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Trillion Dollar Coin: Posts on Legality and Constitutionality

9:58 am in Uncategorized by letsgetitdone

Enthusiasm for using Platinum Coin Seigniorage (PCS) to produce a Trillion Dollar Coin, or coins totaling a few trillion dollars continues to increase. The twitterverse went mad two nights ago around #mintthecoin, a hashtag originated by MMT’s Stephanie Kelton, which by yesterday morning had become the 5th most highly trending topic on twitter.

Meanwhile, the blogosphere continued to produce more points of view on the Platinum Coin. The points of view divide into those that are very negative; either claiming that 1) using Platinum Coins would be illegal or unconstitutional, or 2) using them would be just ridiculous and financially irresponsible, and so should be avoided; and others that favor using PCS 3) either in a limited way to avoid the debt ceiling crisis, or 4) in a much more robust way, that would change the procedures underlying Federal spending, so that fiscal policies advocating austerity no longer have a political foundation in a visible and rising national debt that austerity advocates can constantly talk about fixing through “shared sacrifice.” In this post I’ll review new posts on legality and constitutionality.

Kevin Drum on legality

Kevin Drum of Mother Jones filed his second recent post claiming that the trillion dollar coin is illegal and will be subject to challenge in Court on grounds of intent. He repeats exactly the same reasoning he used in his first post. I’ve already critiqued that reasoning saying that the Courts generally don’t try to interpret laws based on theories about Congressional intent. The Justices aren’t collective psychologists who are expert at divining the intent of the Congress. They are expert, however, at interpreting what the text of a law says, and so that is what they stick to almost all the time. A challenge to PCS based on intent isn’t something any Court is likely to take up. Drum then adds:

There is, apparently, a widespread belief that courts will uphold a literal, hypertechnical reading of legislative language regardless of its obvious intent, but I’m quite certain this isn’t true. Courts are expected to rule based on the most sensible interpretation of a law, not its most tortured possible construction. I don’t think there’s even a remote chance that any court in the country would uphold a Treasury reading of this law that used it as a pretense for minting a $1 trillion coin.

I am, obviously, not a lawyer. So if someone with actual legal training in the appropriate area of the law says I’m wrong, then I guess I’m wrong.

Well,, the language of 31USC5112(k) doesn’t look very tortured or “hypertechnical” either to myself or many others who have looked at this including lawyers Jack Balkin and Carlos Mucha (beowulf); but seems very plain and unambiguous. Drum is entitled to his opinion, but as he keeps saying, he’s no lawyer, and his judgment about what the Courts will do based on the problem of intent isn’t very plausible.

What if a trillion dollar coin is used to avoid the debt ceiling, and this saves the United States from defaulting on its debts, and the world financial system from collapsing? Is it then likely that the Supreme Court will entertain any challenges to the plain language of the law based on an interpretation of intent, which would then place the Treasury in the position of having to return that trillion dollars in Fed credits, and again look default in the face? Can you see John Roberts ever voting for this? Please Kevin, give us a break!

John Carney on Unconstitutionality

John Carney believes that Platinum Coin Seigniorage (PCS) and the Trillion Dollar Coin are unconstitutional. The core of his argument is:

There are limits to how far Congress can stretch its powers under the necessary and proper clause. Of particular interest to us here is the non-delegation doctrine, which holds that the Constitution’s requirement that laws be passed by both houses of Congress and signed into law by the government constrains the ability of Congress to delegate its lawmaking authority to other bodies. . . .

The Supreme Court . . . . went out of its way to affirm the basic principle of non-delegation . . .

Article I, Section 1, of the Constitution vests “[a]ll legislative Powers herein granted… in a Congress of the United States.” This text permits no delegation of those powers, and so we repeatedly have said that when Congress confers decision making authority upon agencies Congress must “lay down by legislative act an intelligible principle to which the person or body authorized to [act] is directed to conform.”

So the question that is relevant for us here is whether or not the law that authorizes the creation of platinum coins by the U.S. Treasury lays down an “intelligible principle” to which the Treasury is directed to conform.

He then quotes the law authorizing PCS:

“The Secretary may mint and issue bullion and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”

You see the problem here, right? There’s no intelligible principle whatsoever. The law gives the Secretary complete discretion over everything having to do with the minting of platinum coins. This is very likely an unconstitutional delegation of the legislative power to coin money and regulate the value thereof.

Carney goes on to talk about issues of standing recognizing that standing may be very difficult to get from the Courts and that therefore it may not be possible to challenge the law. But he still thinks that the above argument is a decisive one and that the coin seigniorage law is unconstitutional. You see the problems here, right?
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New MSM Trillion Dollar Coin Wave Misses the Big Story: Hayes and Carney

8:13 pm in Uncategorized by letsgetitdone

Did the MSM’s new wave of commentaries on platinum coin seigniorage (PCS) miss the really big story about it? Of course, I think it did, and I’ll continue my review of the MSM commentaries with the efforts of Chris Hayes at MSNBC, substituting as host on the Rachel Maddow show (12/05 at 9:20 PM); and John Carney at CNBC (12/06 at 11:54 AM). This is my second review post on this subject.

Chris Hayes

Chris Hayes’s coverage of PCS was an MSNBC “breakthrough” cable segment on the subject, since it was the first, not a blog post per se. But I’m covering it here, because it, arguably, fueled the new wave of PCS blogs. Chris gave a creditable brief summary of the idea behind PCS, with a reference to US code Section 5112k, then he went on to focus on the Trillion Dollar Coin (TDC) proposal as an example, and transitioned to bringing up the debt ceiling problem. During that discussion he emphasizes the damage that could be caused by another debt ceiling crisis, including the damage to the US credit rating, while also making the point very clearly that Congress has already approved the spending that is creating the crisis and that refusing to raise the debt ceiling is equivalent to not paying your credit card bill.

