Full Employment Deficit

Wondering if something like the red line I drew might be some kind of approximation of what the ‘neutral’/full employment deficit needs to be.

The reason would be the ‘demand leakages’ that seem to grow geometrically due to tax advantages, such as funds being added to and compounding in pension funds, insurance reserves, CB reserves, etc etc etc?

If so, with the mainstream valuing lower deficits, and real limits to private sector credit expansion, seems the output gap is a whole less likely to narrow to full employment type of levels.

And the Fed could be low forever, much like Japan.

graph

This entry was posted in Deficit. Bookmark the permalink.

64 Responses to Full Employment Deficit

  1. “Always recognize that human individuals are ends, and do not use them as means to your end.”— Immanuel Kant

    Reply

  2. Jim says:

    Well, then, in regards to that, there is nothing to get either “optimistic” or “pessimistic” about, since the next cycle does not include this humanity which, on the other hand, is clearly on the downward slope you describe so clearly.

    Reply

    Tom Hickey Reply:

    If one is thinking short term, it’s pessimistic. If long term, optimistic.

    What I have gleaned from sages is that humanity is entering a phase transition that will be tumultuous on the way to the new phase. The die is cast but that humans have some control over the process and could make it less tumultuous than otherwise. “Time off for good behavior.”

    The idea is that reality is indeed perception, and perception is the outcome of one’s type of consciousness. “Knowledge is structured in consciousness and is different in different states of consciousness. Hence, reality appears differently in different states of consciousness.” So to change reality, shift perception by altering consciousness.

    Consciousness is both individual and collective. Everyone is responsible for cultivating oneself. This is called “spirituality,” and there is a perennial teaching about self-cultivation. To the degree that all share the same human nature, there is a core spirituality.

    The predominant level of consciousness at any period is collective consciousness. The vast majority are entrained by it, perceive reality in terms of it, and act on this basis. This is called the Zeitgeist, or “spirit of the age.”

    The quality of different periods and locations is determined by different levels of collective consciousness characteristic of them. Leaders are manifestations of the collective consciousness of different times and different peoples, and leaders are themselves entrained by the collective consciousness of those they lead. Internal contradictions result from the swirling of different currents in the collective consciousness of a social group. (A social groups is a social system linked by relationships and behavioral pattern instead of being a random aggregate.)

    The spiritual challenge lies in uplifting both individual consciousness and collective consciousness in order to increase knowledge and decrease ignorance. But here knowledge and ignorance do not mean the amount, type or quality of information. Knowledge is increased and ignorance decreased in this sense by raising the level of consciousness, both individually and collectively.

    This does not mean that anything has to be added. It is similar to taking off blinders rather than adding anything that one is lacking. The consciousness and knowledge are already available, only veiled by the dust of ignorance that must be swept off the mirror of mind. The veils only have to be drawn back to see more clearly and comprehensively.

    A golden age would be one in which collective consciousness is high, and vice versa. The new humanity that inhabits the coming golden age will have a different and more expanded level of consciousness, and that consciousness will result in a different perception of reality — one dominated by love rather than hate, peace rather than war, etc.

    Reply

    Tom Hickey Reply:

    BTW, catch Roseanne Barr on Lawrence O’Donnell. She has it figured out. “It’s peace, stupid.” Is it only the comedians that get it on the boob tube?

    http://www.msnbc.msn.com/id/21134540/vp/40958386#40958386

    Reply

    WARREN MOSLER Reply:

    so if nyc started a policy of collecting more subway tokens than they issued and the train system got all messed up in all kinds of ways because of that, would there be any more discussion, analysis, philosophizing, etc. than a simple muttering like ‘morons!’?

    Reply

    Tom Hickey Reply:

    If the federal government subsidized the states on a per capita basis for things like infrastructure instead of making them pay for it, the subway could be free. Does it make any economic sense to ration subway rides by price? :)

    Peter D Reply:

    Amazing discussion, here, guys. I am out of my depth, but feel like I can glimpse some understanding. (6+8 is 14, right? Why does Warren’s blog have to always test our arithmetic skills?)

    Reply

    Tom Hickey Reply:

    Peter D, just remember, “It’s all in how you look at it.”

    There are lot of people heavily invested in getting you to see thing their ways and they have powerful tools for doing so. In fact, it’s downright scary.

    The uncomfortable truth about mind control: Is free will simply a myth?

  3. Jim says:

    I should think that any new humanity would refer to a new cosmic period, a new “mahayuga” cycle, and not to this particular humanity–otherwise, one is reminded of that last illicit and vain attempt at unification which the Bible and Islam term “antichrist.” One wouldn’t want to be wandering amidst rusting refrigerators, rubber tires, styrofoam and empty factories. :-)
    I think, along with the Indians, that the buffalo is on its last leg and in its final moments–but of course, that can be years in human terms.

    Reply

    Tom Hickey Reply:

    I should think that any new humanity would refer to a new cosmic period, a new “mahayuga” cycle,

    That’s the idea.

    Reply

  4. Jim says:

    Hi Tom,

    Have your read Jerry Mander’s books? And Schumacher’s “Guide for the Perplexed?”

    Reply

    Tom Hickey Reply:

    Yes, I am familiar with both and regard “Guide for the Perplexed” as a model in introductory philosophy. Both are writing about getting beyond modern pseudo-reason and propaganda (perception is reality and perception can be molded) to holistic awareness (something ancient peoples were familiar with). There is a venerable body of literature about this extending to prehistory, and it is expanding rapidly now. Mander and Schumacher are two of many exploring it, along with its economic implications.

