entire position, though.

But wait, I forgot that the best way for a guy like you to handle a guy like me is to throw a little ridicule my way and never, never discuss the real issues I’ve raised.

Your coverage here ignores all the issues I’ve raised in the four posts, except my charge that you’re biased towards private sector employment, and it’s easy for any reader who checks out the link to see that your answer to that charge is completely inadequate, considering the context of my criticism and its full detail.

I’ll quote that charge with its full context of quotes from you and my replies, so everyone can plainly see how ridiculous, superficial, and inadequate your little drive-by reference is.

Does the JG Really Solve the Mismatch Problem?

”The Job Guarantee gets around one of these problems: it guarantees that anyone who comes to the government employment office ready, willing, and able to work will be able to get work for pay and benefits. The problem of mismatch is seemingly solved since the government will just supply the demand for something the unemployed can do. Direct hiring works better, in this sense, than trying to jigger the knobs of monetary policy.

But is the problem of mismatch really solved? I do not think it is.

The jobs created under the Job Guarantee are specifically not supposed to compete with the private sector, which means that they supply goods and services for which there is not a market demand. The total output of the economy might increase, but much of this output is non-productive—that is, it doesn’t actually improve our lives.”

Comment: This statement really reflects John Carney’s bias towards private sector employment, and is simply ridiculous and outrageous on its face! We all know that Government work produces valuable goods and/or services that improve our lot in life, everyday. We also know that a lot of Government work is valueless or produces negative real value. But we can equally well say the same things about private sector work. Much of it has zero or negative real value from the viewpoint of those of us who aren’t getting paid for doing it, and I won’t trouble to even provide the very obvious examples of this. There’s also much private sector work that adds real value to our lives and is well worth doing.

My point is that whether JG work produces real value has nothing to do with markets or whether businesses in markets believe they can make a profit from certain kinds of activity. But it has everything to do with whether Americans are likely to and, in the event, will value the goods and services produced by JG work. Whether the output of the JG program is “productive” will be judged by the people that will or will not benefit from it, and not by the private sector market that it will not be competing with.

“Now some people will say that this is fetishizing the market. Aren’t there things that improve our lives other than what the market will pay for? I don’t want to argue that there are not. I do not think, for instance, that these days we could pay for the Sistine Chapel but our lives are greatly improved by its existence. The problem is that there is no reason at all to think that people laboring in Job Guarantee positions will supply meaningful improvements rather than holes in the ground.”

Comment: I’m sorry, but the quote just before the disclaimer does “fetishize the market.” It clearly does make the a priori assumption that what the market values is much more valuable than what the political system or society or people value. And this is a generalization that John Carney cannot establish with any scientific tests or data. It is an ideological view coming out of Austrian economics and Randian ideology. It is not an assertion that should be taken at face value.

Actually, also, contrary to John’s view, there is plenty of reason to think that people laboring in JG positions will add value to the economy. We know that many non-profits add value to American life. We know that New Deal project outcomes added lasting value to American life and continue to do so. We also know that many government activities add value today. But, most importantly, we have plenty of reason to believe that the people who run the JG program will be able to design it so that JG workers will be very likely to produce value. We have the years of research on the JG by MMT researchers to show that many good ideas already exist for JG projects that have value. All we have to do to assure ourselves that this is true is to read that literature.

I know that John says that he has read the MMT JG literature and that he hasn’t any reason to believe that value will be produced, so he wants to be cautious before implementing the JG. But I’ve read that literature too, and I totally disagree with John and think his view is colored by the bias I called attention to above. He is predisposed to think that the JG cannot add value, so therefore, no examples of projects that might produce value will persuade him.

I can’t say for sure whether this view of mine about John is right. To see whether it is, readers of this post should read the MMT literature themselves and decide. Don’t take my word for it, and don’t take John’s. Decide for yourselves! I’m confident that you will decide that John’s claim that “The problem is that there is no reason at all to think that people laboring in Job Guarantee positions will supply meaningful improvements rather than holes in the ground,” is just false.

“The Job Guarantee folks seem to think that there are plenty of meaningful jobs that aren’t getting done but that could be done by the unemployed. I don’t think this is correct. In fact, I cannot really think of many at all. Sometimes things like caring for the elderly or constructing bridges and roads are nominated as candidates. But these are not jobs that can be done just by anyone. They require a certain sort of person with a certain set of skills. Most jobs do.”

Comment: This is the same claim as the one made above. Read the literature! Decide for yourself! It’s easy to think of productive work for people to do. I’ll bet you can do it for yourself. Here’s one, start a JG project to provide the SEC with 50,000 new investigators to ferret out the control fraud in the private sector that led to the crash of 2008. That one will certainly add value to American life; specifically a value it is lacking now – namely the value of justice and fairness under the law. Of course, the 50,000 new investigators will need some training; but I suspect Bill Black could design a brief educational program teaching the basics of investigation that wouldn’t require more than two weeks of intensive training to complete.

There’s a lot more critical evaluation in the rest of that Part Five post and also in the other three that Carney chooses to ignore. But as the title of this post says, his effort to criticize the JG is full of talking points and no serious reasoning. It is highly ideological, and is simply an attempt to cut a very important plank out of the MMT policy platform. The JG policy in the context of other MMT proposals like the full payroll tax cut and State revenue sharing is intended to produce Full Employment and Price Stability in the broader context of practicing economics for the public purpose.

Carney’s real problem is that he neither believes in public purpose nor in FE with PS. His attack on the JG is just a way of getting at these higher goals and objectives. John Carney wants MMT to merge with Austrian economics to create an alternative to neo-liberalism that he likes. The real problem with MMT is that if its historical values, prescriptions, and policies remain in place, then he won’t be able to get that done. MMT, as it now stands is progressive economics whose normative orientation is the same as John Kenneth Galbraith’s. Carney needs to change that to get his new synthesis.

The Job Guarantee and the MMT Core: Part Twelve, Theory and Fact

8:17 pm in Uncategorized by letsgetitdone

Cullen Roche continued his extensive and multi-faceted critique of the Job Guarantee policy and the Modern Monetary Theory approach to economics with a piece attempting to distinguish “theory” and “fact.” His piece is based on the common sense idea that there’s a distinction between them, and Cullen tries to use it in his argument. There is, but, unfortunately, the common sense notion of the distinction has long been put aside in the philosophy of science, and in most of the sciences a decade or so later, because of its incoherence. So, in using it, Cullen’s argument shares this incoherence.

The “Theoretical” and Something Else

“. . . . It is my responsibility to stick to what my message has always been and that is offering readers a clear understanding of the world we live in. . . .

This is an admirable goal, but, in stating it, I hope Cullen realizes that “a clear understanding of the world” doesn’t only include understanding the events and sequences of events that have occurred, or are now occurring in the world, but also includes an understanding of the way the world works. Inevitably, understanding how the world works involves understanding how the systems within it work, and understanding the different kinds of causal and non-causal relations and the dynamics that occur within it. Those relations are descriptive in character, and may even be called “factual” if they correspond in some meaningful sense with reality. But they are not “facts” in the sense they are particular events with specific spatio-temporal locations that are described using singular rather than universal statements.

. . . There are parts of MMT that do that and there are parts that are slapped on as nothing more than policy fixes. The latter is a clear theoretical part. And yes, the JG is ENTIRELY theoretical (which could be ENTIRELY right – I don’t know).”