Up to this point I found Chris’s presentation very clear and was happy to see the coverage of PCS. But, a couple of comments are worth noting. Due to the debt ceiling context which he assumes is the problem, Chris focuses on the TDC solution and talks about that PCS solution, only. No other PCS possibilities see the light of day in his coverage. Is it possible he hasn’t thought about them?

Also when he talks about damage to our credit rating as a serious consequence of our debt ceiling crisis, he fails to mention that previous ratings agency actions against nations like the US that have non-convertible fiat currencies with floating exchange rates and no debts in currencies not their own haven’t resulted in increasing rates on their debt; but in decreasing interest rates, indicating that the credit agencies and their ratings aren’t in a position to cause any economic damage to the United States.

Chris then continues:

. . . The odds are pretty close to zero that we mint a $1 trillion coin in order to pay off some of the debt. but there’s striking movement in the direction of changing the rules so we don’t ever have to fight over this completely unnecessary issue ever again. Remember, this is important. The debt ceiling isn’t about incurring future debt. It’s about the money congress has already duly authorized and appropriated and voted to spend. It’s not a fight about whether or not to spend money; it’s a fight about whether or not to pay your credit card bill. Today. The President basically said, no more. I’m done having this dumb fight. I am not going to do it again.

And then, after playing a video clip of the President saying he’s done, Chris continues with:

. . . okay. so the McConnell rule isn’t exactly the super awesome trillion- dollar coin idea that I kind of love, but it’s not half bad. The president has the power to raise the debt ceiling in order to pay for the things that congress has already agreed to pay for, and if congress wants to stop it, they need a two-thirds majority to do it. I am generally pretty wary of increases in Executive authority and decreases in Congressional oversight, but in the case of the debt ceiling, there’s just no argument for it. The money has already been spent. Congress has already spent it. It’s just a matter of whether or not you pay the bills. And if all else fails, President Bbama and Tim Geithner should start deciding whose face that is they want to put on the new $1 trillion coin. I vote for John Boehner!

Nice touch, that!

So, how does Chris know that the odds are pretty close to zero that the President won’t use some variation of the PCS option? Whether he does or not is his decision. Is it even proper to talk about “odds” in the case of an individual decision? Shouldn’t he be talking about “likelihood” and doesn’t likelihood depend on the circumstances surrounding the decision and the President’s psychological makeup?

Also, was the main point of Chris’s piece to let John Boehner and the Republicans, and maybe the President, know that there is an alternative to compromising with the Republicans for the President, other than shutting down the Government: the TDC? If so, then isn’t Chris, usually one of the “progressive” voices in the mainstream, just adopting a conservative solution, supported by a conservative meme; which only seems, on the surface to be progressive, because PCS is a new idea?

After all, what does the TDC solution do? It kicks the can down the road by about a year, and maybe a little more depending on events. But it doesn’t solve the debt ceiling problem; or the even larger problem that the Treasury must incur debt when it wants to deficit spend.

Not that the size of the debt in any way deceases the fiscal sustainability of Government deficit spending, as the austerians claim; but the politics of the debt issue is usually toxic for progressives and their solutions. So, for us, the best PCS solution to the debt ceiling crisis would be one that provides for paying down the debt out of seigniorage profits until it’s gone; since that would take the debt issue off the table, and be a game-changer, when we are debating full employment, Medicare for All, increased Social Security benefits, and other things we need done.

John Carney

Carney starts out his post with references to Pethokoukis’s post and Krueger’s report, and with the quote from Krueger on the PCS option we’ve seen already. He then says:

As Joe Weisenthal points out, this idea originated last July with a commenter called “Beowulf” at Cullen Roche’s Pragmatic Capitalism blog. Beowulf pointed out that although there are statutory limits that prevent the Treasury from printing paper currency to fund its operations, there’s a quirk in the law that allows the Treasury to print platinum coins of any denomination.

So, Carney takes Wiesenthal’s distortion even further, saying that the PCS idea originated on July 7, 2011 (the date of Cullen Roche’s post), and, as we’ve seen, beowulf originated the idea, but this date is off by at least 8 months. Carney probably picked this up from Wiesenthal, because he neither bothered to check it by searching the web, nor even re-read Cullen Roche’s post; where the updates indicate prior posts on PCS to that one.

Carney goes on to point out that he’s changed his mind about the inflationary impact of the trillion dollar coin saying:

This concern now seems to me to be seriously misplaced. There would really not be any additional inflationary pressures caused by a trillion coin

The key point here is that the government would not be throwing an extra trillion dollars into the economy. It would, rather, be spending exactly how much it planned to spend anyway. It would not be issuing bonds to cover some of that spending but bond issuance by the Treasury does not do very much (probably nothing at all) to combat inflation anyway. The amount of government issued financial assets remains the same, even though the composition of dollars and Treasury bonds changes.

This is exactly the position of Modern Money Theory (MMT), as articulated by Scott Fullwiler. And Carney adds:

There could a long-term inflationary problem, I suppose, if the government fell in love with the idea and used platinum coins to finance ever larger deficits. But that seems unlikely. And, in any case, the Fed could step in and use its monetary policy tools to counteract the spendthrift coiners.

That’s not quite the MMT position, which is that deficits wouldn’t cause inflation unless the government continued deficit spending past the point of full employment. In any event, Carney provides no reason for thinking that there might be a long-term inflationary problem absent Fed intervention.

Carney’s post is an improvement on the first two. It identifies beowulf by name (or handle, anyway). And it indicates that there would be no inflation if the option were used because it doesn’t involve any more spending than before. On the other hand, his provenance of the idea is false, and he’s not clear about why long-term inflation may be a prospect.

