Cullen has a fresh post that responds to a comment of mine here.
* This originally appeared as a comment on Mike Norman’s website regarding this silly Job Guarantee (JG) disagreement among the MMT crowd. Unfortunately, Tom Hickey deleted it several times for reasons unbeknownst to me (I presume because he didn’t want readers to see the truth in my comments).
Tom, you said:“If Cullen doesn’t write it up as a professional paper fleshing out his argument, no professional economist is going to take his blog comments seriously.”Read the rest ate Pragmatic Capitalism
There’s A Difference Between Theory & Fact
by Cullen Roche
Here is a repost of my response to Cullen at Pragmatic Capitalism.
My point was that for LVG's assertion to be taken seriously, if there would have to be a serious debate at a professional level, which there hasn't been. And if you don't plan to undertake one, then LVG's assertion is, shall we say, premature.
BTW, I have access to post at MIke's, but I do not have acces to delete the comments of others (or if I do, I am unaware of it). I did not ask Mike to delete your posts, and I have never ask him to anything about the blog other than to check the spam filter for possibly lost comments that people had reported. iIf someone else who has access to the delete button did delete your comments, I have no way of knowing or checking. If you have a problem with this, please contact Mike. If your comments were deleted, it could not possibly been my doing in any way, directly or indirectly.
My intention is to clarify, not to confront. This is a macro debate that is over my head to contribute to, and all I am doing is repeating what I understand from the professional MMT contributors. I am simply interested in keeping the record straight about MMT, on one hand, and commenting on policy options based on my ideological views.
Finally, there is still confusion over what MMT is. As JKH has observed, there is a monetary theory (Chartalism or state money and credit money, vertical v. horizontal money, etc) and a description of monetary operations (STF's general and specific) underling a macro theory based on analytics and empirics as a challenger in the professional debate among macroeconomists.
As a result, there is 1) a debate of monetary theory and operations (such as largely goes on here at PC), 2) a macro debate at the professional level, 3) a debate over the application of the macro theory as a policy instrument revealing a spectrum of policy options, and 4) a debate over various policy options on various blogs. I am capable of repeating what I have understood about the first two, but my background does not qualify me to enter the debate other than as a person concerned with economic policy. As citizens and people affected by economic policy choices, the debate about policy options is open to us all, I will argue about that based on my own views.
These four debates must be kept separate in the mind. I am aware of no MMT contributor claiming that the JG is in any way connected with the monetary economics that underlies the macro theory. The claim is rather that the JG as buffer stock of employed and price anchor is an essential aspect of the macro theory in achieving FE $ PS.
This is what the macroeconomists mean when they use the acronym "MMT." Confusion arises from ambiguity, since many people use "MMT" to mean the monetary description instead of the macro theory. Further complicating the matter is that MMT is also used for application of the macro theory as a policy instrument.
When MMT as a macro theory is applied as a policy instrument, the JG is essential as a policy tool in achieving FE & PS. Hence, MMT economists recommend it as a policy tool. The MMT economists have said that they would prefer to the complete package adopted by policy-makers but they admit that this unlikely. It is far more likely that pieces will be adopted first, like the sectoral balance approach and functional finance, which would be a huge advance. But they caution, don't blame MMT as an applied macro theory, if inflation results in the absence of a JG. They also say that the JG could be chosen first, which would also be beneficial. However, it should not be judged harshly if the rest of the theory is not adopted along with it.
If I got anything wrong in representing anyone else's views, I welcome correction.
I have stated that while I think that the MMT policy option of a buffer stock of employed is likely superior to a buffer stock of unemployed as MMT economists claim, I really have no way of assessing that claim professionally since I am not a macroeconomist and this is a macro claim. I accept that they have have correctly modeled it, and until someone establishes definitively that they haven't I'll accept that claim.
I have also stated that I am uncomfortable with the JG because it treats labor as a commodity and that is inconsistent with my views about human rights and the dignity of work. I also don't think that it is forward looking, for reasons that I have set forth recently in comments at heteconomist.com here and here. I have also stated that while I don't agree with your approach of full productivity and living standard, in particular because it ignores distributional effects and the transition through which the world is now headed, I agree with you about quality being basic.
