It strikes me when you get into economics how similar a lot of ideas between Left and Right really are-though neither side will ever admit it. So there is more than a little family resemblance between Mosler's claim that recessions are caused by taxes that are too high relative to current spending and Art Laffer's Laffer Curve.
http://diaryofarepublicanhater.blogspot.com/2015/03/warren-mosler-and-art-laffer-birds-of.html
Nick Rowe recently told me that the only difference he'd take with Mosler here is that he'd argue that recessions come due to tight money. The big difference between MMT and MMers is the pride of place of fiscal vs. monetary policy.
Morgan Warstler won't ever admit it but his Choose Your Own Boss (CYB) and Auction the Unemployed proposals have a lot of stark similarities with MMT the difference being is that he tries to make his proposal the free market alternative.
http://www.morganwarstler.com/post/44789487956/guaranteed-income-choose-your-boss-the-market
http://diaryofarepublicanhater.blogspot.com/2015/02/morgan-warstlers-cyb-or-let-them-eat.html
He talks about guaranteed income just like Mosler does. Really, both Left and Right have been coalescing around the idea of a guarantee for a long time but never can come to any agreement back to Friedman's negative income tax in the 70s.
Here is Mosler on a job guarantee:
"To optimize output, substantially reduce unemployment, promote price stability and use market forces to immediately promote health-care insurance nationally, the government can offer an $8 per hour job to anyone willing and able to work that includes full federal health-care benefits. To execute this program, the government can first inform its existing agencies that anyone hired at $8 per hour “doesn’t count” for annual budget expenditures. Additionally, these agencies can advertise their need for $8 per hour employees with the local government unemployment office, where anyone willing and able to work can be dispatched to the available job openings. This job will include full benefits, including health care, vacation, etc"
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
Note that the fringe benefits push up the wage considerably from $8 an hour. He proposed this I believe when the national minimum wage was $7.25-now the MW is actually $8. My understanding is he thinks this JG wage could be a nominal anchor but how could it be with the MW continuing to rise? The JG too would have to rise with inflation. Back to Mosler:
"These positions will form a national labor “buffer stock” in the sense that it will be expected that these employees will be prone to being hired away by the private sector when the economy improves. As a buffer stock program, this is highly countercyclical anti-inflationary in a recovery, and anti-deflationary in a slowdown. Furthermore, it allows the market to determine the government deficit, which automatically sets it at a near “neutral” level. In addition to the direct benefits of more output from more workers, the indirect benefits of full employment should be very high as well. These include increased family coherence, reduced domestic violence, less crime, and reduced incarcerations. In particular, teen and minority employment should increase dramatically, hopefully, substantially reducing the current costly levels of unemployment."
To the extent that this would cancel out the 'reserved army of the unemployed' would this meet the opposition of employers?
Mosler on monetary policy and interest rates:
"It is the realm of the Federal Reserve to decide the nation’s interest rates. I see every reason to keep the “risk free” interest rate at a minimum, and let the market decide the subsequent credit spreads as it assesses risk"
"Since government securities function to support interest rates, and not to finance expenditure, they are not necessary for the operation of government. Therefore, I would instruct the Treasury to immediately cease issuing securities longer than 90 days. This will serve to lower long-term rates and support investment, including housing. Note, the Treasury issuing long term securities and the Fed subsequently buying them, as recently proposed, is functionally identical to the Treasury simply not issuing those securities in the first place."
Also he advocates leaving ZIRP as the permanent rule-so much for the ZLB argument.
"I would also instruct the Federal Reserve to maintain a Japan like 0% fed funds rate. This is not inflationary nor is it the cause of currency depreciation, as Japan has demonstrated for over 10 years. Remember, for every $ borrowed in the banking system, there is a $ saved. Therefore, changing rates shifts income from one group to another. The net income effect is zero. Additionally, the non government sector is a net holder of government securities, which means there are that many more dollars saved than borrowed. Lower interest rates mean lower interest income for the non-government sector. Thus, it is only if the borrower’s propensity to consume is substantially higher than that of savers does the effect of lower interest rates become expansionary in any undesirable way. And history has shown this never to be the case. Lower long term rates support investment, which encourages productivity and growth. High risk-free interest rates support those living off of interest payments (called rentiers), thereby reducing the size of the labor force and consequently reducing real national output."