Neither Chris Hayes’s post, nor Carney’s considers PCS solutions other than TDC ones. They both see PCS as essentially a band-aid we can put on the debt ceiling problem. They don’t see it as something that could introduce a profound change in the background of fiscal policy. My next post will cover the efforts of Matthew Yglesias and Kevin Drum.

(Cross-posted from New Economic Perspectives.)

John Carney Doesn’t Believe That Government Spending Can Achieve Public Purpose

10:10 pm in Uncategorized by letsgetitdone

John Carney commented on a post by David Brooks and a follow-up by Randy Wray. Brooks says that a tax credit is essentially the same as Government spending and used an example from David Bradford, a Princeton economist, of the Pentagon wanting to acquire a new plane and paying for it with a tax credit.

Randy comments on the idea this way:

“What is a sovereign currency? It is (mostly) a keystroke that results in an electronic entry on a bank’s balance sheet. (Yes it can also be shiny coins, paper notes, and watermarked checks—but those are increasingly less important.) To be more accurate, it is two entries: an entry in the deposit account of the fighter plane’s producer and a reserve credit at the central bank for the producer’s bank.

“In the case of a modern “fiat” sovereign currency, what does the government promise? To “redeem” its currency in tax payment. When the fighter plane producer pays taxes, the keystrokes are reversed: the deposit is debited and the bank’s reserves at the Fed are debited. Presto-change-O the sovereign currency disappears in redemption.

“The fighter plane ends up at the government. That, of course, was the whole purpose of the keystrokes.

“Now let’s take Bradford’s example. Instead of keystroking a deposit, the government issues a “tax credit” to be used later in redemption of its tax liability. When tax time comes, the tax credit is sent on to the Treasury (presumably, it will be an electronic entry so little electrons pulse their way to Washington). Presto-change-O the tax credit is gone.

“Yep, Brooks has that part right. It is exactly the same thing. The fighter plane is moved to the government.

“After all, that’s what it is all about, right? From inception, the purpose of the monetary system is to move resources to the public sphere.

“And then the private sector gets all sorts of bright ideas about other uses for the monetary system, such as making subprime mortgage loans to those with no income, no jobs, no assets, packaging the trash into still trashier MBSs that get tranched and re-packaged into CDOs, which are further tranched to produce CDOs squared and cubed. And off we are to a GFC that the Fed then tries to resolve through keystroking $29 trillion of bail-out funds to save the banksters.

“But that’s a story for another time. Let’s congratulate David Brooks for (finally!) getting one thing right.”

Jon Carney comments:

”What Brooks gets and Wray misses, however, is that government spending priorities are economically damaging. When resources are moved “to the public sphere” they are utilized to realize political ends rather than “public” ends. That is, they are used to satisfy the demands of special interests who influence lawmakers and regulators.

“Like overgrown weeds, the tangle of tax breaks distorts behavior, clogs the economy and deprives the government of revenue,” Brooks explains.

“Forget about the revenue part. Otherwise, this is exactly right.

“It’s a shame that a guy as brilliant as Wray doesn’t quite understand that the “public sphere” is nearly always code for private interests expressed through political power.”

Now, that’s not economics at all. It’s a statement about politics and Government, and I have to wonder what John Carney’s special expertise is in these areas, or what reason we have to believe any bald assertions he makes about them that aren’t accompanied by good theory, good data, and tight arguments.

His statement above is also about as bald a statement of anti-government, and anti-progressive ideology as one can imagine, and also reflects a cynical political theory about politics and government which is a) demonstrably false as a generalization, and b) where positive instances consistent with the theory do occur, it is often in political systems where that false theory is itself broadly popular among citizens who are disillusioned with democracy, and who create their own self-fulfilling prophecy that it must and will be subverted by special interests.

Places like Germany, Italy, and Austria in the 1920s and France and Eastern Europe in the whole inter-war period. And places like the United States is becoming now, where no one believes in the legitimacy or possibilities of government anymore, nor in anything else except their own private advancement, and a neo-spencerian struggle for survival.

Do we really need to ask why we ought to believe that “. . . government spending priorities are economically damaging”? Can Carney show us empirical evidence that the actual, non-monetary, costs of government spending exceed the non-monetary benefits of that spending so that we can observe the economic damage he assumes? Or is he just blowing smoke?

Just as important, can he show us empirical evidence that the actual, non-monetary benefits of private sector spending exceed the non-monetary costs of that spending, so that we can observe the economic progress, healing, and prosperity that I suspect he wants us to believe would be the impact of a heavier emphasis on private rather than government spending?

Somehow I doubt that John can do either of those things. And I think that what he’s doing in this column is just giving us his variant of neo-Hayekian/Austrian/libertarian theology in place of a real economic argument that Government spending can’t or won’t work for achieving public purpose, assuming a political sphere that wants to make it work.

I also think that the issue he raises comes down to whether we can point to times and places where political interests expressed through politics and government were largely in accord with the public purpose, and whether that can happen again if people can once again make their government representative and responsive. We can point to such times and places. They don’t come often. The progressive period. The New Deal. The Second World War, and the post-War period up to about 1966.

After a long 15 year period of transition to neo-liberalism, the present period of corrupt Government subverted by special interests began in 1980 and is still continuing. What John Carney and David Brooks both miss, but what Randy Wray gets, is that the success of public purpose economics, including MMT, is going to depend on changes that free the political system from the burden of the financial and other special interests that now control it. But just, maybe the American people, and people in Europe too, are close to having had it with neoliberalism, and change may be coming.