    Humanity needs to get beyond the rational and irrational to the non-rational or holistic in order to avoid disaster. The problem is that we are not transitioning quickly enough on a large enough scale. Neither culture nor education support it — in fact, they militate against it because it does not fit the paradigm that serves vested interests.

    So these writings and others like them are like the prophets of old crying in the wilderness to “repent.” If humanity doesn’t doesn’t make this transition quickly enough now as a species, it is headed toward troubled times owing to imbalances and dislocations arising from globalization. Owing to the power and extent of technology, the effect of humanity on Nature and itself as part of Nature is greatly amplified, and trouble is brewing.

    I am an optimist, however. See Meher Baba’s discourse on The New Humanity.

    This is from Meher Baba’s Discourses, 6th edition, edited by Don Stevens. Don, now in his nineties, was a close personal disciple of Meher Baba.

    Incidentally, Don’s day job at the time he was editing some of Meher Baba’s chief works was vice president in charge of oil purchasing for Standard of Oil of California, now Chevron. Don told me a couple of years ago that he was shocked by the behavior to top executives in the US these days. He said that in his day business people were upstanding, and nothing like what is happening now would have been tolerated.

    Reply

  5. Tom Hickey says:

    ESM, if you are paying attention to the political debate going on among politicians, in the media and on the blogs, it has everything to do with ideology and virtually nothing to do with reason. I am really not interested in arguing about politics on this blog since I think it is a waste time. I have never, ever seen anyone converted by political arguments.

    I think that we can come to some common agreement on policy options using MMT principles as a basis for discussion, for example, a mix of expenditure and tax cuts to stimulate aggregate demand, or how best to withdraw NFA to tame inflation when it threatens again. Stuff like that.

    For example, I put out the suggestion on taxing economic rent and you came back raising the issue of how to determine what constitutes economic rent. That is a constructive conversation to have that relates to policy options. But I follow “the gang of 8,” a group of economist with whom Michael Hudson participates. They disagree widely on such matters, even over whether there is any such thing as economic rent.

    The bottom line for me politically is that I am not even going to consider any GOP candidate, no matter what, while the party is so far right, and I will push the Democratic button automatically unless the Democrat is so far ahead that I feel comfortable registering a protest by voting third party — unless both parties piss me off so much that I cannot vote for either of them in good conscience, and we are approaching that point.

    I am way beyond cynical. I am alienated, and I have been since Vietnam. I have seen what US power can do, and I think Noam Chomsky has it about right. Michael Hudson lays out some of the economics in Super Imperialism: The Origin and Fundamentals of US World Dominance.

    The only presidential candidates that I voted for with any enthusiasm were JFK and George MeGovern. I’ve been holding my nose otherwise. But it was Kennedy that got us into Vietnam, and if McGovern had been elected, he would have not have changed the course much, or if he had really tried, he would have met JFK’s fate.

    The whole kerffufle over “big government” is nonsense. We are dealing with empire, and the folks that run it have all the guns. All these arguments about policy don’t amount to a hill of beans. The military-industrial-financial-governmental complex aka the corporate state is rolling, and the US is in a state of perpetual war. Habeas corpus and posse comitatus are gone, the 4th Amendment has been trashed, war crimes and torture are OK, corporations have the same standing as real people, and we are now living in a police state where the president can have anyone disappeared. Major political figures of both parties, but chiefly the GOP, are calling Julian Assange “a terrorist,” and some are even calling for his execution. The wheels are working to bring him to the US in chains as an example. Now that is what I call big government. The political clock is getting closer and closer to 1984.

    Human beings are part of nature. While we have “reason,” we do not use it chiefly in setting and pursuing objectives. Different groups vie with each other for territory and resources. Wars are characteristic. Moreover, every situation is dialectical in the sense of being driven by opposing forces. This is what “competition” means.

    My objective in life since Vietnam opened by eyes has been to stay out of the way of those opposing forces and do as much good as I can while living at what “society” would call “the margin.” I would call it the underground. So, no, I am not interested in talking politics. I’m too busy trying to stay out of the line of fire and live in terms of the values I espouse.

    Reply

    Matt Franko Reply:

    Tom,

    “I am way beyond cynical. I am alienated” If I may say so, you seem to be dealing with it well then imo.

    I’ve learned a lot from your writings around the blogsphere, some of the references youve cited (you introed me to the formal cancept of “Rents”), and especially thanks again for that book by Nelson, Economics as Religion that one has really had an important influence on me, it has changed my spiritual approach in significant ways, I’m in my second read of it. Thanks again.

    Tom, has the existence of these blogs and the internet (these types of online communities if you will) helped you deal, do you think?

    Resp,

    Reply

    Tom Hickey Reply:

    Matt, Thanks for the kind words. I am perfectly fine where I am at. I worked this out a long time ago. When I was young and idealistic, I felt betrayed by the system, but I quickly figured out that this is the way of the world, and I could either join it or make my own way with kindred spirits.

    When I was in high school I remember being taken with Robert Frost’s poem, “Two roads diverged in a wood, and I — I took the one less traveled by, And that has made all the difference.” Moreover, the Sixties were an exciting time. It was not a difficult choice to make, and I am very glad that I did. It’s been a great adventure.

    I am convinced that the Internet is now the future. If my generation had the communications tools that are available inexpensively today, things would have been a lot different, in some ways better and in some ways not. Our communications may have been primitive in comparison, which prevented our organizing more easily and widely, but it was all about personal networking and interpersonal relationships then.

    My generation was more about physical community. I traveled and visited many communities in the network, for example. This is still going on, btw.