Cullen replies here.
31 comments:
Tom,
google's comments system here is a bit f-ed up Ive noticed over time.
I think one way to get better performance from the comments is to have an actual 'google' account and LOG IN before posting comments....
sometimes it seems comments for one post end up in another post, they dont post, it's inconsistent... I think one way to reduce this is for readers to break down and get an account with "the borg" and try that way....
Resp,
Right, I use my Google account here. Works.
http://www.youtube.com/watch?NR=1&feature=endscreen&v=xCj61-aoygA
The fact is, the social costs of unemployment are enormous. The theory is, what are we going to do about it?
I don't believe anyone is under the illusion that there will be a change in the system unless there is an economic collapse. If the system can muddle through, MMT will not be required, nor will any heterodox theory be accepted by the corrupt mainstream economics profession.
Tom,
Cullen made this comment over there:
" I guess we should have the govt offer everyone a job so we can all retire and become musicians for the rest of our lives (taken to an extreme of course)."
His use of this reductio ad absurditum is not a strong direct argument, and is a tactic often used actually by out of paradigm people .
" Sometimes I think people take this country’s high productivity levels for granted. But this has always been a weak point in MMT. In fact, before I joined the MMTers there was almost no hint of appreciation for productivity. No proper explanation of what causes hyperinflation."
The MMT leaders have always had a handle on "hyperinflation" with or without Cullen joining. The MMT has a very unique take on "inflation" which is VERY anti-monetarist and explains how general price rises happen under a FFNC currency, thru govt "ratification" of higher prices in the economy via "indexing". I dont think Cullen fully gets this aspect of MMT yet...
" And no appreciation for the fact that currency demand is a function not only of taxes, but productivity…."
I dont see how participants can generate demand for currency as a "function" of how "productive" they are. Seems like productivity is an ex post measurement of certain output parameters. I cant see how an abstract ex post economic measurement can "generate demand" for anything, this is bordering on magical thinking. And he misses savings desires entirely.
I think Cullen gets the fact that govt doesnt borrow its own "money" and that deficits dont matter on their own per se, but he's got a way to go on some other important nuances of MMT, as does John Carney.
Three I see right off are the concepts of "savings desires" and "inflation", and also in general what a "currency monopolist" is. Neither Cullen or John Carney exhibit any knowledge of these aspects of MMT.
resp,
I'v tried using the open Id option at time and it didn't post. Probably because I don't know what it is.
They claim that JG supporters are pushing their political agenda through policy prescriptions. Their objections are riddled with the same. It was my understanding that unemployment is caused by taxation and not because people are lazy and looking for free lunch.
Rodney that looks correct: ie "Taxation"
Warren left a comment over there for Cullen where it looks like he is mentoring Cullen a bit and here it seems he is having to take Cullen back to first principles ("from the beginning....") [bold emphasis mine]:
"that’s not the way I see it
It’s not about ‘buying into MMT’
It’s about recognizing ‘JG’ is the ‘base case’ for fiat money in general.
Back to the beginning
The govt wants to move real goods and services from private to public domain.
It levies a tax payable in its currency of issue.
this creates sellers of the real goods and services it wants to buy who now want the govts currency of issue in exchange for their real goods and services.
the govt buys those goods and services with its otherwise worthless currency, services being ‘labor’
That is the base case.
And that currency of issue is a simple public monopoly.
The tax ‘unemployed’ the labor from the private sector that the govt then hires, which was the point of the exercise to begin with.
So how does a monopolist, in the base case, do this?
Monopolists are price setters (vs price takers) in that they set the price/terms of exchange for their ‘commodity’ and let quantity adjust.
So, for example, lets say the govt wants 10 employees.
how would it get them?
It could, for example, at inception of the new currency,
levy a property tax for a total of $100 per year.
Then it could offer $10 per year for labor.
It knows it will get at least 10 people willing to work for the govt at that price from the private sector. And it might get a few more if the economy, for any reason, wants to earn ‘extra’ dollars above and beyond what it needs for tax payment and save them for whatever reason.
That’s called the JG, and it’s an example of govt using only jg workers to provision itself. And if it gets 12 workers but only wants to remove 10 from the private sector it can lower the tax to $90.