It’s going to require ending accounting control frauds and kleptocracy by prosecuting and convicting the kleptocrats who have destroyed so much middle class wealth and looted and continue to loot the public treasury. If we can do that, then Government spending can again serve the public purpose. If not, if Brooks and Carney are right about Government spending, then we will either continue with lemon socialism or move even further along the true road to serfdom. We will, in other words, lose the very soul and character of America for good.

(Cross-posted from Correntewire.com

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, ourfuture.org, and correntewire.com. The correntewire.com 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 Seven, Dialogue With Warren Mosler

7:09 pm in Uncategorized by letsgetitdone

Warren Mosler kindly replied to my Part Two of this series which provided the basis for this dialogue, reproducing Part Two with comments by Warren and myself.

MMT and Public Purpose:The Normative Component

I ended Part One by saying that Warren Mosler’s reply to Cullen Roche is nearly a decisive argument that the Job Guarantee (JG) is a core component of MMT, provided, of course, that one accepts that full employment with price stability is an important component of “public purpose” or “the general welfare,” and that also one thinks that the Government’s fiscal policy ought to fulfill the public purpose. Since all the MMT founders and many later MMT adherents like myself agree with this, it’s not surprising that we think that the JG is a core component of MMT.

Warren Mosler: The understanding of the dynamics of the JG is an MMT contribution to economics.

Joe: Thanks for amplifying my comment. I agree that it is an MMT contribution.

But what if one either doesn’t accept “public purpose” as a normative standard guiding Government monetary and fiscal policies, or thinks that full employment with price stability is either not a means that should be used to accomplish the public purpose, or thinks that another means can better accomplish public purpose and still lead to full employment and price stability? Then one’s verdict on whether the JG is a part of the MMT core will be different.

Warren Mosler: No, one’s decision as to whether to implement a JG will be different.

Joe: Yes, one’s decision about implementing a JG will be different; but also provided one wants to think of themselves as following an MMT approach, then one would have to conclude that the JG isn’t a core component of that approach. That’s certainly what Cullen Roche, and Trader’s Crucible are saying right now, and it’s also what John Carney is contending as he proposes a synthesis of Austrian and MMT thinking.

For example, Cullen objects to the full employment goal because he doesn’t:

“. . . believe the JG is the optimal usage of these monopoly powers 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.”

Warren Mosler: He’s just wrong as there is no long term cost, only long term benefits, even by his standards of what’s a cost and what’s a benefit. Nor does he have a better option for price stability and full employment.

Joe: I agree. But he will come back with an argument as to what the long-term effects are likely to be and as you know by now, John Carney is claiming they will include inflation.

In the post, or his replies to commenters he doesn’t say anything about “public purpose,” but he reveals that he disagrees with the goal of full employment with price stability and thinks instead, that the Government’s monopoly over the currency should be used to provide

“. . . the gift of time and the ability to live a fuller and more meaningful life via the prosperity that innovation and productivity create?”

And he also goes on to say that he thinks creating “full productivity” will also achieve full employment and price stability as a side effect, and that we have a moral responsibility to become enormously productive and increase living standards for our children and future generations, and he thinks Government spending to accomplish that should have a higher priority than Government spending to create a JG buffer stock.

Warren Mosler: He’s wrong again here too, in that JG promotes ‘full productivity’ and living standards better than unemployment does, and government spending to fund a JG buffer stock does not reduce the ability to spend elsewhere. In fact, it increases that ability.

Joe: I agree. But, Cullen appears to think that the negative incentives provided by the possibility and reality of unemployment, encourage people to be more innovative, inventive, and “productive.” That’s a neo-liberal Calvinist position if there ever was one.

Also, he’s worried about the long-term real costs or risks of the JG as indicated in this comment:

“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. . . .

Warren Mosler: He would have feared it just as much if there had been a JG. And in any case the real fear comes during times of a lack of aggregate demand that is evidenced by rising unemployment and/or a rising JG pool due to the private sector being starved for consumer dollars to compete for.

Joe: Yes, I think he would have feared it just as much if there had been a JG, since Cullen doesn’t strike me as someone who would be even remotely satisfied with a JG wage. So, the interesting thing here is that even though Cullen is opining about what other people might or might not need, he isn’t basing his conjecture on any scientific findings, only on his own personal experience. It’s anecdotal.

. . . 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. . . .

Warren Mosler: Wrong. There is no reason a low paying JG job with no possibility of advancement other than a ‘real’ private sector job would have left him half the man he is. However, long term unemployment has been shown to leave people less than half the person they were, with little statistical possibility of recovery.

Joe: I think this is an important point. It’s very likely that Cullen would have been heavily incentivized to get off a JG program, had he ever been in one, given what we know about his background and writings. He would have struggled just as hard to rise above the problems he had. And your statement about the real costs of long-term unemployment is very well-documented by sociological studies showing family breakups, loss of housing, Medical disasters, and all sorts of serious negative effects triggered by loss of employment followed by loss of status in one’s community.

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.”

Warren Mosler: First, there has been no claim that a JG would provide ‘that’, ever. What JG does is preserve employability far better than unemployment does, and thereby foster private sector growth far better than unemployment does, by acting as ‘employment agency of last resort.’

Joe: But it’s also true that Cullen can’t possibly know what a JG program might have provided in the way of psychological development, because he never went through one. Many people got their first work experiences through the WPA and the CCC during the 1930s, and have reported on the immense benefits they got from those experiences. There’s no reason to assume that a JG program wouldn’t provide many good experiences for people whose economic fall was broken by that kind of safety net.

It’s easy to make fun of this statement, or to criticize it rather bluntly, as I did at Cullen’s site. But here I’d rather point to the larger issue. There may be side effects of the JG program we can’t anticipate now; but we know what the effects of an unemployed buffer stock are on society. And Cullen’s conjecture, based on his interpretation of his own experience that there is value in experiencing unemployment, . . .