My problem with this characterization is its attempt to distinguish the parts of MMT that offer a clear understanding of the world and other parts that “are slapped on” and are “nothing more than than policy fixes,” on the basis that the first part is not “theoretical,” while the second part is clearly “theoretical.” And the further notion that the JG is “ENTIRELY theoretical.” I say this characterization is “incoherent” because no radical distinction can be made between the “theoretical” and the “non-theoretical” in attempts to offer narratives about the world. I also say that the “theoretical” parts of MMT come down to the parts that Cullen doesn’t agree with and the “non-theoretical” “factual” parts come down to the parts of MMT he likes.

That “theories” and “facts” (in the sense of statements of fact) aren’t separable, has been widely recognized beginning, at least, with Popper’s Logik der Forschung, published in 1934 in German, and published in English as The Logic of Scientific Discovery in 1959. Since then, Popper extended his argument further, in many of his own publications in opposition to logical positivism and logical empiricism, and his views on this were famously adopted by Paul Feyerabend, Thomas Kuhn, and many other philosophers of science in the 1960s, and then became dominant throughout the sciences in the 1970s, and since that time.

Stated briefly Popper’s argument is that a singular statement about a particular of fact “uses universal names (or symbols, or ideas).” (See pp. 94-95) These universal names involve theoretical commitments (See p. 95), For example, if you make a statement about a “glass of water” you’re talking about “a physical body that exhibits “certain lawlike behavior,” and you can’t even understand that statement unless you understand something about how “glasses” filled with “water” behave (See pp. 94-95). In short, “theoretical commitments” and assumptions pervade our descriptions/interpretations of fact, (pp. 423-424) and we can only construct the facts by making such assumptions. MMT descriptions of how the monetary system operates also involve theoretical commitments, interpretations, and assumptions. For these reasons, it is just wrong to say or imply that the parts of MMT describing monetary operations are non-theoretical, while other parts that deal with the JG are “theoretical.”

So, you can’t say, I will accept one part of MMT because it’s non-theoretical and reject another part because it’s “theoretical” either partly or “ENTIRELY.” Instead, you always have to address the specifics of the theory in the various parts of MMT, and try to test and refute theoretical proposition you find questionable. Cullen has tried to do that in connection with the MMT hypotheses that the JG will work to create full employment with price stability. In previous posts, however, I’ve considered his various arguments, and given reasons why I consider his theories about this issue to be false.. My point here, however, is that both Cullen and the MMT theorists are theorizing when they write. They may agree that certain sets of propositions describe facts, the way the world really is, and so are true. But where they disagree about the descriptive aspects of MMT, both sides are disagreeing about “facts” as they are theoretically interpreted, or about factual things like the way the world works. There is nothing “factual” that is not also “theoretical.”

Cullen’s attempt to separate “theory” and statements of “fact,” reminds me of the creationists’ attempts to emphasize that “evolution” is just a theory, and not a fact. Evolution, is a theory, and, in fact, it may not be true. But, people have been trying to refute evolution since Darwin advanced the theory in the 19th century. All those attempts have failed, and, in addition, there is much evidence that corroborates the theory and refutes the narrative about creation in the Bible, and many other versions of creationist theory. So, as far as we know, given our best present knowledge, while evolution is a “theory” it is also a “fact,” showing again that the kind of distinction Cullen is trying to make between the “theoretical” and something else, is invalid.

Selling MMT?

Cullen objects to the views of the MMT economists by saying:

“If the MMT economists want to sell MMT and “modern money” as part of a massive government labor program then that’s fine. It’s my opinion that no one in the world needs to understand large government labor programs in order to understand modern money. Instead, I think we should focus on giving the world a better understanding of modern money by focusing on the proven factual pieces of MMT (monetary operations, monopoly supplier function, etc). . . . .”

As in many of his previous posts criticizing MMT’s emphasis on the JG as part of its core, Cullen misconstrues and mis-constructs what MMTers are saying and also shows political bias in his formulation of the issues. First, When MMT writers advocate for the Job Guarantee program they are proposing part of an MMT program for recovery and for strengthening the safety net of automatic stabilizers of the economy that they think will work. Selling that prescription is a separate issue. The primary issue first, is whether their prescription will help to achieve full employment and price stability. That has to determined first — then you worry about “selling it” or “messaging it”.

Second, MMT writers are not proposing to have “a massive Government Labor Program,” in the sense of a massive expansion of the Federal Bureaucracy, they are proposing an addition to the social safety net in the form of millions jobs that will be funded by the Federal Government but that will be performed for community non-profits, States, and local governments. Also, the size of that jobs program will vary radically with the business cycle, whose swings it will contribute to moderating and stabilizing. In calling the JG a massive Government Labor Program, Cullen is just formulating the issue as the opponents of the JG would formulate it for political purposes. He is just giving them the “framing.”

We will not do that, we will deny the frame and we will frame the unemployment buffer stock as unnecessary and inhuman, as an instrument of 1% and Wall Street control and oppression, and as just the same old trickle down that has been making the rich richer and the poor poorer for more than 40 years. I think we’ll win the battle between those political frames, as we won a similar battle in the 30s and the 40s of the last century.

Third, no one is saying that everyone has to understand all the details of the JG in gaining a basic understanding of Modern Money. All the MMT writers are saying is that people need to understand is that price stability requires a buffer stock and that our current choices are mainly between an unemployed and an employed buffer stock being paid a living wage with good fringe benefits. Guess which choice the public ends up favoring if they want price stability? Guess which choice they’ll favor if they want full employment? Guess which choice they’ll favor is they want a return to prosperity?

Fourth, Cullen talks about the “proven facts” of MMT and teaching people about those instead of the JG. But what actually is “proven” in the sense that it is 100% certain? Is there anything about MMT that is 100% proven? Some may say that the sectoral balance model is an accounting identity, so it’s “proven.” However, the sectoral balance model isn’t important because it’s an accounting identity, and that status doesn’t mean that it’s been “proven” as a model explaining and predicting “facts”.

It’s important because its factual interpretation in real world terms shows that the data we gather to test it (Scott Fullwiler, please note) never refute the factual interpretation of this identity. In other words, it’s not the sectoral balance accounting identity that counts. Instead it’s the sectoral balance financial model, which, along with its empirical interpretations, constitutes an empirical theory about the macro-economy that counts because it’s falsifiable. And that MMT theory isn’t “proven” in that sense that it is certainly true, though as far as we know from the data, it isn’t false, and may well be true.

On the other hand, take the JG proposal. As Cullen rightly says, the part of MMT that says that combining the JG with payroll tax cuts and State Revenue Sharing isn’t proven. But it’s also not been tested, and so, it too, may be true. However, facts bearing on the Job Guarantee proposal, like the direct job creation efforts here in the 30s, the Jefes program in Argentina, the current experience in Hungary, don’t refute that part of MMT theory. And since the JG has never been tested in the larger context of an MMT economic program like Warren Mosler’s or Randy Wray’s, the MMT theory about its likely effectiveness has also never been refuted. So, the JG idea, as far as we know, is promising, especially compared to the unemployed buffer stock, whose side effects we know very well are extremely harmful to much of the population.

So, why not teach people about the JG? Why are we doing MMT anyway? To teach people only “the facts” everyone who says they are part of MMT agree on?

What will people do with such knowledge? They will only use it anyway to go beyond that knowledge to use what they think are its policy implications in their own work and lives. Will their theories about the effects of MMT policies be better than ours? Will they be better than theories about the JG whose implications have been explored for many years by MMT economists?