Yes, it could tax $100 and only hire 5 of the 12 looking to work for the $10 wage, but i call that a variation from the ‘base case’ where the monopolist sets price and lets the market determine quantity. (what more could a red blooded austrian want!). And it’s also a deviation, the way I see it, for base case because it seems ‘stupid’ to to tax $100, pay $10, hire only 5 people at that wage, and leave the economy with no way to comply with its tax obligation you imposed on it with a lot of desperate people left with a deflationary spiral as they attempt to sell their real goods and services at ever lower prices to get the $ you don’t allow to exist. But yes, it’s an option.
What does logically follow from the base case, which hires ‘off the bottom’ and takes the least valuable from the private sector as a point of logic (what more could a red blooded austrian want!) is the desire to hire someone ‘worth more’ in the private sector, like a judge, doctor, engineer, con artist (not that govt has any use for those…) etc. This means the govt has to pay more than $10 for those people. So let’s say it hires a judge for $20 per year. That means it will get 2 fewer ‘jg’ workers at the $10 wage than it did before. And if it buys an aircraft carrier for $50, now it’s ‘used up’ $70 of it’s ‘tax base’ and will only get a minimum of 3 jg workers at the $10 wage.
CONT'D
Looking back at the model, there is no ‘inflation’ as $10 per year will always buy one year’s worth of labor as described above. You only get inflation if ‘non jg’ spending rises to the point where it uses up all the tax base plus the savings desires (which can be positive or negative depending on credit conditions, etc.) and the $10 wage no longer attracts any workers. So for price stability, it’s critical to limit non jg spending to the point where people still show up to be employed to earn the $10 wage.
This is all the base case for monopoly, which is the easiest bit to understand on the spectrum from pure monopoly to pure competition. It only takes about half a day in macro classes, vs a life time in pursuit of the understanding of the elusive outer limit of pure competition.
So what where we are at today, is we started with the base case, and then ‘used up’ the tax base down to where we would, today, only get maybe 15 million JG workers for a wage of say, $8/hr, and then decided not to hire any of them, but instead leave them unemployed, and then pay most of them unemployment compensation.
So my point is, what sense does that make? We should either hire more of those who want to earn the $ needed to pay taxes and net save, with that need created by our tax policy and other institutional structure that caused them all to seek employment that pays in $, or cut the tax so most all of them go away, but leaving a few for gov to employ as our price anchor, and, hopefully, get some useful work out of them as well.
so what about all that is MMT?
MMT is the understanding of how that all works, and the understanding that JG is the ‘base case’ and the rest a derivative.
And yes, you are always free to chose any of the derivatives you want, and still ‘be MMT.’
So you could say MMT is being about having your eyes wide open.
hope that helps!"
Laura: I don't believe anyone is under the illusion that there will be a change in the system unless there is an economic collapse. If the system can muddle through, MMT will not be required, nor will any heterodox theory be accepted by the corrupt mainstream economics profession.
Agreed, and furthermore, my concern is that if MMT or part of it is picked up, it will just be to presserve the same corrupt and obsolete system that time is moving past, and many young people recognize this.
Cullen,
I never deleted any of your posts and Tom has never asked me to do anything of the sort. Sometimes comments get flagged as spam by Blogger and I do not get around to look at them often enough to take them out of the spam filter.
-Mike
ok I thought this was done with. Obviously not so I 'm going to ask again the obvious question, and be warned it might upset a few people, but what the hell is MMT doing with Cullen Roche?
Why are the core developers STILL tip-toeing round his vain, college jock approach to economics. Yeah he gets it but he is so desperate to claim MMT for himslef that he is willing to abuse and allow personal abuse of all the core developers on his site and there is no comeback. None, He is accomodated. Why ? It can't just be for the ratings. You've already got them.
Just take a look at his site, single figure comments until he posts an MMT article then it rises five/sixfold.
Just let him be. Don't give him legitimacy or the oxygen of publicity by reacting.
@ Matt
On one hand, many people are now coming to understand that the monetary description aspect of MMT is preferable to the existing confusion.
They can be either supply siders or demand siders, monetarists or fiscalists. This knowledge of actual operations and accounting can be applied in different ways, as Cheney's "deficits don't matter" statement shows.