Warren Mosler: Certainly not long term unemployment, which has been shown statistically to be a dead end.

Joe: I think Cullen’s assumption is that unemployment provides motivation to find work that the JG would not provide, and also that such motivation is very important in finding work. But, clearly, in most recessions the motivation to find work as a factor in producing employment pales before the macro effects of too few jobs matching up with too many people trying to find them. To believe that motivation will produce employment in spite of all external obstacles is to believe in Horatio Alger stories or persistence fairies, or the belief of the French Generals in the First World War that superior will and élan would overcome all advantages the German Military might bring to the battlefield, and it’s also, implicitly, to place blame on a victim finding him or herself caught in a balance sheet recession, and not being able to find work.

. . . which we will lose if we implement a JG (even if that value may not be apparent to others who have had the experience of unemployment and its corrosive effects), even if true, doesn’t on the surface seem to suggest anywhere near the individual and social costs that we know are caused by unemployment.

Warren Mosler: Nor the aspect of preserved employability needed to fuel private sector growth in a recovery.

Joe: Very true. The perceived unemployability of the long-term unemployed is a very significant social cost that Cullen seems determined to discount.

Those of us who feel this way, may be wrong, but I think opponents of the JG have to do better than to just voice vague fears and anxieties about future real costs. They have to produce at least some cogent negative arguments about why we should expect side effects of the JG that are more serious than the costly realities due to unemployed buffer stocks we see right now, and also they have to produce alternative policies that appear less risky than the JG proposal.

Why Not try Both?

So, it seems that the JG, assuming it is the best way to get full employment with price stability is very likely to be a component of the public purpose and therefore a core component of MMT. . . .

Warren Mosler: It’s not about ‘core components of MMT’ but about core MMT understandings.

Joe: I’d prefer to view it as I suggested. “Understandings” are psychological things, and I’m not talking about that kind of subjective knowledge. We can’t really divine what that is anyway. I’m talking about MMT as a body of “objective” cultural knowledge in the sense clarified here and here (See Ch. 1).

However, even assuming that the JG is such a core component, that doesn’t mean that a goal of maximizing productivity should not also be viewed as a core component of MMT. As a number of commenters on Cullen’s post have pointed out, the Government can afford to both pay for the JG and also for efforts to increase productivity. Nor are these components of public purpose competitive. So, why not try to enormously increase productivity and also implement an FJG?

There is a measurement problem, here. The current most common measure of increases in productivity, increases in GDP per labor hour, is laughable as a measure of real productivity gain, and I think it is enormously difficult to arrive at a good way to measure such gains, since doing so would involve measuring the non-monetary value of economic, including Government outcomes. But, if the measurement problem could be solved, then as productivity gains are made, the employment conditions of a JG buffer stock can easily be changed by raising JG wages to pass through productivity gains to whole labor force.

Warren Mosler: With a JG wage being a nominal price anchor, with no JG wage adjustment productivity gains would be expected to be reflected in lower prices.

Joe: They might be if we had a free market. But in too many areas of the economy that doesn’t exist, so competition won’t force prices downward. They’ll be sticky. So, the best thing to do will be to see to it that the Government passes on the productivity gains by paying more for JG labor.

Since 1970, most of the productivity gains have been distributed by neo-liberal economic/political regimes to the wealthy, greatly increasing the inequality gap and clearly threatening democracy itself. But a JG program in concert with an emphasis on increasing productivity could fix that, if we can find better ways to measure productivity gains than we have now, and use those measures to help shape JG programs.

Peter Cooper’s JIG Adds Freedom

Above, I said that I find the MMT argument for JG as a core component nearly a decisive one, provided, of course that one accepts that full employment with price stability is an important component of “public purpose” or “the general welfare,” and that also one thinks that the Government’s fiscal policy ought to fulfill the the public purpose. However, as part of the general debate over the JG, Peter Cooper has proposed a JG, supplemented by a Basic Income Guarantee (BIG), as a better alternative than the JG alone, because net/net it would increase personal freedom since people could choose either JG or BIG based on their needs, while still fulfilling the requirement of having an employed buffer stock as an automatic stabilizer.

Warren Mosler: BIG is an ‘optical illusion’ that’s an unstable equilibrium at best, capable of rapidly degenerating into hyper inflation at any time.

It reminds me of this Monty Python skit in ‘the life of brian.’

The currency is defined by, at the margin of need, what you must do to obtain it from the issuer.

So if you can get a living wage from the issuer for doing nothing, there is nothing that can stop the currency from being worth nothing once it heads in that direction from an accelerating flight to BIG

Joe: I think your reasoning isn’t compelling here. 1. People choosing the BIG aren’t “doing nothing”. They’re just not doing what anyone in the Government or the private sector has specified as having societal or market value as the case may be, other than consuming (which, btw, is an important function in our economy). However, the individuals choosing BIG, may be doing very valuable things, just as people who get nothing at all may be doing very valuable things for people. 2. Surely, the amount of currency people are getting here is relevant to your claim that there would be hyperinflation.

If private sector people get more currency, than JG people who, in turn, get more currency than BIG people, it seems to me that the value of the currency will still be maintained, because people don’t just want to live. They want to prosper. They want to acquire assets beyond those required for a basic living. So, most people will still work on either private sector or JG jobs.

I think this idea is promising. It has received vigorous discussion over a number of days at Peter’s site. Dan Kervick objected to it on numerous grounds. And in a comment I made on his objections, I summarize my views on Peter’s proposal, which he decided to call “JIG”. Here’s my comment.

The nub of it is that neither the private sector nor the Government is infallible in its judgments about which jobs and roles produce value, and which do not, or about which individuals are producing value and which are not in their individual activity. So, why should we rely completely on either the market or the Government to make these judgments?