    But the future will be more through the www. Video conferencing will replace keyboards soon, and that will add a whole new dimension. It is already global, and this is only the infancy of the medium.

    Do I value the online community that is now available. Of course. It is great to be able to interact honestly with good people interested in some of the same things that I am. One nice thing about online communities is that people can come together on a focal point from a lot of different angles. This probably would not happen if the networking were exclusively physical rather than virtual. This is a huge advantage in extending one’s reach and territory of influence, on one hand, and on the other, it brings one input and camaraderie that would not otherwise be possible.

    The impact of online community on culture going to be huge. It’s already huge. It will be very diversified, and a person will be able to participate in many different networks. Social efficiency and productivity are headed way up. This going to make waves in global society.

    Looking back, things seemed pretty bleak in the Nixon years at the hight of the war. It was a mixed bag of frustration of over the war and the politics, but it was also great fun pitting a motley crew of DFH’s (we called ourselves freaks) against the great leviathan, too. Exciting times, on one hand, and the opening of a whole new world.

    Anyone who remembers the transition this wrought from the 50’s to the 60’s and 70’s knows how much of change transpired. What people who came along thereafter take for granted was hard fought and hard won, sometimes with bitter tears, not only tear gas but blood. 50, 000 American kids died in that war (God knows how many Vietnamese), and lots were beaten up in the streets. Blood was shed on American soil at Kent State. But it was great fun fighting and winning in the end.

    When Watergate came along, everything changed almost overnight. Of course, we projected the New Dawn only to wake up to Ronald Reagan. But that just reinforced the realization that one has to create the world anew with kindred spirits instead of trying to fight the eagle or allowing oneself to be co-opted.

    The disappointment was in how many people were soon co-opted by the establishment and went for the trinkets. In a sense it was already over by Woodstock, when the counterculture became “cool.” The spirit of the “revolution” died out, but some kept it alive in different ways, even when we had to put on suits to interact sometimes.

    I stuck it out, thick and thin, and it’s been quite a ride. Great people and great times. So I am celebrating rather than complaining. :) My advice is to go for it. Live your dream, but take care that you are not wasting your time.

    There is purpose in life, and the purpose of life lies in finding it. As one of my teachers once said, “I can show you how to go about finding it, but I cannot find it for you. Only you do that.” Another of my teachers counseled, “Pick something great to do and do it.” Each person has to find out for himself or herself what that great thing is. Don’t get to the end of your life and find yourself saying, “That was it?”

    Reply

  6. strawberry picker says:

    “Even if we don’t go ahead and drive China into civil war”

    WOW! someone up above said what to do with all those unemployed, my dad was US Army recruiter during vietnam, he had good solution for all those unemployed, pick up gun and go shoot unemployed on other spot on the map. We might even develop tom hickey/kaku fusion energy to power all the new WAR toys and space combat spaceships that will usher in the new age! What little I remember about the US civil war was that it was good for lots of businessmen in france and other places.

    Tom Hickey, you and lotsa others here are using your non paid freetime to talk back and forth about economics, but I have found something BETTER for all that non paid freetime, gran turismo 5 on a stereoscopic 3D 81 inch mitsubishi DLP TV with logitech driving force GT forcefeedback wheel! Holy smokes, talk about a time killer for idle hands! Now Tom I just need your help for one thing, where is warren’s mid engine corvette mt900 in this game? What track do I have to win to unlock that supercar? Did warren’s car make it into gran turismo 5?

    Reply

    Tom Hickey Reply:

    My MR 2 can still go quick enough on the curves to make my heart beat fast. Who needs to jog to raise their heartbeat?

    Reply

  7. RSJ says:

    But to extrapolate this red line means that we will reach deficits in excess of 100% of GDP?

    It doesn’t seem that this is sustainable, irrespective of whether a government is a fiat issuer.

    Reply

    Tom Hickey Reply:

    The question is how, where, and why the budget deficit or debt to GDP ration becomes “unsustainable.” The point of scientific enquiry is that things are often not as they seem. Have any economists come up with answers that stand the test of empirical scrutiny. Reinhart and Rogoff apparently does not from what I have read.

    Reply

    WARREN MOSLER Reply:

    the ‘balance’ is where the deficit= savings desires

    away from balance there is either unemployment or excess demand.

    Reply

    roger erickson Reply:

    >> deficits in excess of 100% of GDP?

    >> It doesn’t seem that this is sustainable, irrespective of whether a government is a fiat issuer.

    Au contraire. Any time the rate of change in any system is more than a doubling of system growth, you have to have some “currency” supply growth that is more than 2x last years supply. We should always aspire to that rate of growth!

    There are innumerable times in history where rapid expansion occurred. Given the direct relationship between public initiative and the bookkeeping currency needed to denominate all transactions, there are plenty of periods when the “___ Explosion” “currency” growth rate was more than 100%.

    [you supply the names, from the Cambrian Explosion to the Agricultural Explosion to the Renaissance and the Industrial Revolution ... plus many in between, and to follow. There are endless forms of "currency", from photons & particles in physical systems, to kinetic energy & ions & electrons in chemical systems, to adenosine in biological systems (AMP, ADP, ATP) and on to the various currency systems used by human aggregates. They're all just forms of bookkeeping, and EVERY system auto-generates as much bookkeeping signals as needed, as a consequence of interactions. From one view, currency is just part of the system noise signals we use to aggregate on a greater scale. Don't lose track of that. There are always options that we're simply not yet exploring - but we should never presume that it's not possible to do so simply because we don't yet know how. The glory really does go to those who make a more perfect union.]