So no Treasuries older than 90 days and ZIRP. He claims that changing rates has no income effect but simply shifts income from one group to another. This is the opposite of Stephen Williamson who claims that raising rates would actually raise inflation rates and presumably support growth.
http://diaryofarepublicanhater.blogspot.com/2015/02/stephen-williamson-vs-laurence-mishkin.html?showComment=1424909055014#c2733253931994923547
UPDATE: Here's one more thing that every econoimst no matter how liberal or conservative or 'libertarian' or 'socialist' seems to agree on including Mosler here:
"Today’s governments unofficially use unemployment as their buffer stock policy. The theory is that the price level in general is a function of the level of unemployment, and the way to control inflation is through the employment rate. The tradeoff becomes higher unemployment vs. higher inflation. To say this policy is problematic is a gross understatement, but no one seems to have any alternative that’s worthy of debate."
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
http://diaryofarepublicanhater.blogspot.com/2015/03/warren-mosler-and-art-laffer-birds-of.html
Nick Rowe recently told me that the only difference he'd take with Mosler here is that he'd argue that recessions come due to tight money. The big difference between MMT and MMers is the pride of place of fiscal vs. monetary policy.
Morgan Warstler won't ever admit it but his Choose Your Own Boss (CYB) and Auction the Unemployed proposals have a lot of stark similarities with MMT the difference being is that he tries to make his proposal the free market alternative.
http://www.morganwarstler.com/post/44789487956/guaranteed-income-choose-your-boss-the-market
http://diaryofarepublicanhater.blogspot.com/2015/02/morgan-warstlers-cyb-or-let-them-eat.html
He talks about guaranteed income just like Mosler does. Really, both Left and Right have been coalescing around the idea of a guarantee for a long time but never can come to any agreement back to Friedman's negative income tax in the 70s.
Here is Mosler on a job guarantee:
"To optimize output, substantially reduce unemployment, promote price stability and use market forces to immediately promote health-care insurance nationally, the government can offer an $8 per hour job to anyone willing and able to work that includes full federal health-care benefits. To execute this program, the government can first inform its existing agencies that anyone hired at $8 per hour “doesn’t count” for annual budget expenditures. Additionally, these agencies can advertise their need for $8 per hour employees with the local government unemployment office, where anyone willing and able to work can be dispatched to the available job openings. This job will include full benefits, including health care, vacation, etc"
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
Note that the fringe benefits push up the wage considerably from $8 an hour. He proposed this I believe when the national minimum wage was $7.25-now the MW is actually $8. My understanding is he thinks this JG wage could be a nominal anchor but how could it be with the MW continuing to rise? The JG too would have to rise with inflation. Back to Mosler:
"These positions will form a national labor “buffer stock” in the sense that it will be expected that these employees will be prone to being hired away by the private sector when the economy improves. As a buffer stock program, this is highly countercyclical anti-inflationary in a recovery, and anti-deflationary in a slowdown. Furthermore, it allows the market to determine the government deficit, which automatically sets it at a near “neutral” level. In addition to the direct benefits of more output from more workers, the indirect benefits of full employment should be very high as well. These include increased family coherence, reduced domestic violence, less crime, and reduced incarcerations. In particular, teen and minority employment should increase dramatically, hopefully, substantially reducing the current costly levels of unemployment."
To the extent that this would cancel out the 'reserved army of the unemployed' would this meet the opposition of employers?
Mosler on monetary policy and interest rates:
"It is the realm of the Federal Reserve to decide the nation’s interest rates. I see every reason to keep the “risk free” interest rate at a minimum, and let the market decide the subsequent credit spreads as it assesses risk"
"Since government securities function to support interest rates, and not to finance expenditure, they are not necessary for the operation of government. Therefore, I would instruct the Treasury to immediately cease issuing securities longer than 90 days. This will serve to lower long-term rates and support investment, including housing. Note, the Treasury issuing long term securities and the Fed subsequently buying them, as recently proposed, is functionally identical to the Treasury simply not issuing those securities in the first place."
Also he advocates leaving ZIRP as the permanent rule-so much for the ZLB argument.
"I would also instruct the Federal Reserve to maintain a Japan like 0% fed funds rate. This is not inflationary nor is it the cause of currency depreciation, as Japan has demonstrated for over 10 years. Remember, for every $ borrowed in the banking system, there is a $ saved. Therefore, changing rates shifts income from one group to another. The net income effect is zero. Additionally, the non government sector is a net holder of government securities, which means there are that many more dollars saved than borrowed. Lower interest rates mean lower interest income for the non-government sector. Thus, it is only if the borrower’s propensity to consume is substantially higher than that of savers does the effect of lower interest rates become expansionary in any undesirable way. And history has shown this never to be the case. Lower long term rates support investment, which encourages productivity and growth. High risk-free interest rates support those living off of interest payments (called rentiers), thereby reducing the size of the labor force and consequently reducing real national output."