Warren Mosler: I see govt. for public infrastructure for public purpose, broadly defined to include the incentives for the private sector embedded in the institutional structure.

Joe: So do I. But, more broadly, I also see the Government as using fiscal policy for all public purposes including those beyond “infrastructure” and private sector “business.” Isn’t there a part of “the private sector” that is composed of individuals doing valuable things that they do not get formally paid for by someone with economic power public or private? Why should we, as a society, insist that these people have to have a by-your-leave from a Government or non-profit civil servant, or from some for-profit businessperson engaged in commercial activities. I know a lot of people like that. Not just “arty friends” like John Carney’s; but other kinds of talented people of all kinds who want to pursue original ideas that they think are valuable, but don’t want to write Federal State, Local Government, or non-profit grant or contract proposals to do that, or go to work for large corporations to earn a living and have to delay or give up development of their ideas.

A BIG could be very useful for helping to do that. It wouldn’t let them live in luxury, but it would give them the space to keep themselves alive while they’re getting their ideas off the ground. Why shouldn’t people have that space? Why is it so threatening to authorities that people who are relatively poor have a bit of economic freedom?

Why shouldn’t we accept instead that individuals who would rather be free from working either for the private sector or for the Government still have the right to a decent living and free health care?

Warren Mosler: Free health care is ok, because you can’t completely live on health care.

Joe: So, your position is that people have to be economically motivated by the need to stay alive or they won’t be productive? Then why not say that people should have to “earn” their health care too?

Are they not human beings? Is there no possibility that people who make such a choice will not use the time they gain to contribute value to society, or that they might do so in the future?

Warren Mosler: They might, but history has shown that when they don’t it’s catastrophic. It’s the ‘damn fool’ race to the bottom effect, such as ‘I’m not going to be a damn fool and work when he gets everything for not working’ etc.
Warren

Joe: Has history shown that? Let’s have some empirical data. I just don’t see it. That was the kind of reasoning used to “end welfare as we know it.” Have the effects of that really been good or do we now have greater privation, need, homelessness and economic oppression than we had before? In other words, have we just got a worsening economic and inequality problem, where before we had a “moral hazard” problem?

Also, while that kind of meme may be effective politics still, the truth, at least for the proposal I have in mind, would be that people choosing the BIG would not get “everything for not working.” They’d be getting a basic living, in return for greater personal freedom. JG people would be getting a decent living wage in return for less personal free and the opportunity to transition to the private sector. And those working for businesses would be accepting the leadership of business people implementing their visions of value, which may or may not be valuable, in return for making more than JG workers, and, presumably, acquiring the most marketable skills.

I think there are some people who would use the time provided by choosing a BIG option to innovate and create outcomes of great value to society. Neither private sector nor Government authorities can be trusted with power to make all the decisions about which activities are valuable and deserve decent monetary compensation in return.

People ought to have some of the economic power necessary to decide for themselves what they’d like to do and still be able to remain alive and in good health to do it. That is an increase in individual freedom that our modern economies, including the US, can afford, and it may provide a better core component for MMT than the JG alone.

In Part Three, I’ll review John Carney’s objections to the Job Guarantee.

Final Comment: Thank you Warren, for taking the trouble to reply to my post and for giving Peter Cooper’s JIG idea some valuable discussion. I think it deserves a lot more. Thanks also for always being so open in letting me use your words for purposes of discussion. You’re one of the most open people when it comes to critical exchange I’ve ever met. You truly embody Karl Popper’s paradigm of the kind of discussion that should exist in a democracy. It’s been a great honor to work with you over the past couple of years on spreading the word about MMT. I’m looking forward to keeping on keeping on, until, working with our many other MMT friends, we create the basis for the next round of progressive economics, securing FDR’s economic bill of rights for everyone.

The Job Guarantee and the MMT Core: Part Six, John Carney on Stagnation and Prosperity With Unemployment

2:05 pm in Uncategorized by letsgetitdone

Parts One, Two, Three, Four, and Five.

In the first five parts of this series, I analyzed views on the Job Guarantee (JG) idea offered by Cullen Roche and Peter Cooper in conjunction with a post by John Carney, which kicked off an explosion of blogosphere posts and commentaries on the JG. In Part Three I began an analysis of John Carney’s views by taking exception to his claims that the JG would be inflationary, a bureaucratic nightmare, and would cause economic stagnations. In Part Four, I critiqued his views on the problem of a mismatch between demand and the skills needed to fulfill it, the possible inflationary impact of this mismatch, and also his claims on the JG and stagnation. In Part Five, I focused on his discussions of the problem of a mismatch between demand and the skills needed to fulfill it, the possible inflationary impact of this mismatch, and also stagnation.

In this post, I continue analyzing John’s further take on the JG in in his ‘The Trouble with a Job Guarantee. His arguments in this post cover incentives to work that might be impacted by a JG program, and the notion that we know that prosperity with unemployment is possible. My interleaved replies from an MMT perspective to his arguments are provided in this and an upcoming post, as well as in Parts Four and Five of this series. All my replies assume that the JG would not be “paid for,” but would occur through deficit spending.

The JG is a Guarantee of a Job Offer, Not a Job

”It would be possible, of course, to diminish or eradicate the inflationary effect by tightening other government expenditures, raising taxes, or making sure the Jobs Guarantee wages were so low that the increased demand generated would be minimal.

The MMTers argue that the Job Guarantee positions will be so low-paying that workers will not be incentivized to stay in them. But I’m not sure this is correct. Do we really understand how workers will react to a job they cannot lose? Will there be some people who prefer to work just enough to get by, showing up at the Job Guarantee office every now and then, working for a few weeks, then going back to their personal hobbies?”

