Warren Mosler and Art Laffer: Birds of a Feather?

     To be sure, I'm deliberately making this sound provocative but as Mosler tells it, Laffer helped him get his original Soft Currency Economics done in the 90s:

     "With my new understanding, I was keenly aware of the risks to the welfare of our nation. I knew that the larger federal deficits were what was fixing the broken economy, but I watched helplessly as our mainstream leaders and the entire media clamored for fiscal responsibility (lower deficits) and were prolonging the agony."

     As I noted in my last post, Mosler says that he got this new understanding as a very successful and wealthy investor looking at investing in Italian government bonds in the early 90s.

     "A few days later when talking to our research analyst, Tom Shulke, it came to me. I said, “Tom, if we buy securities from the Fed or Treasury, functionally there is no difference. We send the funds to the same place (the Federal Reserve) and we own the same thing, a Treasury security, which is nothing more than account at the Fed that pays interest.”

    "Many of my colleagues in the world of hedge fund management were intrigued by the profit potential that might exist in the 2% free lunch that the Government of Italy was offering us. Maurice Samuels, then a portfolio manager at Harvard Management, immediately got on board, and set up meetings for us in Rome with officials of the Italian government to discuss these issues."

     http://diaryofarepublicanhater.blogspot.com/2015/03/warren-mosler-vs-keynes-and-jim-cramer.html

     It kind of works out pretty nice for him then if he had both Macro enlightenment and this knowledge made him wildly successful on some big investments in bonds. Again, as I note in the link above, this is not commonplace as even Keynes said he only got successful as an investor when he gave up using his macro knowledge and experience-ie, it didn't help him to know what the CB or Treasury would do tomorrow when deciding how to play currencies. 

    From here he went on to write Soft Currency Economics. 

    "It was then that I began conceiving the academic paper that would become Soft Currency Economics. I discussed it with my previous boss, Ned Janotta, at William Blair. He suggested I talk to Donald Rumsfeld (his college roommate, close friend and business associate), who personally knew many of the country’s leading economists, about getting it published. Shortly after, I got together with “Rummy” for an hour during his only opening that week. We met in the steam room of the Chicago Racquet Club and discussed fiscal and monetary policy. He sent me to Art Laffer who took on the project and assigned Mark McNary to co-author, research and edit the manuscript, which was completed in 1993."

    I've often thought there was something similar between what he says about taxes and what Mosler and Jude Wanniski started saying in the 70s. Mosler says that a recession comes when taxes are too high relative to the current level of speniding. This is basically what the Laffer Curve is-the optimum level of taxes. 

   At least conceptually the ideas are pretty similar. Yet Laffer has become synonymous with the Right and Mosler with the Left. The trouble with Laffer is that in principle there are times it would be legitimate to raise taxes but yet there is no time I;m aware of that he's ever admitted this to be the case. 

   On the other hand, when you look at Mosler, the key is that it's relative to government spending which in practice frees most liberals to focus on the need for higher spending. Yet Mosler's is a good way to look at it-taxes are not as high if you raise government spending or vice versa. 

   So did Mosler and Laffer stay friends? Meanwhile, Mosler's 'epiphany' seems to have led him to some conclusions very similar to the insights of Post Keynesians though he hadn't read people like Minsky, etc. 

   "Warren Mosler, after obtaining his BA in Economics in 1971, entered the financial sector in 1973 as a loan collector in a small savings bank. In 1976 he was an AVP at Banker’s Trust NYC on their ‘bond desk’ before moving Chicago in 1978, where he established the government bond department for William Blair and Co. In 1982 he cofounded Illinois Income Investors, an international investment company that specializes in fixed income relative value investment strategies, and AVM, institutional broker/dealer. In 1993 he authored ‘Soft Currency Economics’ with editorial assistance from economics Professors Mark McNary and Arthur Laffer, which was the beginning of ‘Mosler Economics (ME)’. In 1996, Professor Pavlina Tcherneva, then an under graduate student, published a paper that showed how ‘Soft Currency Economics’ was in fact an extension of the existing Post Keynesian (PK) school of thought:

    “In his essay Soft Currency Economics, he draws from his experience as a practitioner in financial markets in analyzing the underlying forces at work in a modern monetary system. Interestingly, this analysis incorporates several postulates that can be considered logical extensions of Post Keynesian monetary thought. Considering the fact that he had no exposure to the Post Keynesian school of thought before writing his paper, it is fascinating to see the striking similarities between important aspects of his analysis and Post Keynesian monetary theory. Furthermore, Mosler's work deserves serious consideration for the valuable insights into the monetary system that are not currently focused on by the academic world, policymakers, or the general public.”

     "However, rather than being incorporated by the Post Keynesians, both Mosler and SCE were, in general, not well received by Post Keynesians, and most often rejected when not ignored. Those few who did initially recognize the merits of ‘Soft Currency Economics’ included Professors Bill Mitchell, Mat Forstater, L. Randall Wray, Stephanie Kelton and Pavlina Tcherneva who. a few years ago, when ME became popularized as Modern Monetary Theory (MMT), became recognized as MMT professors."

     http://www.unibg.it/dati/corsi/910003/64338-Warren%20Mosler%20Bergamo%20paper%20March%2010.pdf

    It does strike me that his healthcare plan sounds pretty conservative actually:

    "My proposal regarding health care is to give everyone over the age of 18 a bank account that has, perhaps, $5,000 in it, to be used for medical purposes. $1,000 is for preventative measures and $4,000 for all other medical expenses. At the end of each year, any unspent funds remaining of the $4,000 portion are paid to that individual as a “cash rebate.” Anything above $5,000 would be covered by a form of Medicare. There would be no restrictions on purchasing private insurance policies."

   "This proposal provides for universal health care, maximizes choice, employs competitive market forces to minimize costs, frees up physician time previously spent in discussion with insurance companies, rewards “good behavior” and reduces insurance company participation. This will greatly reduce demands on the medical system, substantially increasing the supply of available doctor/patient time and makes sure all Americans have health care. To ensure preventative measures are taken, the year-end rebate can be dependent, for example, on the individual getting an annual check up. And though it is federally funded, it can be administered by the states, which could also set standards and requirements."

   "There is no economic school of thought that would suggest health care should be what’s called a “marginal cost of production” means that it is bad for the economy and our entire standard of living to have business pay for health care. This proposal eliminates that problem for the American economy in a way that provides health care for everyone, saves real costs, puts the right incentives in place, promotes choice and directs competitive forces to work in favor of public purpose."

    http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

    It sounds like the healthcare insurance market remains private. As for the $5,000, that might be well short of what is needed if someone is sick-though I guess the idea is that Medicare-in some form covers the rest.