    Reply

    WARREN MOSLER Reply:

    how so?

    Isn’t japan closer to 200%, and still short of aggregate demand?

    Reply

  8. roger erickson says:

    > Two random thoughts:
    > 1. A deficit as per red line would have produced excessive inflation
    > during the Clinton years, when in practice there was a surplus.

    ONLY if some worthwhile endeavor wasn’t pursued, e.g., NASA, public works, reinventing agriculture, … who knows – the list of options is endless; but the point is that bookkeeping budgets can always rise to match initiated public purpose, and vice versa too.

    > 2. Assuming no wild changes take place in consumer confidence,
    > savings desires, etc etc, deficit is needed for the following
    > purposes.
    > a. To keep the monetary base constant relative to GDP. E.g. if
    > inflation is 2% and the base is X% of GDP, deficit of the following
    > amount is needed: 0.02 x X/100 x GDP.

    Seems to me that you’re conflating a gold-std idea with what really happens. The concept of a fixed monetary base is somewhat meaningless when facing unpredictable contexts. What’s always wanted is a rate of change of monetary bookkeeping that will automatically scale to meet the unpredictable rate of change of context and required response.

    > b. A similar calculation applies to keeping the national debt
    > constant relative to GDP (if keeping it constant is the objective).

    Same argument applies. In the end, we’re interested in adaptive rate. Only Luddites are interested in freezing reality. Keeping currency/GDP const is certainly NOT the objective – that much is already known. That ratio changes with the complexity of an economy AND the definition of GDP, which is of dubious use in the first place.

    > c. If China is insists on hoarding $Ybn a year, then add £Ybn.

    Correction, add Fx[£Ybn], where Fx is some function of changing context per changing time; e.g., d(Ct)/dt – which is, for example, just what we did during WWII. And that’s assuming China’s hoarding instinct & capacity stays constant. If we remain adaptively flexible, we don’t need to care what they do.

    Which, it seems to me, is just back to what Warren’s been saying for +10 years now, along with Wray, Mitchell, Godley … & William Vickrey – not to mention Rodger Malcolm Mitchell.

    It does take a while for textbooks and common customs to change, but 39 years is a long time for public policy to fail to formally adapt to what actually occurred in 1933.
    (remember the 1946 article by then NY Fed Chair Beardsley Ruml, “Taxes for Revenue Are Obsolete” http://tinyurl.com/y3dkda3 )

    What we’re seeing is temporary victory of the Luddites, which is always a guarantee of impending tumultuous change. The lemmings are approaching a cliff, with stiffening resolve. Best to hang back & start developing contacts with others developing healthy doubts.

    We need an association of fiscal doubters to start plotting a return to fiscal health.

    Reply

    art Reply:

    Roger, thanks for posting the Ruml paper, have seen it once before, what a (widely unknown, unfortunately) classic. At the bottom of page 6 he talks about problems with the 1936 corporate tax reform. I wouldn’t be surprised to see similar problems arise should the Obama Admin pursue corporate tax reform in 2011, as is rumored. For example, Kudlow had a lefty guest last night who said that the proper objective of lower marginal rates is higher effective rates – !!! – good grief. Kudlow and his rightie guest argued for cutting federal spending, of course. Frustrating.

    Reply

    Ralph Musgrave Reply:

    Roger, Warren’s question was what is the size of the “full employment deficit”. Unemployment during the Clinton years was around 5% – about the lowest it ever gets. In this situation a country cannot help itself to loads of “public purpose” goodies just by raising the deficit – else unemployment goes below the level at which serious inflation kicks in. (Though the remaining unemployed could be put onto something like Job Guarantee, of course). More public sector employment CAN be obtained by reducing private sector employment, but that involves no deficit increase, plus aggregate employment is not affected.

    I agree that the monetary base in practice should be adjusted to “meet the unpredictable rate of change of context” as you put it. I was just setting out some of the elements that make up the “full employment deficit”. One of these is the need to have the monetary base keep up with inflation “assuming no wild changes take place in consumer confidence, etc” – to use the phrase I used above. But over and above that, obviously there are the erratics.

    Re China’s desire to hoard dollars you are technically correct to say that I should not have said that China hoards “$Ybn” a year: that implies China hoards a constant amount every year. Algebraic slip up there. On the other hand, to be equally pedantic, I prefixed the $Ybn with the word “if”, so I did not actually say that China does accumulate the same amount per year. Like 90% of the population I am aware that this amount varies from year to year.

    Reply

    Neil Wilson Reply:

    And what are loss 5% – which represents millions of people don’t forget – supposed to do. Rejoice in their sacrifice?

    If we have an economic system that requires millions of people to be outside the system for it to work, then it is only fair that those people are fully compensated for their loss.

    Alternatively we put our heads together find out why we can’t get lower than 5% unemployment and fix it.

    Until we have got to a point where everybody who needs an income can get an acceptable one within a reasonably short time frame then we haven’t got a suitable economic system.

    Reply

    Tom Hickey Reply:

    The progressive answer is that in a modern economy in which money is necessary for survival and money comes from jobs, every adult has a right to a job that pays at least a subsistence wage. Adding in the right to health care, that subsistence job has to come with that benefit for workers and their families.

    This is the political kerfuffle in the US at present, where the issues are whether having an adequate job a right or a privilege, as well as whether health care a right or a privilege. This is going to increasingly dominate political debate.

    The politics not really over affordability although it is often framed that way to disguise it. People are smart enough to see through the hypocrisy of wars and tax cuts being OK but social welfare not so much.