Comment: People will be able to lose their JG job. MMT proposals guarantee an offer to work. They don’t guarantee that someone will be able to continue to work if their work isn’t satisfactory.

There may be some people who will want to work just enough to get by. So what? Why is this a problem, if people can get by this way. They’ll be doing valuable work, while they’re doing JG work from time to time. If they don’t want to graduate to private sector work, and periodically join and drop out of the JG, instead, then why should that bother us, as long as they’re getting paid for the work they do?

”Yes. There will be. And some of these people will be very intelligent, even diligent people. I know people like this in New York City, who go through long periods of voluntary unemployment during which they paint, act, and write. They are enabled in this lifestyle by unemployment insurance and rent-control. Some of these people used to be computer engineers but found that they preferred more leisure and the income from unemployment insurance to less leisure and income from a private sector jobs.

It’s a wonderful life, really. But if it were too popular it would obviously be economically stagnating. I can see the possibility of The Job Guarantee inviting this type of economic stagnation at a whole new level. Work a week per month, earn enough to pay your for your rent-controlled apartment, then spend the next three weeks painting.

Work every other day. Work half days. Whatever. There’s always a job waiting for you the next day. Get sick? Go down to the Job Guarantee office, take a job, then use the health insurance to pay for the medicine you need.

We do not know that this is what would happen. But that’s part of the point. Nothing on this scale has ever been tried before. It is bound to produce unexpected and unintended outcomes. Pretending as if we know the economic and social consequences of this kind of revolution in the way Americans work is a dangerous conceit.”

Comment: Oh, those evil New York wastrels, and bohemians! How can the hard working folks out in Iowa possibly agree to support them with guaranteed occasional work, even if they have that same guarantee themselves, even if it provides them with the full-time continuing work they prefer, and even if they’re not (remember, John, this is MMT) actually funding them from anyone’s tax money?

And, what, exactly, is wrong with the value produced from painting, acting, and writing? Of course, not everything produced from these activities adds value. But the same is true of many private sector activities. Does John really think that economists are more valuable to society than artists, actors, and writers, for example?

And why isn’t it the case that many people will use the JG as a means of leveraging getting new businesses started? Why assume that this sort of pattern will be economically stagnating? Maybe it will be the opposite. Maybe it will free up creativity? Why is a certain amount of freedom from other people’s judgments about what activities are valuable to undertake “stagnating?” Again, John is showing an ideological bias here, and it is a conservative bias toward reinforcing authority and against increasing personal freedom.

Prosperity with An Unemployed Buffer Stock?

”As Cullen Roche at Pragmatic Capitalism points out, we know that we can have prosperity with unemployment. We don’t know we can have it without unemployment because we’ve never tried it and our economic models will always fall short. The maps aren’t the territory.”

Well, the question here is: prosperity for whom? Maybe there’s prosperity for Cullen, and for John, but there’s no prosperity for the people in the unemployed buffer stock, their families, or their children. There’s also no prosperity for working people whose wages are either kept low or further depressed by the rising buffer stock of the unemployed. That’s why the median wage in the US has increased very little in the US since the 1970s and that’s also why inequality has grown so greatly. If we want to stop trends like this and create a more equal society, more consistent with robust political democracy, then we have to stop depressing wages by fighting inflation with large unemployed buffer stocks.

Also, what is the standard used to say that the unemployed buffer stock “works”? It certainly hasn’t worked for working Americans if we compare their state with citizens of other nations. With each passing year we see that cross-national indicators of economic well-being show that US citizens are falling farther and farther behind the citizens of other modern nations. There is no getting around it: something’s rotten in the United States, but not in Demark. The US isn’t working as it should as an economy producing the kinds of opportunities people value; including the opportunity to start new businesses, to attend college, to receive health care when you need it, or even to have an economic safety net when disaster strikes. And one of the reasons is that we don’t (John Carney and Cullen Roche, not withstanding) have widely shared prosperity due to our insistence on having an unemployed buffer stock.

”You’ll notice that in my story of my arty NYC friends above I pointed out that unemployment interacts with rent control in ways that many people have never considered. The Job Guarantee will not come into an economy unencumbered by regulation. It will become part of an extremely complex web of regulations enacted during the last hundred and fifty years. It is impossible for anyone to know how the Job Guarantee will interact with the rest of the regulatory state.”

This is a very common conservative complaint about any attempt to change the way things are done. Yes, we live in a complex adaptive system, and our participation in it is reflexive to boot. Life is about unanticipated consequences and “black swans.” It is impossible to know exactly what will happen if we make major changes to our economic system. But the only way to find out is to make the changes we think will improve things, to evaluate them, and then change things again if what we’ve done doesn’t work. John’s attitude toward the JG is the traditional conservative ‘can’t do” attitude. The attitude that says the sky will fall if you change anything substantially. But, I think that the present system is ruining a lot of lives. We need to change it, and keep changing it, until we get it right — until those lives are no longer being ruined.

Conclusion: Fallacies of Composition

What we’re seeing in the objections to the JG offered by Cullen Roche and John Carney are micro-economic and even anecdotal arguments arguments being used against the JG proposal by people who don’t want to risk certain possible, but not likely effects of the program. What’s possible can be recognized by thinking through scenarios like those which end in inflation, excessive bureaucracy, skills mismatch, and stagnation. All these things are possible consequences of the JG impact on some individuals.

Implementing a JG may well cause one-time price adjustments in the economy. We will probably be able to point to examples where its introduction causes certain prices to go up. But, because of the impact of other MMT stimulus programs and the aggregate demand introduced by the JG itself, the private sector will move strongly toward providing full employment (though at higher wage levels) within 6 months. So, the JG population will be declining, and along with it Government deficit spending and any inflationary impact it could have. From the micro point of view, it may be reasonable to project that the JG will cause inflation, but from the macro point of view it makes no sense at all if we look at things over time and in terms of the likely interactions between the Government and the private sector.