Well, that’s certainly a possibility. But the likelihood that these theories won’t be, is very high. And the likelihood that an MMT recovery program based on payroll tax cuts, state revenue sharing, and other traditional stimulus measures, along with spending targeting productivity, will be more effective in creating full employment and price stability than Warren’s, or Randy’s, or Stephanie Kelton’s, or Pavlina Tcherneva’s MMT-based policies including the JG is also low, because such a program won’t add anything to the automatic stabilizers. Of course, it may produce better results on the productivity dimension of economic change. But if that’s true and we want to directly target productivity increases by including spending for that in an MMT-based recovery program, then I don’t see anything in MMT that bars its inclusion.

Operational Aspects of MMT?

Cullen likes to talk about the “operational aspects of MMT” and the notion that it’s policy proposals are “secondary”:

”. . . . If we offer policy proposals then that’s fine, but that’s secondary. I would expect the MMT economists to do that and it should be encouraged that they use their expertise in doing so! But the JG is a very clear case of embedding a policy proposal on top of operational aspects of MM(t) . . . .

Hmmm, “. . . embedding a policy proposal on top of operational aspects. . . .” What does that mean exactly? Well MMT provides an account of the nature of our fiat money system, how the Government relates to the banking system and actually creates and destroys money and net financial assets in the private sector, how the banks create money, but no net financial assets, how the Consolidated Government can and does control interest rates, a theory about the origin of money, a theory about the causes of business cycles, an account of Governments that are sovereign in their own currency differ from Governments that lack or have given up that currency, how all this relates to international trade, theories about how international bond markets and ratings agencies relate to national governments, both those who are currency sovereigns, and those who are just currency users. In addition, MMT economists have drawn policy implications from these theories, about how Governments with currency sovereignty can recover from the crash of 2008 and provide for full employment and price stability in the future.

Now my question is, what is the method by which I and others can tell, which parts of this mosaic are “operational” and which are not? Are all policy proposals “not operational”? If so, how about policies that are currently in place, like not allowing the Treasury to run a negative balance at the Federal Reserve? That’s a current policy. Is it also not “operational”? If not, then what do we mean by “operational?” If so, then why is a policy currently in effect about “operations”, but a policy which is an alternative to that not about “operations”?

Moving along, perhaps by the “operational” aspects of MMT Cullen means to include only its narrative about monetary operations, the Government’s role as a monopoly supplier of currency, and also any monetary policy that flows from this, but mean to exclude any current or future fiscal policies from the primary focus of MMT, and simply view them as secondary. While I recognize that this may be a clear distinction that could be made, I don’t think he’ll find broad agreement among people in the MMT movement on this sort of a distinction. Especially since most MMTers seem to think that fiscal policies are much more important than monetary policy in determining economic well-being.

In any case, my purpose in the above isn’t to put words in Cullen’s mouth, It is to point out that the distinction between the “operational aspects” of MMT and its other aspects is not an obvious one or easy to make. And if one can’t make it coherently, then his advice about considering the “operational aspects” as primary, and other aspects as “secondary” will be impossible to talk about, much less to follow.

Next, Cullen continues his attempted distinction between the “operational” and “theoretical” or “secondary” aspects of MMT and his attack on the JG policy with this:

In this regard, it really is entirely theoretical and I appreciate and understand that the economists have built it this way. But there’s a difference between reality and theory and educators have a responsibility to very specifically differentiate between the two so as to avoid misleading those they are teaching.”

It’s too bad that Cullen seems unable to take his own advice. As I argue above all of MMT, and every other economic narrative/ideology/approach/paradigm/theory, as well is “theoretical,” in the sense that it is permeated with theoretical assumptions and notions. We cannot say that any of these is ever reality. They are never reality. They are linguistic constructions of human beings.

Now, if you are a “realist” in your epistemology, you may want to claim that your linguistic construct corresponds to reality in some sense of that term. And you can certainly take parts of MMT and say some parts of the body of knowledge claims that is MMT are true, or perhaps closer to the truth, or perhaps more likely than other parts of MMT, and everyone teaching MMT does have a responsibility to do that.

The problem here is that there will be varying degrees of agreement even among MMTers about the parts that are closer to the truth and the parts that are further away from it. So, I think the best way to teach MMT is to teach all the parts of it as simply as we can. Express our individual views and the views of others about the strengths and weaknesses of various parts of it and leave it there. That’s unbiased teaching. It is not biased teaching to leave out the parts of MMT that one doubts and call what remains, MMT. That is partisan, and keeps one’s readers in ignorance.

One final note, if you’re not an epistemological realist, then you’ll make a slightly different argument from the one I just made, but there is no currently viable epistemology that will support Cullen’s argument distinguishing fact from theory. The only kind that will do that is a foundationalist empiricism that few in philosophy or most of the sciences believes in anymore after the withering criticism it received over the period from the 1930s to the 1980s, and continuing to the present.

Descriptive and Prescriptive Components of MMT

In addition to the distinctions he makes between the “theoretical” and “non-theoretical” or “factual” parts of MMT, and also between the “operational” and the “secondary, ”theoretical” parts of MMT, Cullen also has something to say about the descriptive and prescriptive aspects of MMT:

“I had long been under the impression that there were two components to MMT – the descriptive and the prescriptive. Readers had always been perplexed by the name “Modern Monetary Theory” because what I taught them (by removing the JG) did not appear so theoretical at all. MMT has always been described to me as having a descriptive and the prescriptive component, but it is clear that this is not the case. There is only the “theoretical” under the MMT umbrella. And that’s great. I think it’s a fantastic theory (even though I disagree with parts of it). But there’s a big big difference between the theory and the truth. Parts of MMT are entirely factual (the operational aspects, monopoly supplier, etc) and then there are parts that are entirely theoretical (like the JG). I guess the name alone makes that clear enough (though it never occurred to this idiot)….“

In light of the comments I’ve made above, it should be clear that what the MMT writers are saying and also what Cullen is saying are both “theoretical.” Nor can Cullen “prove” that what he advocates is less “theoretical” than what they advocate. But there’s something else about the above quote that glosses over an important distinction.

Cullen starts off by mentioning the descriptive/prescriptive distinction and then denies that MMT has these two components because, he claims: ”there is only the “theoretical” under the MMT umbrella”, as if to say that economic paradigms or approaches can’t have both “descriptive” and “prescriptive” aspects because they have a “theoretical” aspect. But what can this mean?

Doesn’t Political Theory have a descriptive and a prescriptive aspect? Doesn’t policy analysis have both of these two aspects as well as a theoretical aspect? Doesn’t Cullen’s work have all three aspects. I think that it’s very clear from the various posts in this series that his writing does reflect all three, and that he is no different from other MMT writers in that respect.

Cullen goes on to repeat his notions that there’s a difference between a theory and the truth, and that parts of MMT (“the operational aspects)” are “entirely factual” while other parts “(like the JG)” are entirely theoretical. Cullen’s right that there’s a big, big difference between theory and the truth, because many, maybe most of our statements are not true. But he’s got the meaning of this difference wrong. It’s not that “factual” statements are true, while “theories” are untrue. It’s that some descriptive statements are true, and when they are they’re factual, and when they’re false they’re not, even if they purport to be.

Also, as I said earlier, every statement about the world has “theoretical” aspects. So, in some sense every statement about the world is “a theory,” whether or not it’s a universal or singular statement. So, parts of MMT may be true and descriptive, and so, factual, but this has nothing to with whether they are “operational” whatever that may mean, and it also has nothing to do with whether Cullen considers some of them (like the JG) as entirely theoretical, whatever that may mean.

“In my writing I like to stick to the facts even though I am guilty of veering from that goal at times. What you want to do with those facts is entirely up to you. It is not my job to force you to use that understanding in a certain way even though I might, at times, interject my opinion on policy. But what we need to be very clear about in the future is that MMT is in fact theoretical in its current form. I won’t spend my time shooting down MMT because I respect those involved in it far too much. But I won’t be spending my time selling it to readers as though it’s fact. It is in fact theoretical and I hope to use the parts of it that are factual to further the public’s education.”