    This is boiling down to right v. privilege, with the right holding that such matters involves privilege earned through merit, and the left that they are inalienable human rights. This is was sometimes stated as such in the Obama/MeCain campaign, for example.

    Neoliberalism is the economics of the right, and by and large does not recognize either rights or society as being based on cooperation and coordination rather than competition alone. Unfortunately, there is no clearly articulated economics of the left that emphasizes rights and society as based on cooperation and coordination rather than competition. Most people associate the position of the left with socialism and Marxist economics. So it’s an uphill fight to change voters minds when faced with powerful vested interests in command of the propaganda machine.

    But modern history is the story of the expansion of rights. As conservatives regularly lament, overall liberals are winning as the world changes. But they are still doing all they can to slow it down and reverse it, with some success. However, the trend is against them and in favor of the left of the simple reason that coordination is more biologically and socially evolutionary than competition at higher levels of organization, as I am reasonably sure that Roger will agree.

    WARREN MOSLER Reply:

    I see it this way.

    the purpose of taxes is to create unemployment, as defined, so that govt can then hire those people it pulled out of the private sector with its taxation.

    so why would a govt pull people out of the private sector with its taxation and then not hire them? makes no sense whatsoever

    so either hire them or cut taxes so the private sector can take them back

    ESM Reply:

    I disagree very strongly with this summary of the progressive vs conservative argument. As I have said before, the argument is about equality/fairness of outcomes vs freedom. It is not only or even primarily about competition and “to the victor go the spoils.”

    In addition there is an economic efficiency component, since many conservatives (including yours truly) believe that imposing equality of outcomes necessarily undermines incentives. Correspondingly, many progressives believe that inequality of outcomes leads to instability which undermines economic efficiency (I’ve never found the evidence for this even remotely convincing).

    As for your discussion about rights, I would sum up the difference in biblical terms. The progressive would say “Do unto others as you would have them do unto you.” The conservative would say “Do not do unto others as you would have them not do unto you.” The conservative believes wholeheartedly in negative rights (i.e. freedom from violent coercion) but is skeptical of positive rights (i.e. those rights which create obligations on others, and therefore involve violation of the others’ negative rights).

    Tom Hickey Reply:

    Of course, you disagree, ESM. That’s what the debate is about, and framing of the debate is part of the debate structure. Whoever controls the frame, wins.

    Both sides see things differently, that is, through a different conceptual framework (ideology), determined by rules which are called norms, or values.

    We disagree over the rules of the game. Facts are marshaled to justify rules, but facts are selected iaw rules.

    There are no objective “facts.” The world is homogenous, not broken into “facts.” Facts are constructs, and they are constructed within conceptual frameworks.

    For example, Those who accept the US Constitution agree on the basis of liberal democracy as liberty as personal freedom and attendant responsibility, equality as absence of privilege, rule of law, justice, etc., and fraternity as coordination in defense, security aka “domestic tranquility,” and “the general welfare.”

    But we disagree over the priorities and even the meaning of these key concepts, which results in different political ideologies. Ideologies are neither true nor false. They are ways of seeing the world, organizing data, and conducting affairs iaw rules as norms. They are known by their fruits, and no ideology has yet resulted in what everyone would agree is an ideal society.

    There are not overarching criteria to compare ideologies,because criteria are decision and evaluation rules within ideologies and there is neither an absolute ideology nor a commonly held one. People organize into political parties around various ideologies. In parliamentary systems there may be many parties. The US is traditionally a two-party system, so there are divisions within the parties that vie for control of the party.

    Basically, the political debate is over which rules to follow and which criteria to use. In a liberal democracy, leaders appeal to reason and persuasion wrt the issues of the day in the attempt to carry the majority. The way forward in the case of divided rule is through compromise, that is, identifying areas of closest agreement and putting together a deal. This is the sausage-making of politics.

    The idea of the Founding Fathers was that politics would be advanced through congressional debate. Washington warned against party factionalism, for example. But he was unsuccessful even then. The lines got drawn pretty quickly.

    The problem is that the sides do not understand each other because they cannot. They inhabit different world constructed by different worldviews, each side presuming that its view is representative of reality, right thinking, and moral correctness, as well as being the most pragmatic.

    beowulf Reply:

    many conservatives… believe that imposing equality of outcomes necessarily undermines incentives… many progressives believe that inequality of outcomes leads to instability which undermines economic efficiency

    These two kinds of security are…the security of a minimum income and the security of the particular income a person is thought to deserve. There be no doubt that some minimum of food, shelter and clothing, sufficient to preserve health and the capacity to work, can be assured every one….. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance – where, in short, we deal with genuinely insurable risks – the case for the state’s helping to organize a comprehensive system of social insurance is very strong.
    F.A. Hayek, Road to Serfdom, Chpt. 9, 123-124.

    No one is in favor of an “equality of outcome”. Indeed, as Hayek suggests, one doesn’t have to be a socialist or even a liberal to believe that in a wealthy society, every citizen is entitled to a minimum income and social insurance. Say, a minimum income via Milton Friedman/ Richard Nixon negative income tax and social insurance via universal Medicare coverage and Jacob Hacker’s universal risk insurance proposal”.
    http://webcache.googleusercontent.com/search?q=cache:sgL_GyEwJSEJ:www.tobinproject.org/downloads/RP_Universal_Risk_Insurance.pdf

    ESM Reply:

    @Tom:

    “Of course, you disagree, ESM. That’s what the debate is about, and framing of the debate is part of the debate structure. Whoever controls the frame, wins.”