On the other hand, MMT macro is demand side fiscalism in the Post-Keynesian tradition, and a lot of people think that this is "socialism." So they want "MMT" as monetary economics to be something different from what the MMT developers and the economists that have joined them have presented in their macro work. Of course, its doesn't help when several of the MMT contributors are openly on the left politically.
It's fine that some people oppose that political stance and the demand side approach. Those wishing to take a different course should acknowledge the contributions of the MMT developers to the understanding of monetary economics and develop their own macro analytic based on it as a policy instrument for the policy options they prefer, e.g., using supply side modeling instead of demand side, or monetarism over fiscalism.
There are many ways to approach economic theory on the basis of a factual description of the existing monetary system such as Warren presented in "Soft Currency Economics." There should be no problem as long as the differences in approach are kept straight and publicly acknowledged.
Clearly, John, Cullen, Rodger and others that post on MMT as monetary economics are on somewhat of a different track than the MMT macro folks. Rodger has called his approach Monetary Sovereignty to distinguish his monetarism from MMT macro's fiscalism, even though he uses a very similar analysis and agrees with much of that the MMT contributors have presented. No one has any problem with that.
No problem either with the tack that Cullen is developing in which he emphases productivity and living standards. It's just a different approach to macro as a theory and policy instrument from the one the MMT economists have presented. But both are are built on the same monetary foundation that the MMT contributors laid out in their monetary economics, so care must be taken to avoid confusion of terms and conflation of ideas.
John, too, like the MMT developers contributions to monetary economics but has issues with the macro theory and use of it as a policy instrument. Again, no problem. Certainly, the MMT contributors welcome the exposure he is giving to their ideas and his gracious participation in the debate on the blogs.
The MMT contributors position as I understand it is, take what you can use and acknowledge where it came from. Then do what you want with it, but please don't confuse what you are doing macro-wise with what we are doing in macro. we can use the same monetary operational analysis and have good macro theoretical and and policy debates based on that factual understanding.
The facts of monetary operations are the facts. Everyone will be better off to the degree that the debate is based on facts. MMT economists don't claim dibs on the facts, only the macro theory that they have developed on the factual foundation that they exposed, which contradicts major assumptions of macro as it is otherwise done. They rightly regard this contribution as a huge accomplishment as long as it stands, and no one has overturned the analytics yet, either with attacks on the reasoning or disconfirmatory empirics. The major serious object so far is that the empirical foundation is weak.
Andy,
One thing that may be good that comes out of this is I for one sometimes think the "dialog" format can be edifying in general, to people who might not even be involved in the actual dialogs.
I would defer to Tom on this; but I think the ancient Greeks used "dialogs" and I use the "Epistles" in the Sacred Scriptures, etc...
It may be edifying for a 3rd party to sort of "watch Cullen learn/watch Cullen be taught". People can learn things by watching other people learn/be taught things... I dont know why it works this way but it seems like this is how it often works for humans.
Resp,
Debate proceeds dialectically. This was the method that Socrates made famous through the use Plato made of his character in his Dialogues, although it existed before him. Socrates wrote nothing as far was know. He was into dialogue as the method of developing ideas and pointing out flaws in reasoning. This later morphed into scientific methodology.
Hegel applied his understanding of Greek thought in developing his dialectical approach to philosophy, which Marx subsequently adopted and adapted to his thinking.
Modern scholarship of intellectual debate through rigorously argued and substantiated professional papers is in this dialectical tradition.
Blogs are taking dialectic to a new level by allowing instantaneous interaction globally. Ideas are developing and changing right before our eyes. Exciting.
Sorry Matt and Tom. I take the point but sometimes you have to draw a line.
Its not that the risk is that CR could be seen as the face of MMT. That is obviously ridiculous but being associated with him is bad news all round in my view given his obvious ambitions and right wing connections. (ok I'm uk so I'm still getting used to the fact that the average person in the US is to the right of Maggie Thatcher but still..)
Andy,
I think I see it coming down to Libertarians of the Right.
They seek not to be subject to ANYTHING AND ANYONE (save themselves); this looks like is their bottom line. It may perhaps best be manifested popularly lately with the Ayn Rand stuff/cult.