Translation: I’m going to tell my readers about the parts of MMT that I think are true and I’ll use those “to further the public’s education But I won’t spend my time selling those parts I think are false or don’t like. Instead, I’ll call them “theoretical,” which I think MMT is in its current form.

Well, Cullen that’s just fine. I’m sure no one in the MMT group wants you to advocate for policies that you don’t think will work or those parts of MMT you don’t believe in. Just please don’t label your version of MMT as “MMT,” or tell the rest of us that the JG isn’t currently part of the core of MMT, because we know that it’s currently essential to MMT, and its progressive prescriptive orientation, which following John Kenneth Galbraith might be called Economics for the Public Purpose, and for which a Job Guarantee with a living wage and good fringe benefits is the best policy we know of right now for enabling full employment with price stability.

The Job Guarantee and the MMT Core: Part Eleven, Price Anchor or Price Buoy?

7:22 pm in Uncategorized by letsgetitdone

Is the JG a Price Anchor?

More on Cullen Roche’s claims about the JG, this time a discussion of his price anchor vs. price buoy post.

Let’s begin with:

”. . . This is right in theory and entirely unproven in reality. . . . with regards to the price stability issue, the term “price anchor” is misleading as it gives the impression that the JG can serve as a highly effective way to contain inflation over the course of the business cycle . . . More likely, the JG would serve as a good deflation fighter and only a “soft ceiling” (per Warren) or marginally better inflation fighter than what we have today . . . .”

Cullen also thinks the deflation fighting properties of the JG are not so important because modern governments have become adept at fighting inflation, as illustrated by the fact that the US just had only its first deflation episode in 50 years in 2009. So, he doesn’t think it’s the downside we’re worried about so much as the upside.

He’s right that deflation hasn’t been a concern for a long time now. But, as I recall, Ben Bernanke and Timothy Geithner were pretty concerned about that in the early part of 2009, and they’d certainly become gravely concerned once again, if the banks in Europe would suddenly collapse, or if any “black swan” bringing the banking system to the brink of solvency suddenly hit the economic system.

With respect to the JG and inflation, Cullen says further:

”. . . its effectiveness in stopping high inflation will still rely on the boys switching the policy levers at Fed, Treasury and Congress….In this regard, I think the JG is severely lacking and requires something greater involving counter-cyclical policy (not men with perfectly trimmed beards making predictions!).”

Cullen then digresses and restates his view, expressed in previous posts, that full employment with price stability are the wrong goals for modern macroeconomics. He thinks the goal should be: “. . . full productivity (leading to full employment) focused on maximizing living standards over a multi-generational period. He thinks “we should use our proven MMT understanding to implement policy approaches that get the economy operating at full productivity . . . “ And he claims that:

“The counter-argument in MMT is that you need the JG because it will help contain inflation over the cycle by serving as a “price anchor.” Of course, I am divorcing price stability as a secondary goal (it’s not “central” to my thinking though that doesn’t mean it’s unimportant) so I don’t know if that makes me non-MMT or not (perhaps it does)….Nevertheless, I think the inflation fighting argument is vastly overstated because the JG doesn’t serve as a price anchor at all. It serves as a price buoy.”

I think Cullen is distorting the MMT reply here. The first reply of the MMT founders and their students would be that you need the JG to create full employment and maintain it and to fulfill this component of public purpose. Then they’d say that the JG also helps to achieve price stability because it does serve as a stabilizing influence on prices throughout the business cycle. It is in this sense, that it is “a price anchor.” Here’s Bill Mitchell’s basic formulation:

”The fixed JG wage provides an in-built inflation control mechanism. In an earlier published paper I called the ratio of JG employment to total employment the Buffer Employment Ratio (BER).

“The BER conditions the overall rate of wage demands. When the BER is high, real wage demands will be correspondingly lower. If inflation exceeds the government’s announced target, tighter fiscal and monetary policy would be triggered to increase the BER, which entails workers transferring from the inflating sector to the fixed price JG sector.

“Ultimately this attenuates the inflation spiral. So instead of a buffer stock of unemployed being used to discipline the distributional struggle, the JG policy achieves this via compositional shifts in employment. That is it can also deal with a supply-shock that generates distributional demands that ultimately cause inflation.

“The BER that results in stable inflation is called the Non-Accelerating-Inflation-Buffer Employment Ratio (NAIBER). It is a full employment steady state JG level, which is dependent on a range of factors including the path of the economy.” (emphasis mine)

Let’s see what Cullen says to deny this claim.

”Robert LaJeunesse wrote an interesting book titled “Work time regulation as a sustainable full employment strategy” in which he explained the misguided thinking of the JG as a price anchoring buffer stock:

“During robust economic times, buffer stocks offer little prospect of abating wage pressures in the primary sector. Since buffer stocks target a minimum price of labor, an earnings floor if you will, and do not create a wage ceiling they will have little impact on the primary sector wage demands. Capitalists will be able to maintain a significant degree of labor market segmentation, allowing them to avoid hiring from outside the primary sector. As such they will avoid payroll expansion and attempt to squeeze more from existing workers in the form of longer hours and greater work intensification. One only has to look at the history of commodity prices (such as oil) to realize that buffer stocks do not place a ceiling on prices. Buffer stocks may mitigate price swings, but they tend to prop prices up rather than restrain them, particularly when the commodity is in short supply. Buffer stocks, therefore, do not serve as a price anchor but rather as a price buoy. That is, they represent an earnings floor rather than an earnings ceiling. Public and private sector employees alike will still face pressure to work long hours under a job guarantee – either to maintain insatiable consumption desires or to retain jobs that offer long hours on a take-it-or-leave-it basis. Such behavior would most certainly become inflationary as Mitchell and Wray (2005) concede when they write, ‘if the government decides not to deflate demand, the ELR pool still allows the economy to operate with higher aggregate demand and lower inflation pressures, although inflation can still result.’”

This argument is very unconvincing to me, because it seems to assume that the JG would operate in isolation. But that’s not what the MMT advocates, including Bill Mitchell just above, assume. They assume instead that if demand-pull inflation threatens, then the Government will respond by raising interest rates, raising taxes, or both.

At that point, Aggregate Demand (AD) will be reduced in the private sector, sales will decline, and the private sector will cut back on employees. When that happens, the JG will expand, preventing people from becoming unemployed, but also paying them at less than the private sector prevailing wage they received before. This will cool demand further, but much less than would be the case if people were plunged into unemployment. Nevertheless, the JG program will certainly provide a price anchor, since as more and more people join the ranks of the JG employed, both AD and upward pressure on private sector wages would surely be reduced, but not by so much that there is likely to be price deflation as there was recently. I do not see how this conclusion can be avoided. Nor do I see that LaJeunesse’s argument, quoted by Cullen, even touches it.

The last part of the LaJeunesse quote is hand-waving. If the JG is paying a living wage then why should workers want to work long hours to fulfill “insatiable desires.” And why should JG public sectors have such desires, or the JG program accommodate them? Finally, even if this dynamic obtains to some extent, then why should it be strong enough to overcome the tendencies toward weaker demand being created by private sector lay-offs? That is, what percent of the labor force would be involved in this dynamics? Not much of it, I think.