    Tom, your cynicism is ridiculous. Although it is possible to start from different axioms (placing more or less value on “fairness” or “freedom” for example) and thus never agreeing on certain policies, some of us are still logical beings and can reason properly.

    And facts exist and I do see facts objectively, as I’m sure you do. It’s just that most things which are claimed as facts, aren’t facts.

    For example, I believe that Obamacare will lead to more demand and less supply of health care resources, which will lead to even more rationing by price and (worse, in my opinion) by bureaucratic fiat. I believe it is bad policy that exacerbates the problems inherent in our health care system rather than ameliorates them. But these beliefs or claims are not facts. There is no theory or experiment that can prove their truthfulness, mostly because you’re dealing with something that is so complex that it is difficult to agree on what the important parameters are and how we measure them. Furthermore, the contrafactual will never be known. We cannot run a control experiment side by side.

    And although I am strongly opposed to Obamacare, I can still recognize the difference between a strong argument and a weak one with respect to Obamacare (either for or against). Furthermore, I believe I remain open to persuasion.

    I still cringe when a conservative makes a stupid argument in favor of tax cuts or less regulation. And my expectation is that you cringe as well when a progressive makes a stupid argument in favor of tax hikes or more regulation. I do not believe we see things so differently. If Sarah Palin becomes the Republican nominee in 2012, I’ll vote for her, but it doesn’t mean I don’t see or acknowledge her considerable flaws. I am just starting from the axiom that our country will do better with less government than what we have right now, and the difference in the growth of government is the only practical difference between Sarah Palin and Barack Obama.

    @Beowulf:
    “No one is in favor of an ‘equality of outcome’. ”

    That’s a red herring. I think you should know by now that I mean that progressives want less inequality of outcomes (“fairness”), at the expense of freedom, while conservatives want more freedom at the expense of “fairness.” Obviously, almost nobody wants enforced equality like Kurt Vonnegut described in “Harrison Bergeron,” just as almost nobody wants a society where there is no social safety net whatsoever.

    strawberry picker Reply:

    Obviously, almost nobody wants enforced equality like Kurt Vonnegut described in “Harrison Bergeron”

    LOL! Wake up! In the movie version of harrison bergeron, Howie Mandell played a TV show host called chat with charlie to dumb down the masses, in Real life Howie Mandell reprised his role in Deal or No Deal. I asked Sean Astin who played the hero in the movie version of harrison bergeron that he also needs to do like howie mandel and reprise his role in real life too – he looked at me like I was nutz. You are living harrison bergeron, it is all around you, for real, like equilibrium. You waste your life and time talking uselessly back and forth here on this blog for FREE and aren’t really acheiving anything.

    WARREN MOSLER Reply:

    I’m pretty sure we can get it to where maybe 3% of people willing and able to work find themselves in the ‘transitional’ JG/ELR program for a variety of reasons.

    beowulf Reply:

    Unemployment during the Clinton years was around 5% – about the lowest it ever gets

    Actually US unemployment rate reached 4% in 2000 (touching 3.8% in April). It was even lower than that in both the US and UK in the 50s and 60s.

    I read your paper on Temporary Employment Subsidies. If the necessary aggregate demand was there to push the economy toward full employment, policies like your TES or a Job Guarantee would reduce frictional unemployment.

    Here in Georgia, Labor Commissioner Michael Thurmond organized an limited version of your TES plan. It’d be nice to see Uncle Sam expand the program to everyone on unemployment. Thurmond leaves office in a few days (good guy, but it was a bad year for a black Democrat to run for US Senate), I wouldn’t be surprised to see appointed to a position in the federal Dept. of Labor.
    http://www.inthesetimes.com/working/entry/6006/who_gains_from_georgia_works/

    Reply

    WARREN MOSLER Reply:

    aggregate demand can be adjusted but not via the ‘monetary base’ as currently defined?

    the clinton ‘full employment’ was achieved with a maybe 2% govt surplus and 7% of private sector deficit spending, which was unsustainable, and in fact only go that high chasing impossible .com business plans.

    that’s what i mean by a full employment budget that was unsustainable.

    Reply

  9. Two random thoughts: 1. A deficit as per red line would have produced excessive inflation during the Clinton years, when in practice there was a surplus.
    2. Assuming no wild changes take place in consumer confidence, savings desires, etc etc, deficit is needed for the following purposes.
    a. To keep the monetary base constant relative to GDP. E.g. if inflation is 2% and the base is X% of GDP, deficit of the following amount is needed: 0.02 x X/100 x GDP.
    b. A similar calculation applies to keeping the national debt constant relative to GDP (if keeping it constant is the objective).
    c. If China is insists on hoarding $Ybn a year, then add £Ybn.

    Reply

  10. roger erickson says:

    in fact, given the right perspective & motivation, the slope achievable for the ‘neutral’/full employment deficit could permanently be the near vertical slope observed during the initial mobilization for WWII

    we only lack the appropriate motivation, or intelligence :)

    ps: we couldn’t have done that anywhere a efficiently while still on a gold std

    Reply

    Art Reply:

    “we only lack the appropriate motivation, or intelligence :)”

    Or sufficient understanding.