Cullen has now left some comments over there to Warren to the effect that he believes paying taxes is mostly voluntary. This is in opposition to a belief that you pay your taxes to stay out of jail, which is tacit subjection to govt authority.
So you can see Right Libs dont want to believe that they are made subject to the authority of government, they dont even want to think about this hypothetically; this just shakes them down to their core when they get close to this concept, like "Krytonite", ie you cant get too close lest you see yourself as subject to govt authority.
Could be just some hard core cognitive dissonance or perhaps it goes deeper...
Resp,
Andy, as Scott Fullwiler said, when MMT went public unpredictable things could be predicted to happen. :o
There is no way to control these things and if one attempts to exert control over ideas, even one's own, that inhibits the natural process, which is dialectical. It's sometimes messy, like making sausage.
Interesting exchange at Cullen's:
Cullen: "It’s only coercive to the extent that we allow it to be coercive. Behind every man in uniform with a gun is 100 Americans with guns. This has played out hundreds of times throughout history. The state is not a tyrant and if it acts as one it will be demolished."
Dan Kervick: "Some view taxes as the inevitable participatory cost in a free society. Adam Smith said, “Every tax … is to the person who pays it a badge, not of slavery but of liberty. It denotes that he is a subject to government, indeed, but that, as he has some property, he cannot himself be the property of a master.”
Libertarians have to consider how far they are willing to go with it...
Well, we have Libertarian/Austrian views of MMT and MMT as a development of Post Keynesianism. The latter has provided the foundation in monetary economics, (what Cullen calls fact), presented its macroeconomic theory in the professional literature, and different people have applied the theory as a political instrument to present a range of policy options, some placing more emphasis on tax reduction and others on spending increases.
This endeavor has been decades in the making, and the others are just launching theirs, so it is premature to criticize them when most of their energy is presently going into critiquing what they see as the shortcomings of the MMT contributors.
It will be interesting to see what they come up with when they get around to organizing their ideas positively and presenting them in a format and forum suitable for debate. Right now, I am unclear about what it is exactly that they are proposing. Perhaps Cullen and John and maybe some others will team up and present something for us to look at.
You know this could have all been avoided, at least with Cullen, if he said from the outset
I do not wish to discuss what could be done with these insights to monetary operations, I only want to discuss what is done.
I think I need these four debates described to me in more layman terms.
As best as I can figure it 1) is just operations
2, 3 & 4 are all more or less indistinguishable to me.
Unless 2 is what can we do with these options, 3 is what should we do and 4 is what is the real world effect including the politics.
If that is the case I still find 2 & 3 indistinguishable.
1. I've never needed MMT. And MMT articles do worse traffic wise than any other articles on the site even though they generate comments.
2. I was never in this for the traffic to the website. If that were the case I'd have steered far away from MMT.
3. I am in this for the truth and that's all. The last few weeks have revealed to me that MMT is pure theory. I'll stick to the facts in MMT, but it clearly won't be MMT.
4. I am not a Libertarian or a right wing hack as many of you imply. I am a fiscal conservative and staunch social liberal. Pro gay, pro choice, pro just about everything socially liberal. Typical Californian I guess. So be careful jumping to conclusions about my politics. Ironically, it's become clear which side is playing politics here though some haven't looked in the mirror lately.
5. Anyhow, this has been enlightening. I am seeing the world of MMTers for what they are and now realizing why no one really took the theory seriously. So thanks for that and good luck.
Sorry you feel that way, Cullen. There's a big enough tent for all of us to get along. I'm fine with cooperating where we can and agreeing to disagree when we run up against our boundaries.
@ Senexx
# 1 is the description of monetary operations (checkable facts, accounting principles)
# 2 is building a macro theory on that as an economic generalized explanation that makes specific predictions allowing for empirical testing. This is what a scientific theory is. MMT is a macro theory in competition with New Classicalism, New Keynesianism, etc. It differs from other scientific theories in that it is based on #1.
#3 is the range of policy options that the theory makes available when it is applied as a policy instrument. This is the "engineering" aspect of macroeconomics wrt governing.