Finally, even though Mitchell and Wray “concede” that inflation can still result if the government doesn’t do anything to deflate demand, clearly this isn’t anything to worry about if the economy becomes over-heated. At a minimum, the central bank will raise interest rates, reducing the level of business activity and private sector employment, and at that point the JG program will work according to the dynamic outlined above. So, Mitchell and Wray may be conceding a theoretical possibility, but that possibility goes against both what they recommend, and also what is likely to be done.

Some Distractions and Irrelevancies

Next, this piece from Cullen seems entirely irrelevant to the argument:

“The commodity buffer stock comparison has weak points, but one recent example of this sort of buffer stock idea surrounded the release of reserves from the Strategic Petroleum Reserve in the middle of last year. I spoke to several analysts and traders who, at the time, said the move was a desperate attempt to pull prices down and stimulate the economy. President Obama pulled hard on that buoy and released a small amount of this buffer stock into the market, but he couldn’t pull the prices down for long. Capitalists got back to being capitalists and market dynamics took control once again as prices floated higher. The labor market works a bit differently, but contains some of the same problems that specific commodity price targeting would.”

This is more hand-waving. What does it have to with the Government expanding the buffer stock when private sector employment contracts, or with the private sector expanding its employment and shrinking the public buffer stock when it decides to do so? Nothing, as far as I can tell. Would Cullen care to explain the connection to slow folks like me?

“The problem in the labor market is one of money neutrality (a concept that MMTers very publicly reject). In order for the buffer stock to control the market it essentially has to be THE market. But labor is not like any simple commodity. It is a highly specific and specialized commodity. We know this from the remarkable wage discrepancies that exist in the world today. A job at Goldman Sachs is a commodity unlike anything seen in the rest of the labor market. So setting the price of low price unskilled labor doesn’t have a sufficiently uniform effect across the entire labor market to keep wages low when the economy is booming and Goldman Sachs is poaching from Bank of America, Boeing is poaching from Caterpillar, and Microsoft is poaching from Cisco.”

Forgive me, Cullen, but this comment is ridiculous! Obviously the Executive level employees of GS, BOA, and Boeing, and other large organizations aren’t numerous enough that competition for them can cause wage inflation, when private sector demand for all other workers is rapidly declining. Sure, the price of certain kinds of labor will be sticky in the face of a serious recession. But the pay of 150 million workers across the economy will have a tendency to decline as more and more people leave the private sector and join the JG. The JG doesn’t have to be “THE market” to cause that to happen.

Cullen’s next point is equally out there.

“To make this point clearer, arguing that the JG is a strong upside inflation deterrent is a lot like setting the price for wool and then claiming that you’ve stopped commodities from rising above a certain point. Clearly, that’s not true. You’ve set the price of wool relative to other commodities, but for instance, you haven’t stopped oil market dynamics from sending oil prices through the roof. Now, if the government set all prices in the labor market then we’d be having a different conversation, but the JG would cover roughly 3-5% of the unskilled laborers at a point approaching full capacity. Because this buffer stock will have been dwindled down to largely low-skilled workers whose convertibility into private sector jobs is likely negligible, it will have an equally negligible impact on the broader wage scale.”

I think an argument like this one, shows that Cullen is really “reaching”, and is ideologically biased against the JG. A fixed floor price of wool wouldn’t affect very many other products in the economy. But a price floor for labor specified in a JG program will aways mean that the private sector must offer jobs at a higher price and with equal or better fringe benefits than the JG program offers. Otherwise, why would people work for the private sector? Who cares if the JG is only 3-5% of the unskilled or the total employed, when the economy is near full employment? It will still provide a floor that the private sector cannot breach without either losing workers or hiring undocumented laborers who can’t take those JG jobs if they’re unhappy with substandard pay.

”So the upside benefits will be relatively muted regarding price stability during an economic boom (when we’re nearing traditional “full employment”). Additionally, the job guarantee pool at 3-5% of all unemployed will be so small and non-convertible into widespread private sector jobs that it won’t come close to impacting prices and wages (when it’s most needed) to the extent that private sector jobs will (which will see substantial wage pressure during a boom period as skilled laborers compete for the other 95-97% of jobs). As Mitchell and Wray say, this would most certainly add to aggregate demand during the boom times which would lead to higher inflation. Ultimately, we will still rely on men with perfectly groomed beards pulling levers regardless of whether we have a buffer stock of unemployed or employed so the fact that the employed buffer stock acts as a price buoy and not a price anchor is quite substantial. Given the fact that modern governments have become particularly adept at fighting deflation, I think the price stability case for the JG is vastly overstated (not to mention that the policy, in my opinion, is off target).”

Bill Mitchell and Randy Wray make the point that the JG will only work to cool a boom, along with other Government deflation mechanisms. They’ve never said or implied that the JG will do it alone. Just look at the quote from Bill above. The question is why is Cullen distorting the MMT position here and in the other places we’ve indicated in this series. What axe is he grinding? What ideology is he defending?

Summing up the Anti-JG Indictment

“Importantly, none of this even touches on the various other risks involved in such a program. I have contended that there is potential for such a large government program to become overrun by other problems (corruption, praxeological issues, lobbyist/political controls, regulations, mismanagement, lack of productive work, various forms of moral hazard, etc) creating sizable risks. The fact that its impact as a superior price stabilizer is muted is further cause for concern. In addition, the goals of targeting price stability and full employment don’t necessarily maximize our true target – full productivity. And perhaps most importantly, the idea that the JG is embedded in MMT as a “central” piece of the theory distracts from the core proven concepts and gives the impression that you cannot understand modern money without understanding a massive government spending program that is unproven in the real-world (on any scale as would be introduced in the USA) and entirely theoretical.”

This is just a repeat of earlier posts by Cullen and John Carney, which I’ve evaluated, and, I think, refuted in earlier parts of this series. The bottom line is that if you don’t agree with the MMT normative structure centered on public purpose, then you won’t accept the JG as core. So, what? All Cullen’s saying is that he doesn’t share the normative side of MMT. He just doesn’t believe that economics ought to be practiced for the public purpose.

If he did, and he also believed in the importance of “full productivity”, then he’d be arguing that “full productivity” and “prosperity” were part of the public purpose of economics; but not that full employment and price stability are not, because according to all the survey data we have, people believe that economics should be about helping the economy get to full employment and price stability. Obviously, they want “prosperity” too, and one can make the case that increasing productivity, innovation, creativity, and technological advance are all very important for “prosperity.” But I really don’t think that people will agree that full employment and price stability aren’t also very important components of public purpose.

So, let me ask you Cullen, do you think macroeconomics should be practiced for the public purpose; or do you think it should be a tool for private gain alone? If you think it it’s for public purpose then let’s see your narrative relating “full productivity” to public purpose. And if you think it’s for private gain, then let’s see your narrative explaining why MMT ought to commit to that goal.

The Job Guarantee and the MMT Core: Part Ten – A 180 Mic Check?

11:45 am in Uncategorized by letsgetitdone

Cullen Roche continued his attack on the JG and his critics with a post asking whether America really needs to do a 180? I see the post as a set of distractions and straw man arguments that misconstrue the positions of his critics. The post quotes no one and constructs their positions fictionally without any documentation.

A Drastic Overhaul? Who Said Anything About That?

“This whole job guarantee debate has really shed light on the schism in many MMT thinkers. One group wants you to believe that the American way of doing things is so broken that it needs a drastic overhaul (in this case, the hiring of up to 30 MILLION government employees). . . . “

There’s no group in MMT that wants you to believe that a “drastic overhaul” is needed. There is a group that wants you to believe that 25 – 30 million Americans want full-time work and can’t get it, and that the Federal Government ought to put an end to this situation by passing and implementing an aggressive fiscal policy including a full payroll tax cut, $1200 per person in revenue sharing aid to the States, and a Job Guarantee program paying a living wage to all who want full-time work. What’s “drastic” about that? That’s just fulfilling the public purpose of fiscal policy. No more and no less!