    “ps: we couldn’t have done that anywhere as efficiently while still on a gold std”

    Agreed, there were (are) real tradeoffs to price stability (which only existed if you cherry pick the endpoints). I suspect “price stability” was/is just a euphemism for some folks. :)

    Reply

  11. roger erickson says:

    reminds me of the Army phrase “Be all that you can be.”

    applied to a nation, we have no idea or even definition of all that we can be,

    so full employment and full output are both just key factors used while searching for full adaptive capability;

    along the way, downsizing member numbers is always a stopgap measure for the cognitively impaired [which is why it's so commonly used :) ]

    To me, it seems that you could draw any slope achievable for the ‘neutral’/full employment deficit; it’s only a question of organizing to the extent required to achieve yet more return-on-coordination

    200K years ago, early homo sapiens could probably never have imagined the coordinated public initiative that we’re capable of today;

    even now we haven’t come close to the the degree of public mobilization we achieved during WWII – and we did that entirely on paper & pencil!

    Reply

  12. art says:

    Looks like there’s an interesting artifact at work in the chart related to gold and post-gold standards/systems.

    Under gold (ex-wars), the govt budget deficit hovers around zero%, which was OK, given that the “deficits” required for (Bill Mitchell’s) vertical transactions were being run by the gold industry as it produced more gold than it took in.

    After the early 1930s, it looks like govt budgets have increasingly taken on the role previously played by the gold industry — even during Bretton Woods.

    So while this chart would make most gold standard champions uneasy at first, it might not once it’s framed properly.

    Reply

    beowulf Reply:

    Right, and our trade balance was usually positive until we went off the gold standard. Trade surpluses are demand injections, trade deficits are demand leakages, that’s why Wynne’s “adjusted fiscal stance” included trade balance. I’ll note we could balance trade at any time by either creating an import certificate market or adopting a general tariff.
    http://www.levyinstitute.org/publications/?docid=1077

    Of course the foreign policy implications of that would be pretty, shall we say, dramatic. Even if we don’t go ahead and drive China into civil war, we should still account for the demand leakage created by the trade deficit by assuming exports and imports are balanced when setting the full employment budget.

    Of course, the next question (as Danw has touched on) is, what do we define as “full employment” (or “maximum employment” as the 1946 Employment Act calls it)?

    Its an important question because Okun’s Law states that for every 1% change in unemployment, there’s an 2% inverse change in GDP (Bill Vickrey thought it was really 2.5%). The larger the difference between current GDP and full employment potential GDP , the larger the budget total. The CBO consistently understates the output gap because it views 5% as full employment. The actual historical maximum was reached during World War II, a 1.2% unemployment rate in 1944 (in recent years, we hit 3.8% in the spring of 2000).

    Reply

    Jim Baird Reply:

    It was our negative trade balance that led to the “Nixon Shock” in the first place, as the French drained over $190 million worth of gold from the the U.S. (http://en.wikipedia.org/wiki/Nixon_Shock)

    Reply

    beowulf Reply:

    That’s kind of funny really. That wasn’t a lot of money for the government, even in 1971. Let’s see, $213 billion budget that year, so $190 million was a fraction of one percent of the budget. Equivalent today would be $3.1 billion, about what we spend in Afghanistan every week.

    Compare 1971 trade balance in GDP terms to, oh, more recent years.
    http://buyamericanchallenge.files.wordpress.com/2010/08/trade-deficit-as-percentage-of-gdp2.jpg

    WARREN MOSLER Reply:

    good points.

    the problem is the deficit spending adjustment via finding/producing more gold tends to prolong periods of unemployment to the point of permanently high levels of unemployment.

    Reply

  13. danw says:

    How do we draw a comparison in employment across eras? Do we look at wage structure in relation to disposable income? Do we look at productive capacity vs. consumption? Are employment data comparative in a meaningful way?

    Reply

  14. Jim Baird says:

    Isn’t the biggest “leakage” the expanding trade deficit as more countries try to develop on the Japan/East Asia model?

    I read a book, “The Box”, about the history of the shipping container. It was invented in the 50s, but it didn’t really take off until the Pentagon needed to ship vast amounts to Vietnam and decided to use the new system to do it. The shipper, Sea-Land, they were using realized that he was sending all these containers back to the U.S. empty after already having been paid by the Military, so if he could find something to put in them on the return trip it would be gravy. So he went to Japan and made deals with exporters. This was the real beginning of the “Japanese Miracle”, and every other country has been following the template since…

    Reply

    WARREN MOSLER Reply:

    it’s pretty big for the US- about $500 billion a year

    Reply

    beowulf Reply:

    That’s interesting about the military being the innovator in containerization. I imagine that has a lot to do with the Pentagon being exempt from Interstate Commerce Commission shipping regulations. US Government agencies then and now ar regulatory captured by one special interest or another. But when the military-industrial complex wants something, what’s the saying, every knee shall bend. Which sometimes is a good thing. :o)

    As for the “full employment deficit’, no need to use such the “d-word”. As Wynne Godley pointed out about the “fiscal stance” concept: Carl Christ, of Johns Hopkins University, had the brilliant insight that should an economy ever reach stationary equilibrium, all stock variables as well as all flow variables would be constant; and that if all stock variables, including government debt, were constant, government receipts would have to equal government payments… There is an obvious shortcoming to the original Christ formula in that it applies only to a closed economy. This defect is easily remedied by adding exports to government expenditure (injections) and imports to taxes (leakages).
    http://findarticles.com/p/articles/mi_m1093/is_n1_v41/ai_20485331/

    A full employment budget should do likewise, the budget should set at the level of full employment when expenditures equaled taxes and exports equaled imports. Which would inject, as Warren points out, an additional $500 billion or so.

    Reply

    beowulf Reply:

    Sorry I meant to add, President Nixon defined a “full employment budget” in his 1971 State of the Union as:
    a budget designed to be in balance if the economy were operating at its peak potential. By spending as if we were at full employment, we will help to bring about full employment.