When we think about the JG, further, and also think about our personal experiences with Government programs, a plausible reaction is: “Oh no, not another Government bureaucracy.” However, if the JG program primarily relies on State and local authorities and non-profits to hire JG people, while the Government restricts itself to funding, then it may not add very much to bureaucracies that already exist. So, if we look at it in the context of other existing bureaucracies, the micro objection that this is going to take another big bureaucracy pales before the reality that the work on the ground can be overseen by bureaucracies and organizations that are already there.

The skills mismatch complaint, next, looks plausible, when we reflect that most of us may have had the experience of seeing an advertisement for a desirable job and then lamenting that we are lacking a few qualifications to take advantage of the opportunity. But that’s not looking at things from a macro point of view. Which industries really have skills/job qualifications mismatches that would require more than a short time of company paid for, or JG supported training or both to resolve? What percent of the unemployed pool is affected by that? What percent won’t be hired because they want good wages and benefits, and people who need people with their qualifications cost much less in other nations? Without good data on the frequency of the mismatch “problem”, how can we know whether it will impact the JG or not? It may be a possibility; but that doesn’t make it likely.

Finally, we all know about “welfare queens.” Reagan’s never existed. He just told a story, and people believed it because they could imagine that it might have happened, and because they wanted to believe the worst about people on welfare.

John Carney’s story about his “arty friends” in New York, may be true, and maybe he knows them. But the fact, that the JG may produce JG Queens or Kings only becomes a problem, if the people involved are a statistically large proportion of the program, and also if they’re people who aren’t producing value in their JG and broader social roles.

Anecdotes about individuals John knows, don’t show that this possible phenomenon would be an actual problem if the JG program were implemented. They only show, instead, his own judgmental Calvinism, which looked at from a macro societal point of view may be a bigger and much more serious problem than any possible JG Queens or Kings could ever be.

The Job Guarantee and the MMT Core: Part Five, John Carney on the Mismatch Problem and the Distribution of Labor

9:26 pm in Uncategorized by letsgetitdone

Parts One, Two, Three,and Four

In the first four parts of this series, I analyzed views on the Job Guarantee (JG) idea offered by Cullen Roche and Peter Cooper in conjunction with a post by John Carney, which kicked off an explosion of blogosphere posts and commentaries on the JG. In Part Three I began an analysis of John Carney’s views by taking exception to his claims that the JG would be inflationary, a bureaucratic nightmare, and would cause economic stagnations. In Part Four, I critiqued his views on the problem of a mismatch between demand and the skills needed to fulfill it, the possible inflationary impact of this mismatch, and also his claims on the JG and stagnation.

In this post, I continue analyzing John’s further take on the JG in in his ‘The Trouble with a Job Guarantee. His reasoning in this post, focuses on the problem of a mismatch between demand and the skills needed to fulfill it, the possible inflationary impact of this mismatch, and also amplifies his claims on the JG and stagnation. My interleaved replies from an MMT perspective to his assertions and arguments are provided in this and an upcoming post, as well as in Part Four. All my replies assume that the JG would not be “paid for,” but would occur through deficit spending.

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.

The Distribution of Labor and the JG

“So the Job Guarantee actually falls prey to that old problem of the distribution of labor. Unless the skills, talents and dispositions of the unemployed miraculously match the jobs the government would like done, it doesn’t actually work much better than the “full employment” monetary policy.

This creates the inflation problem I wrote about when I first addressed the Job Guarantee. The MMTers claim that their approach isn’t inflationary. In fact, they like to call it “Full Employment and Price Stability.”

But if they are creating jobs that put more money into people’s hands without creating more supply of that which is actually demanded, then prices are likely to increase. Businesses may be able soak up some of the extra-demand by increasing their output—but this has limits, especially if there is a labor-demand mismatch. The productivity of existing workers can only be increased so far.”

Comment: This just re-hashes John’s old assertions. Everyone agrees that Government can’t deficit spend an unlimited amount without causing demand-pull inflation. MMT doesn’t disagree with this. No one’s proposing deficit spending beyond productive capacity using the JG or anything else. JG spending is designed to shrink as the private sector responds with more supply to the Government providing funding for real work that will add value to American life.

The reason why it will is that in responding to increased demand the private sector will rehire people from the JG and it will shrink. As I’ve argued above, the so-called labor/demand mismatch is really a claim that the increased demand can’t be met by an increased supply response. But there is absolutely no evidence or reason to believe that we can’t “supply” in response to the increased demand coming from the JG. If John thinks there is, then I think the burden is on him to provide some calculations based on empirical data. I challenge him, or anyone else, to do that.

“Because the workers without skills demanded by the private sector have jobs and earn income, their incentive to retrain and relocate is diminished—which means that the labor mismatch persists and businesses may not be able to increase output to match rising demand.”

Comment: This one is really strange. If businesses aren’t able to meet the demand that existed before the crash of 2008, then it will be because they don’t hire back the workers they laid off. If State Governments can’t meet the demand for the services they provided before the crash, it will, again, be because they are refusing to meet that demand by hiring their employees back. It won’t be because of any skill mismatch. There’s little empirical evidence that this will be a serious problem, if the demand is there.

Also, if some people remain on the JG because they can’t get better-paying private sector jobs due to a skills mismatch, and if they know that those jobs are going begging, then they will take advantage of JG-related opportunities for retraining, because the incentive for them to do so in the form of higher pay and better benefits will be there if the market is working, and will pay a higher price for labor as demand increases. And if the market doesn’t work, then the JG safety net is all the more necessary to give those the market can’t provide for, work that will produce real value.