Nor does this group contend that the Federal Government needs to hire 25-30 million Federal employees, It just contends that the legal obligation to provide work for them be implemented with a JG program. Since that program would be implemented along with the other MMT proposals, there would be far fewer JG workers actually hired. Most of the new jobs created by an MMT program with a JG would be created in the private sector as the economy grew, and the JG jobs actually provided would be transition jobs, most of which would be voluntarily given up in favor of new private sector jobs within a year’s time

Ideals That Made America Great


”My position has been that we need to maintain a more measured approach and acknowledge that while America is in a deep hole currently, it does not require such a drastic overhaul (yes there are big problems and I’ve spent years being bearish and discussing them, but let’s keep things in perspective). There are things our government can do that will help enormously, but won’t risk undermining the ideals that helped build this great nation.”

It would be nice to know what ‘ideals” Cullen has in mind, and what he means by “measured.” Does he mean an approach that won’t produce full employment? I ask that question because all the “measured approaches” we’ve been employing in the US since 1970 have failed to produce full employment.

Also, I think the two primary ideals that have made America what it is, are individual freedom and equality of opportunity. These ideals have been emphasized to varying degrees at different times throughout our history. When one or the other gets emphasized too heavily, America loses its balance, and its other primary ideal and its political system are both threatened. This is what’s happening now.

Equality of opportunity has been diminished over the past 30 years at least, and one kind of individual freedom, economic freedom for large corporations and wealthy individuals has gotten way out of balance, to the point where it threatens to devour its own long tail and eat the economic freedom of others including that of its very children. It’s the way things have been going in America that is jeopardizing our ideals, not those MMT fiscal policies that will eliminate unemployment and contribute to greater equality of economic opportunity for everyone.

Is There Simply No Refuting That “Fact”?

”I think a little perspective will help with this whole debate. People seem quick to forget what has been built here in the USA. In just 235 short years we have built the most prosperous wealth creating economy ever known to man. EVER. There is simply no refuting that fact. . . .

Well, I’d like to know how Cullen measured that. The World Bank Total Wealth Per Capita estimates in 2000, showed the United States at 4th in the world on this indicator with close to $513,000 in wealth per capita. Sweden was third, about $800 per capita more than the US. But Switzerland was first with more than $648,000, and Denmark was second at just over $575,000 (See p. 20).

These estimates are out of date; but it’s doubtful whether newer ones would show that the US has been gaining ground on the nations ahead of it, since none of the three has suffered as greatly from the crash of 2008, as has the US.

If we use GNI per capita as the measure, then this much more imperfect but also more recent (2010) measure of wealth shows that the US is 6th at $47,184, far short of Luxembourg, first at $108,921. Norway, Switzerland, Denmark and Sweden are also ahead of the US on GNI with Norway and Switzerland rather far ahead. Also, there are five other countries, including Canada that are rather close to the US on this measure, though they are a bit lower lower in the GNI rankings.

When you take into account the discrepancy between other modern nations and the US on the GINI index, a popular measure of inequality both across and within nations, you get a better perspective on the approximate median wealth per capita, a measure that is hard to find. The GINI index value for the US reflects much greater inequality than the other nations named above. The US’s GINI is .45; whereas the GINI value in the other nations is in the low .30s and Sweden is even lower at .23.

This suggests that if a median wealth per capita measure were available it would show that the US economy has been a much less effective wealth generator for the American “man-in-the-street” than the economies of other nations. Considering all this, it’s very likely that’s Cullen’s very bald statement about the US being the most successful economy ever at generating wealth, not only can be refuted, but already has been by a number of counter-instances.

Small Government and Individualism

The ideals that built that economy were based on small government and individualism. We took the idea of a constitutional republic and combined it with a rugged sense of individualism that unleashed a whirlwind of innovation and wealth creation.

Our ideals may have been based on small government and rugged individualism, but at least since the Great Depression, our practices, our wars, our booms and our busts, our technology and a lot of our innovation is traceable to the activities of a big Government and considerable collaboration among Americans during the Depression, the War, and the post-War era. We’re now talking about close to 80 years of bigger and sometimes very, very, big Government. And, last time I looked there’s not a lot of scope for rugged individualism in our large corporations, or in our other large organizations, either. Nor is there much respect for the law, or the constitution in many of those places, as we all know.

There may have been some measure of reality to the picture Cullen sketches above in the 18th and 19th centuries. But since the 20th Century began, our National Government has played a much larger role in our lives, since it was the only institution capable of constraining the giant corporations from controlling the market in their own interests. It’s too bad that over the past 35 years the Government has gradually grown incapable of maintaining those constraints, and that as a result we are now rapidly approaching a kleptocracy.

Those Evil Capitalists? Why Are They Relevant to the JG?

That shirt on your back? Yep, an evil capitalist likely helped in its creation. The computer you’re staring at? Yeah, some evil capitalist likely helped make that. The medicine that helps save millions of lives every year? Yeah, capitalists help fund those. The hundreds of billions of dollars Bill Gates and Warren Buffett have convinced themselves and their rich friends to give to charity? ARRGGGG, THOSE GOD DAMN CAPITALISTS! This is not to imply that capitalists are some world saving group out to find world peace. But let’s not throw the whole idea under the bus just because a bunch of bankers got together and threw a wrench in the machinery over the last 20 years….

I’m not sure what Cullen has in mind here. Our MMT buddies are certainly not proposing to get rid of capitalism. They’re just proposing a fiscal program which features a JG program providing a living wage and good benefits to people who want to work full-time, but who the private sector chooses not to employ, or to employ only part-time. So why include the paragraph above as part of the post. If it’s directed at people who are not MMTers advocating a JG, it’s irrelevant, and if it is directed at that them, then it’s a straw man, clearly raising a non-existent issue. I think that paragraph is a clear attempt on Cullen’s part to mischaracterize and brand his MMT opponents as anti-capitalist. But that is clearly nonsense since their intention is to save capitalism from its own very visible excesses.

American Exceptionalism? What Does That Have to Do With the Price of Eggs?

I know we’re in a rut right now. But before we start thinking about completely overhauling a system that has served so many incredibly well over the course of hundreds of years, let’s try to put things in perspective and not forget that while government can certainly help our society, it is not the answer to all of our problems. Call this story one of American exceptionalism or whatever you want to. I call it our reality. We know for a fact what built this great nation and we can prove (factually) how well it has performed and how far it has come in such a short period (despite recent turbulence). If your economic policy involves a drastic overhauling of that system then the onus is on YOU to prove that the current system is not only broken, but can be outperformed by another type of approach. To those people, I say good luck. You will need it.

More red herrings. The onus is not on MMT JG advocates to prove anything more than anyone else has to prove. Now is now! That is the reality! We have to make decisions about what to do now based on the choices we have now, all the ones we have time and resources to consider.

As I argued here, Cullen’s put on the table three alternatives

1. continuing with our present policies.

2. Putting into practice Cullen’s alternative using some MMT measures, pursuing “full productivity,” and retaining an unemployed buffer stock. And

3. pursuing the MMT program including the FE buffer stock through the JG.

Anyone considering the three alternatives has to fairly compare them and pick the one that stands up best to criticism and data which appears to contradict it.

There’s no greater “onus” on 3, than there is on either of the other two alternatives. Alternative 1 isn’t “working.” It’s being refuted by the lack of a recovery that’s gone beyond the wealthy and the upper middle class. So, we have to compare alternatives 2 and 3.