    Reply

    WARREN MOSLER Reply:

    Except that ‘balance’ is probably something like a 5% of GDP federal deficit, depending on the trade gap, etc.

    SethM Reply:

    Don’t forget the biggest import of all: oil.

    Reply

    beowulf Reply:

    Yeah, oil is our Achilles heel. Govt should be spending far more on steps to reduce oil consumption. Among other things, electrifying freight railroads, road congestion pricing, enacting Martin Feldstein’s gas rationing plan (“tradeable gasoline rights”) and of course giving a generous tax credit to anyone who buys (or retrofits an existing) car to run on alternative fuel. This guy’s hybrid electric retrofit is pretty clever.
    http://www.eetimes.com/design/automotive-design/4181510/Retrofit-kit-said-to-transform-cars-into-hybrids

    Reply

    Ed Rombach Reply:

    How about launching an Apollo style project to develop thermonuclear fusion energy within a decade?

    Tom Hickey Reply:

    I was just listening to theoretical physicist Michio Kaku talking about this. He says that he is confident fusion power is possible in the relatively near future due to recent advances in understanding and experiment, but it is probably at least a couple or decades away owing to the huge cost involved. Certainly, a global Manhattan project could change this. Kaku said that the next big experiment was scheduled for 2019, and it would be crucial. Unfortunately, I saw recently that it has been cancelled for lack of funding.

    Kaku sees conventional energy prices rising soon owing to increasing global demand, making alternatives like solar more affordable, and he projects that these alternatives will be an intermediate step on the way to fusion. When fusion arrives, we are in a brand new world energy-wise.

    Why wait any longer than we have to if its mostly a question of funding. Even if you think anthropogenic global warming is hoax (it isn’t), everyone needs to be concerned with the consequences of pollution, which has both human and economic costs. The longer we stay on carbon, the greater the consequences.

    We spend a lot time here talking monetary economics, but energy economics is central also. Energy cost (EROEI) and availability as a real resource affects economic reality at least as much as money.

    WARREN MOSLER Reply:

    no mention of a 30 mph speed limit for private transportation?

    ;)

    Jim Baird Reply:

    Thermonuclear fusion is a crapshoot at best. I like Polywell better myself (http://en.wikipedia.org/wiki/Polywell), but even that is a speculative endeavor.

    To my mind, what the government should be funding is an approach that we know to work (the development work was done back in the 60s), that is vastly better than what we’re doing now: the Liquid Floride Thorium Reactor (LFTR). http://energyfromthorium.com/lftradsrisks.html

    WARREN MOSLER Reply:

    and the price is under the control of a foreign monopolist

    Reply

    strawberry picker Reply:

    I watched this movie about american gangster with russel crow and denzel washington where he got drugs shipped back from vietnam using the military, then I watch this movie with nick nolte called dog soldiers (who stops the rain) about drugs from vietnam too. Why are so many drugs consumed in the US? I tried to ask General’s petreus and allen how come the former ambassador from IRAQ to the US told me personally that we shouldn’t be in afghanistan because they had no oil reserves but it seems like they can export lots of drugs and got no answer.

    Tom Hickey, I saw michael pare I believe in movie manhattan project and I just visit bermuda triangle and edward leedskalnin’s coral castle where he say the 26,000 year cycle is coming around in 2012 – whatever that means – but the point being kaku should know fusion has the potential to kill most humans on planet earth if abused and there all kinds of unknowns about magnetism in mini black holes (12 dimensions string theory) that maybe mankind not ready to be fooling around with. How would you like it if the mini fusion reactor in your back yard started making your Mr2 glow green and float toward sulfur power lights?

    Reply

    Tom Hickey Reply:

    Hey, let’s not go all Luddite over a little radiation. I hear its’s a hoax that it will hurt you. They wouldn’t be using those TSA scanners if it were harmful now, would they?

    Reply

    strawberry picker Reply:

    My dad recently died because VA hospital put him in MRI with pacemaker while he kept telling the tech NO NO NO, but they thought he was just senile old soldier and MRI machine rip his pacemaker out of his chest and he die from massive heart attack. The system has grown too chaotic, any meme, MMT or otherwise that advocates more growth is just going to be more destructive to the “human” condition we all suffer under. I much rather have TSA pat me down, it would cost me 25 dollars in strip club for that service, many here may not believe it, but I often go to the airport a few times a week just for fun without any travel plans and get all the freebies they give.

    strawberry picker Reply:

    Bank calls non-callabe CD

    http://www.bogleheads.org/forum/viewtopic.php?t=65724&mrr=1293969950

    A little more fun for you Tom Hickey, now why would the tax cheat timmy want to get people all riled up – why not just let the CD’s roll and keep panic and stress low? Seems like they are doing things to intentionally cause harm and cause mistrust in american banking. It is like what Dr. Malveaux told me personally, china is calling the shots and instructing obama what he can and can’t do – so Tom Hickey – what is the point of our elected representative government if China is making all the decisions for our government and treasury?

    Tom Hickey Reply:

    Not to worry, the Pentagon sees China as the top enemy, and the Chinese military see the Pentagon as the top enemy. I’m sure this will all work itself out.

    strawberry picker Reply:

    In cyberwarfare, china is wiping the walls with pentagon Arses. We are so totally overwhelmed and understaffed and outmatched and outclassed I can’t even begin to illuminate you to the travesty that US cyber command has let happen. Various flavors of chinese have already replaced english as the dominate language of the internet, game over dude, warren don’t speak mandarin, game over for him too.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>