So no Treasuries older than 90 days and ZIRP. He claims that changing rates has no income effect but simply shifts income from one group to another. This is the opposite of Stephen Williamson who claims that raising rates would actually raise inflation rates and presumably support growth.
http://diaryofarepublicanhater.blogspot.com/2015/02/stephen-williamson-vs-laurence-mishkin.html?showComment=1424909055014#c2733253931994923547
UPDATE: Here's one more thing that every econoimst no matter how liberal or conservative or 'libertarian' or 'socialist' seems to agree on including Mosler here:
"Today’s governments unofficially use unemployment as their buffer stock policy. The theory is that the price level in general is a function of the level of unemployment, and the way to control inflation is through the employment rate. The tradeoff becomes higher unemployment vs. higher inflation. To say this policy is problematic is a gross understatement, but no one seems to have any alternative that’s worthy of debate."
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
Boy you really are jumping into the Mosler reading! Good to see.
ReplyDeleteYou're right that Mosler sounds a lot like conservatives on a lot of things. When he ran for office a few years ago he started as a Tea party candidate believe it or not but ended up a more independent/democrat in his final try.
The thing about Mosler is that he does not want to run for power, he wants to run to enlighten people and solve real world problems. He also knows that "financial" problems are all man made. Our myths we create about moneys origins and uses are what are really holding us back. This isn't to say there aren't real problems, but the people who talk about our real problems, in money terms, are misguided.... often dangerously so (Im saying misguided but in fact many know exactly what they are doing and these problems are actually intended..... financial problems give some an excuse to deny things to people they don't like)
His health care ideas are brilliant I think. With the 5000$ that each individual has, they can purchase insurance. So my wife and I would have $10,000 to buy insurance if we want or we self insure and pay out of pocket. Anything over that gets paid at a medicare rate to providers. He doesn't just pull that number out of his ass either, he took the total health care spending for some year, as could be best estimated, and divided it by the number of Americans. 1.5 trillion divided by 300 million. So spending on health care doesn't change but the incentives of the system do..... for the better I think. Conservatives aren't wrong about wanting to free up market forces. There are many ways in which we can use the market in positive ways in health care but todays conservatives aren't really conservative anymore, they are just radicals who want to do away with govt they don't like (one that listens to even the little people) and replace it with corporatocracy/theocracy. These modern republicans are sham conservatives. They are more akin to the Taliban than Eisenhower or Nixon..... even Reagan for that matter.
Yeah, like I said, my goal is to understand things first and foremost.
ReplyDeleteOne thing that Marx said I didn't get was in Poverty of Philosophy when he said this:
"The philosophers have only interpreted the world, in various ways; the point is to change it."
https://www.marxists.org/archive/marx/works/1845/theses/theses.htm
Sure but to change it you have to understand it properly first.
Mosler sounds quite similar to Laffer on taxes-but Laffer basically has looked like a charlatan since at least 2013 when he opposed letting the top Bush tax cuts expire. In theory the Laffer Curve shouldn't always mean you cut taxes and that you never riase them but that's how it works out based on his own positions over the years.
ReplyDeleteAs you say a lot of the conservatives know they're lying like Mosler related a conversation with Stephen Moore that show'd he knew 'Social Security privatization' isn't helping anyone-just getting Wall Street some transaction fees-but pretends he thinks that 'privatization' is going to help people have more money at retirement.
ReplyDeleteThis one thing I really differ with Sumner over: he says that we should take people at their word in debates.
Now way is this true with the modern Republican party.
I think that conversation with Moore that you cite is a great example. Molser gets the macro picture. Cullen Roche does too. Sumner does NOT!
ReplyDeleteThe whole efficient markets bullshit is a prime example of Sumner not getting it. Efficient doesn't even mean anything in term of financial markets. What would an in-efficient market be?
His whole you cant beat the market long term without luck is pure folly. What market?
The Dow? The S&P? If he is talking about the entire world asset market then there is only one global return, which is the composite of the return on every asset. Nobody owns a piece of every asset in the exact proportion in which they exist. IOW, when looking at what the global market is, it is a composite of every stock and every bond every commodity etc from every country and company. All with various profit rates and interest rates and they are all traded in either very active or less active markets Some are hard to move some easy to move. Whatever choice you make to own will be a slice of this and it will not be the same return as the composite market, it will be better or worse. And understanding the forces which affect your market will make you a better investor and keep you from doing stupid things ........ like shorting the US Treasury Bond market when QE3 started cuz your model tells you hyperinflation is likely or even possible. So Sumner is wrong. Plenty of people have outperformed the market for long times and not JUST cuz they were lucky but cuz they chose something they understood well, like Mosler did with currencies and he took advantage of people and policy makers who made stupid choices and bets. Will the same strategy work for ever.....No? But that doesn't mean you were just lucky when you were doing well.