I did that in my last post, and I think I showed that Cullen’s alternative is the weaker of these two. I’m sure there are other alternatives we can formulate and evaluate as well, and perhaps one of them will be better. But, as long as the current alternative is failing us, it makes no sense to claim that there is a greater “onus” on newer alternatives, either Cullen’s or the full MMT alternative, just because they haven’t been tried before.

Nothing “new” has ever been tried before. That doesn’t mean it has a greater weight to overcome then something old that’s not working. That viewpoint is just conservative ideology. It’s just: Tradition! Tradition! Tradition!

Sorry about that; but the old something isn’t working. We need something new. We need to move on! So, let’s compare the new alternatives and see what looks like it is most likely to work best, then do that, and see if it works. If it doesn’t, then let’s move on to the next solution. Let’s do what FDR did, try, try, try, until we get it right.

Also, as I indicated above, no drastic overhaul of the US economy is being suggested by MMT. Capitalism will remain the primary component in our mixed economy. All that will happen, if MMT policies are fully adopted, is that the social safety net will be strengthened with a JG, payroll tax cuts, revenue sharing and I’m sure, very soon after the real recovery starts, Medicare for All, more generous SS benefits, and free public higher educational opportunities.

The rule of law will be re-instated so that it again applies to businesspeople who commit fraud. Regulation will be perfected and implemented, and the Government will have a big role in helping us to solve other economic problems that we’ve been refusing to do anything about, like creating new, renewable energy foundations for the economy, new industries that produce sustainability for the economy, and re-invention of our crumbing infrastructure and public buildings and spaces.

In spite of all this, however, most of our mixed economy will remain capitalist. Most people will still work for managers and owners. Entrepreneurs will have a better economy to innovate within. And capitalism will be saved from itself once again, as it was during the 1930s. So, I don’t see these things as a “drastic overhaul.” I just see them as the kinds of reforms that democracy needs from time-to- time to maintain itself.

The Job Guarantee and the MMT Core: Part Nine, The Wrong Goal?

3:04 pm in Uncategorized by letsgetitdone

Spilling Electronic Ink

Earlier in this series, here, here, and here, I discussed and critiqued an earlier post of Cullen Roche’s expressing his criticisms of the Job Guarantee (JG) policy advocated by MMT economists, and contending that the JG proposal wasn’t core to MMT. In the previous, eight parts of this series I’ve argued against that view in the context of a blogosphere explosion on the subject. Since the earlier post I addressed, however, Cullen has spilled a lot more electronic ink trying to make his case. Specifically, he’s offered four new posts on the subject. In my next few posts I’ll review these new efforts, beginning with his conversation with his conversation with Warren Mosler.

He begins:

“Anyhow, Warren and I had a nice exchange and we agree far more than recent debate has likely implied. We’re just sort of on a different page about how we should meet our goals. . . . ”

Differences in Normative Structures

Here, Cullen suggests that his difference with Warren Mosler is only about means, and that they share the same goals, so that their differences are small. But, Warren is very plain in his book that he considers “public purpose” to be the overall standard that guides his thinking, and that he thinks that two essential aspects of public purpose that economic policy should fulfill are full employment with price stability. But nowhere in this or earlier posts does Cullen express agreement with these normative basics of MMT. As I pointed out here and here, part of the reason why Cullen doesn’t agree with Warren and the academics who developed MMT is because he doesn’t share these normative views. So his disagreement is not a small thing (which Warren confirms in this dialogue), however much he may want to minimize it. It goes to the core of the policy side of MMT.

Also, Cullen speaks to this disagreement on goals later on in his post on the conversation. He says that he’s for “prosperity, increasing living standards, and says that subsidiary goals are innovation, increasing productivity, and a “real goal” of “full productivity.” He also says that:

“. . . . massive increases in living standards come from increases in innovation and productivity (which are MOSTLY pvt sector and profit driven). So my thinking is rather basic. Why obsess over FE (I am referring to low unemployment here) when the real goal is full productivity (which is a vague concept I know)?”

“Full Productivity” (FP) is a vague concept, but, in addition, prosperity is only one dimension of public purpose. Why should we accept it as the primary standard, along with increases in living standards coming from increases in innovation and productivity leading to “ full productivity”? Why does Cullen propose that our goals should be these rather than “public purpose”?

After all, public purpose can include full employment at a living wage for all who want to work with price stability, prosperity (including innovation and increasing productivity), freedom, environmental sustainability, political, economic and social justice, renewal of our individual rights under the constitution, decreasing economic inequality with increasing economic opportunity for all, fair elections free from the power of money, and more generally the list of things FDR laid out in his second bill of rights. But “prosperity” is a much narrower goal, than “public purpose,” so why should we agree with Cullen that this, alone, is our goal? And if we don’t, then doesn’t Cullen’s whole case fall to the ground?

Cullen continues by saying “. . . that perhaps” FE is “ the wrong goal to have . . . “ because we know we can have prosperity with a UE buffer stock, but we don’t know if it’s possible to have it with an FE buffer stock on a “long-term multi-generational” basis, and he concludes his argument with:

“So a lot of this comes down to potential downsides of employing workers in the JG (some excellent questions were asked here) versus leaving them unemployed. One of the big problems with the JG is that it has never been done in any mass scale that has resulted in prosperity over any multi-generational period. So, it’s very hard to prove that the JG can work because it has never worked in the past. What we know has worked is having an unemployment buffer stock. We know for a fact that human beings can achieve enormous prosperity despite unemployed people.

I’ve already examined the argument that an unemployed buffer stock has worked in the past in creating prosperity here and here. While I agree that many of us have been prosperous while unemployment remained high. There’s no evidence suggesting that our unemployed buffer stock was somehow a positive factor in creating and maintaining this prosperity, and there’s also the fact people who were part of the UE buffer stock didn’t share in “prosperity.” In other words, there’s no evidence that a UE buffer stock “worked” to create prosperity, or that whatever prosperity existed was not created in spite of it, or reduced due to it. We only know that UE buffer stocks have accompanied prosperity for those who were prosperous. Correlation, we all know, is not causation, nor does it even indicate a necessary conditions for an outcome.

Unfair Comparison

This doesn’t make this the optimal position and it doesn’t mean we shouldn’t strive for full employment, but what if the approach of plugging in the unemployment hole via government workers is the wrong approach? . . . What if there is an optimal way to leverage the government’s monopoly supplier powers that doesn’t involve unproven and potential downside risks? . . . ”

First, up until this statement, Cullen’s view has been that FE is the wrong goal to have, which, I think, does imply that we should not strive for it. Instead, he suggests that we should strive for FP, and that he expects that if we reach it, that will create FE as a side effect.

Second, in asking for “. . . an optimal way to leverage the government’s monopoly supplier powers that doesn’t involve unproven and potential downside risks? . . . ” Cullen is asking for the impossible. Every new fiscal policy the Government may select will involve unanticipated consequences and “unproven and potential down side risks,” since the economy isn’t a mechanism, but a complex adaptive system. For that matter, even continuing old policies involve such risks, since the future is often not like the past in such system.

Third, in asking what if the approach of direct Government job creation through a JG is the wrong approach? I think Cullen is using a biased frame, because it is much too narrow in scope and doesn’t even make a minimal attempt at fair comparison of alternative policies.