#4 is the various policy options along that range that get advocated by various people for political adoption.
If this is not clear, please keep asking. This is important in understanding the debate, which is often confused by conflating these separate aspects of MMT, or using "MMT" to designate only one aspect.
Tom,
You're always too gracious. It's not that I feel any animosity. I am just realizing that I really think some of the core aspects of MMT are flat out wrong. The MMT economists won't change their views on those points (this is way more than the JG I am realizing) so there's no point pretending to support something that I don't. I've never been in this for anything other than telling people the truth. And even if I am flat out wrong, I can't spread that which I don't believe in. So it is what it is.
Good luck. You guys don't need me anyhow. :-)
Cullen, you have made valuable contributions to spreading understanding of monetary operations built on Warren's "Soft Currency Economics." No reason not to continue to promote that without having to get into the weeds of the other stuff. As you say, that stands on its own legs as a factual description of monetary ops and standard double entry accounting.
As we are all coming to realize, MMT is not limited to that aspect alone insofar as the MMT contributors understand it. I don't see that as necessarily a problem for you, however. You aren't working in their field, and you are talking to people in your field, which is quite separate. Just forget about the macro, and focus on the monetary description, which is really what interests people in finance anyway. Most of the stuff you want to avoid involves macro theory and policy prescriptions based on it.
The monetary description is a significant contribution by itself, and if the MMT contributors had stopped there, they would still be recognized for it. But they went on to apply it in macro and then to use the macro as a policy instrument. Obviously that's OK, and anyone can disagree with the theory on a variety of grounds. But there isn't really any reason to go there at all if one is just using the monetary description in finance.
I don't see a problem here. Work out with Warren some appropriate terminology that represents what you are doing with the monetary description based on his original insights in "Soft Currency Economics" and that doesn't conflict with what the MMT economists are doing. You might even want to think about calling it Soft Currency Economics. Then things like the JG never arise.
I'm sure this will all work itself out in the end. As a close friend of mine who is a project manager at BoA likes to say, "Trust the process."
It is sort of clear as now I think 2 is indistinguishable from 1 as 2 is based on 1 & in recent times it has shown to be correct.
3 are the options
4 are the political effect of these options
Each of these to me are implicit in one another and I see no use in distinguishing between them.
Tom,
No matter what happens I will always credit Warren and the others for my understanding of the system. No doubt about that. Even though I disagree with some aspects I consider them all great friends and colleagues.
I've always told Warren that no matter where I end up he'll likely get the credit for it. That's the way it should be.
We're all in this with good intentions so my guess is that nothing but good will come out of it. So let the debates continue!
Best,
Cullen
Good to hear that Cullen. All will be well and turn out fine.
Let's not loose sight of what the real problems and issues are, and how the things we agree on can address them.
This is bigger than all of us, and our only problem will be the one of taking ourselves too seriously.
Note to self: Lighten up. :)
Senexx: It is sort of clear as now I think 2 is indistinguishable from 1 as 2 is based on 1 & in recent times it has shown to be correct.
#2 is quite distinguishable from #1 because it deals with the theoretical (hypothetical) rather than the factual, and #1 is all facts (actual ops) and accounting procedure/records.
There is no arguing #1 because the facts concerning monetary ops and accounting are checkable and have been substantiated. However, the claim that combining the sectoral balance approach, functional finance, and JG (as buffer stock of employed and price anchor) will lead to FE & PS is hypothetical and remains to be shown empirically, which is the test of the theoretical prediction expressed in the claim. Thus far, there has been no rigorous testing, where the results have been reported, at least as far as I am aware.
Senexx: 3 are the options. 4 are the political effect of these options
#3 is a range of policy options. The macro theory rule some things in and others out. For example, anything presuming a sectoral balance identity that doesn't sum to zero is automatically out. That throws out a lot of options under discussion now that presume balanced budgeting. It also shows how large the deficit must be given the non-government balance. But it doesn't say how the budget items should be distributed between taxation and spending. That presents a whole range of options.
#4 is a selection from along that spectrum of potential options. Warren generally prefers to adjust taxes and Bill generally prefers to adjust spending when presenting specific options. That is an individual policy choice independent of MMT. MMT allows both.
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