That being said, many many market participants in many areas were just lucky and got in at right times in certain stocks. And many of them got a false sense of their knowledge and wrote books and peddled "cant miss" strategies to silly rubes who thought everyone could get rich in the market if they were just using the right "formula". But Sumner and all the EMH guys take this too far and say the market "cant be beat". Well the market isn't a player to be beaten its simply THE composite of many smaller markets many of which are doing well for now and many that aren't.
Cullen had some great posts on this topic in the past few months and I agree with him. The problem too many people have is they think of the market as a place to get rich when it is simply a place to try and keep from getting poor while getting some return better than cash under your mattress. Buffett isn't rich because he traded stocks smartly, he's rich because he bought companies and made them printing presses. It was the real returns generated by the businesses he owned that made him rich, not timing the buying and selling of the stocks.
Gamblers try and time their buying and selling, and as Keynes pointed out the smart gambler doesn't pick stocks he likes he tries to guess what everyone else will like and gets them first, but investors build real companies.
My assumption when they talk about 'the market' is simply any particuclar market-that 'efficiency' how ever that might be defined, is going to characterize any market provided it is of representative size.
ReplyDeleteIronically, now Sumner is trying to start a market in NGDP futures.
Yes it is ironic.
DeleteI will say though that according to Sumners model, the CB is THE monopolist. To him they are the one that can control the economy. Of course Mosler would say that that which they have monopoly control over (reserves) doesn't really have much affect on the broader economy. Not to say it has NO affect, just that the affect is not very linear or consistent.
One thing I think that Sumner doesn't get about monopolies is they can only control one thing in a market, price or quantity. If they control both its not a market. You either set a price and let quantity float or set a quantity and let price float...... make a choice.
One of Moslers criticisms of monetary policy is that they are targeting the wrong thing (price) and thinking they are targeting quantity. They set M1 or M2 target levels (like back in the 80s)..... and then use interest rates... and then wonder why they cant hit their targets.
Speaking of Cullen I see a piece he wrote on market efficiency.
ReplyDeletehttp://www.pragcap.com/the-efficiency-of-the-market-doesnt-matter-to-smart-investors
To understand the MMT JG it is necessary to understand that the alternatives are a buffer stock of unemployed or a buffer stock of employed. One or the other will be the case depending on policy.
ReplyDeleteThe MMT solution to employment is to eliminate the buffer stock of unemployed in favor of a buffer stock of employed. This is the the most effective and efficient course, since it ensures that an economy is using all available resources and not idling labor to control price level.
MMT holds that price level can be controlled fiscally by managing effective demand at full employment. As a macro theory MMT is mostly about how to resolve the trifecta of growth, employment and price level through the sectoral balance approach, SFC macro modeling, functional finance and the MMT JG, which serves to create a buffer stock of employed and also acts as price anchor against inflation by setting the value of the currency in terms of a period of unskilled labor.
Note that there is always a buffer stock of labor and it is either employed or unemployed, and there is also some price anchor, e.g., gold under a gold standard.
I understand that with the JG Mosler called for the price anchor to be the wage of those in JG jobs-$8 an hour. What happens when the MW rises as it has since then?
ReplyDeleteThe JG wage would be the defacto MW. It could certainly be raised over time if need be. The JG wage is a political choice as is the MW.
DeleteBut remember too, the JG wage also includes health benefits so an 8$/hr wage with health care is better than WalMarts 9$/hr wage. WalMart would have to raise their wage or add benefits to compete.
Well right now Obama and the Dems are calling for a $10 MW Obama already made a start by requiring companies with federal contracts to pay it.
ReplyDeleteSo the need certainly would be. We'd have a kind of official and de facto MW. But as you-and I said in my piece-with health benefits and sick leave $8 is a in reality much higher than that.
The dollar is a public monopoly, and monopolists are necessarily 'price setter'
ReplyDeleteThat is, the 'price level' is necessarily a function of prices paid by govt when it spends and/or collateral demanded when it lends. In a market economy you only need to set one price, and let relative value/market forces due the rest. Hence the transition job compensation as numeraire...
Thanks for dropping by Dr. Mosler. My only question was about what effect the MW has on the numeraire or 'price setter'
ReplyDeleteI just finished your Seven Deadly Innocent Frauds and am now onto Soft Currency Econoomics.
ReplyDeleteHere's a question for you Dr. Mosler: if an enlightened Governor of a populous US state were to read your work is there anything he/she could do to improve the monetary/economic status of their state-assuming for the time being the federal government remains relatively unenlightened?
ReplyDelete