A Fair Comparison Approach

A more unbiased approach to prospective policy evaluation would be: Given these choices:

1. Creating and implementing a JG with a living wage and full benefits program to achieve an FE buffer stock within the context of other MMT stimulative fiscal policies such as payroll tax cuts, State revenue sharing, and infrastructure;

2. Creating a set of programs to achieve FP within the context of other MMT fiscal policies, while maintaining a UE buffer stock;

3, Continuing with the present spectrum of policies mostly relying on Fed monetary policy, and occasional minor fiscal initiatives like the “paid for” 2% payroll tax cut and UE extensions, to “fuel” the economic recovery while maintaining a UE buffer stock;

a) which of these alternative courses of action is most likely to produce the most progress toward public purpose, the best balance of benefits to costs across the various dimensions of public purpose, given an agreed upon time frame; and, b) in addition, what is the risk of error of each of these alternatives in the context of the others assuming we choose it as the best of the decisions to implement?

Continuing the Present Fiscal Policies

We know that the third of these alternatives is likely to have the highest costs among the three, because we’ve seen these in the past few years. Bill Mitchell lists them again in a recent post:

It is well documented that sustained unemployment imposes significant economic, personal and social costs that include:

– loss of current output;
– social exclusion and the loss of freedom;
– skill loss;
– psychological harm;
– ill health and reduced life expectancy;
– loss of motivation;
– the undermining of human relations and family life;
– racial and gender inequality; and
– loss of social values and responsibility.

To which Bill might have added other likely effects, such as:

– increased economic inequality;
– increased poverty;
– increasing crime rates
– increased anger against an elite that gets more and more and more wealthy;
– increased political inequality undermining democracy;
– possible increasing political violence in major American urban areas.

As far as benefits of the present course are concerned, these will depend on other occurrences, for example the possibility of another bank crash spreading from a European collapse. If that happens, then reliance on a UE buffer stock will accelerate a very rapid downward plunge into a depression and erase all likely benefits of continuing current policies. However, if a crash doesn’t occur, then we will have:

– continued deficit spending sufficient to expand GDP slowly;
– continued slow decline in unemployment
– continued slow recovery in the housing market
– continued slow repair of private sector balance sheets
– continued enormous paper profits and bonuses for Wall Street banks and Trading Houses

So, it seems that the likely benefits of continuing the present course are very hard to name or underwhelming; while the likely costs associated with it are very high. On the other hand, if we project these results, the risk of error associated with this theory is relatively small because we’ve had plenty of experience in recent years seeing things turn out this way using the fiscal policies being followed by the Administration and Congress.

Cullen’s FP/UE/”MMT” Alternative

But what if, we follow the FP/UE/”MMT” stimulus alternative, then what are the benefits and costs likely to be associated with that?

Benefit possibilities:

– the ability to produce material goods at much lower cost than today, thus increasing business profits to unprecedented levels;
– the ability to reduce work hours substantially while producing all our material needs;
– the ability to provide renewable energy at costs competitive with fossil fuels today;
– the re-invention and enriching of our societal infrastructure at lower costs
– the invention and dispersion of new electronic and computing devices that can enrich our lives in various ways
– greater profits for business than ever before
– greater AD injected into the economy through payroll tax cuts; State revenue sharing; and deficit spending on infrastructure and new technological developments

And possible costs:
– continued recession and high unemployment rates, due to a failure to pass any productivity gains along to employees, and accumulation of new AD in the hands of higher income people;
– faster trading than ever, giving technologically advanced investors and traders advantages over everyone else;
– further concentration in business as large corporations leverage productivity gains and accumulate new technology innovations for their own use;
– further decline in middle class purchasing power as wealth concentrates in a smaller and smaller group, preventing full recovery and resulting the need for continued deficit spending;
– plus all the costs listed for alternative one by Bill Mitchell and myself.

These benefits and costs are possibilities. To compare alternatives we have to assess the probabilities of both positive and negative outcomes and also assign values to the benefits and costs. We may make errors either in listing the outcomes, assessing the probabilities or assigning the values. If we err we may very well make the wrong selection of an alternative, and buy the negative consequences of that choice, including unanticipated costs of our error.

In arguing for his FP/UE/”MMT” alternative, have we seen an analysis even remotely like this sort of fair comparison of alternatives from Cullen? The answer is no. He does some “handwaving” about benefits and about the costs of continuing with a UE buffer stock. But his analysis is very vague, even though, if we take him seriously and select his alternative, the probability of serious consequences for millions of people looking for jobs is very high.

The JG/FE/MMT alternative


– Full employment at a living wage with full benefits for JG participants;
– Higher wages; in the private sector;
– Higher sales in the private sector;
– growing private sector employment;
– improving middle class balance sheets;
– Higher AD;
– Closing the Output gap;
– Lower profits for big businesses;
– Strengthening of the counter-cyclical social safety net;
– Strengthening of the automatic stabilizers
– social inclusion and expanding freedom;
– skill gains;
– positive psychological reinforcement;
– greater health and increased life expectancy;
– strengthening of motivation;
– mending of human relations and family life;
– increasing racial and gender equality;
– reinforcement of social values and personal responsibility;
– increased economic equality;
– decreased poverty;
– decrease in crime rates
– less anger and resentment against the wealthy;
– decreasing political inequality undermining democracy;
– avoidance of political violence in major American urban areas.

Possible Costs:

– One-time price adjustment upward if JG wage is set too high;
– Decrease in legitimacy of program if JG wage is too low
– Shock to business from higher wage costs causing price adjustments upward
– Administrative failures resulting in unpopularity of JG program
– Lack of fit of available JG and private sector jobs to available skills
– Substantial inflation
– Lack of new technological innovation

In all three cases above the possible benefits and costs may occur. To compare the alternatives one needs to assign probabilities to the possibilities and also values to the outcomes to really do a good job of selecting among them.

But here are some things to consider for a loose ball park assessment. The negatives of a UE buffer stock are pretty well-established, and if the FP/UE/”MMT” alternative is selected, then the probability of many of the negatives listed occurring seems pretty high, along with the negative values of the outcomes (risks), while a lot of the benefits may be less than high probability, but have high value (opportunities). For the FE/JG/MMT alternative, many of the benefits seem to be very high probability, while some of the costs are lower probability and some of the values are much less negative than the values associated with the negatives in the other alternatives.

What if I’ve erred in this assessment? Then the most likely error is in the choice between the second and third alternatives, since the first one is the slow boat to plutocracy city. If I act on the third (FE/JG/MMT) and the second is is true, then what is the consequence of the error. There may or may not be less technological progress, somewhat more inflation, and higher dissatisfaction with the bureaucracy, but there will still likely be near full employment and the worst consequences of the UE buffer stock will have been avoided.

On the other hand, what if I act on the FP/UE/”MMT” alternative, and the FE/JG/MMT alternative is true, then I will have condemned millions to unemployment, poverty, and lack of opportunity for the sake of pursuing and perhaps not achieving FP.

The Bottom Line?

Cullen Roche asked the risk of error question in connection with the FE/JG/MMT alternative; but didn’t ask it in connection with the other two alternatives. That’s why I said that he was failing in his duty of fair comparison.

But, if you ask the question in connection with all three alternatives, then it looks like both the conjectured “real” risk and the risk of error are much less with the FE/JG/MMT alternative than with either of the other two. So, I don’t think raising that question benefits Cullen’s argument in his conversation with Warren so much as it calls it into question even more.

But the worst thing here, I think, is that the analysis lays bare, the lack of analysis Cullen has given to the full productivity idea. Cullen says that FP should be our goal, but he hasn’t really told us what “full productivity” is. Until he does that his proposal for abandoning public purpose and the normative under that goal including FE with a living wage, and price stability, to pursue FP will really seem blue sky to me, and will have the feel of a political slogan, rather than an economic goal.