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Why public sector workers should not have actual bargaining power

Posted by WARREN MOSLER on March 3rd, 2011

Government, desirous of provisioning itself, does it as follows:

1. It imposes nominal tax liabilities payable in it’s currency of issue.

2. This serves to create a population desirous of obtaining the funds needed to pay the tax.

3. The real tax is then paid as government transfers real resources from private to public domain by spending it’s otherwise worthless currency, hiring its employees and buying the goods and services it desires to provision itself and function as directed by the legislature.

4. Prices paid by government when it spends defines the value of the currency, and therefore the terms of the real taxation.

Therefore, the hiring and compensation of public sector employees is the real taxation, which is a legislative function.

Letting individuals negotiate the terms of their taxation other than through the legislative process makes no sense whatsoever.

This is not to say that public employees can not have representatives to make their case before the legislature, much like any tax payer or group of taxpayers might address the legislature.

And this is not to say public employees should not be treated well, well paid in real terms, or abused.

It is to suggest public employee compensation be recognized as part of the real process of taxation of the electorate and treated accordingly by all parties involved.

145 Responses to “Why public sector workers should not have actual bargaining power”

  1. Dennis Kelleher Says:

    Collective bargaining agreements ARE subject to legislative process at state/local level. They must be approved by legislature. Typically what happens is executive branch negotiates contract and then submitted for legislative approval. Just like everything else.

    At federal level it may be different. Assuming it’s not same terms of CBA particularly pay would be included in budget and subject to appropriations process like every other tax or spending proposal.

    Just saying.

    Reply

    ESM Reply:

    “Collective bargaining agreements ARE subject to legislative process at state/local level. They must be approved by legislature.”

    Yes, in theory, the legislatures are part of the negotiations. But it doesn’t make sense for the legislatures to put themselves in a weak negotiating position from the start. It’s like saying to your employee, “I plan on negotiating a fair bonus for you, but just to make the process really fair, I’m going to allow you to punch me in the face repeatedly if I offer something that you don’t like.”

    Reply

    Dennis Kelleher Reply:

    Negotiating position is not same as saying:

    “Letting individuals negotiate the terms of their taxation other than through the legislative process makes no sense whatsoever.”

    I was pointing out that’s an incorrect statement particularly as it relates to state/local. As to federal it is still not some one side process. It is still part of the executive branch budget which has to be approved by congress.

    As for negotiating position – legislatures can say vote no.

    Reply

    ESM Reply:

    You have a good point. Warren was a little careless in his wording. After all, corporations negotiate the terms of their taxation too, particularly at the state level where some can get significant abatements in exchange for building factories, etc.

    The correct argument is that it is silly for the government to put itself in a disadvantageous negotiating position from the start. The government has the power to strip collective bargaining rights and the right to strike and should do so before discussing terms. Of course, each individual has the right to not take a public sector job, or to quit. That is a fundamental right that government cannot be infringed.

    WARREN MOSLER Reply:

    the real ‘value’ of state and local govs tax liabilities is also a function of prices paid.

    Tom Hickey Reply:

    I asked my sister-in-law who is a retired teacher about this issue. She said she learned it out of the box. The teachers school she went to negotiated the starting wage for its grads while many other schools did not. She was amazed to find out that there was a difference in starting salaries and the teachers that did not know about negotiating took the bottom offer, significantly lower then she received. She did not think that was right.

    Now you can argue that everyone should have been hired at the bottom rate. The significant point is that the employer was willing to pay much more and was taking advantage of incomplete information about the market. This was a very imperfect market. In such markets it is the job prospect that is at a disadvantage, for a variety of reasons, including higher transaction cost in addition to less knowledge.

    Collective bargaining evens the playing field. It doesn’t necessarily give an unfair advantage, which usually falls to the employer. It corrects for that employer advantage.

    Reply

    Lawrence Reply:

    It has long seemed to me that collective bargaining became necessary when the corporate business form came to dominate the economy after the Civil War, and certainly when corporations became legal “persons.” When many owners of capital pool their individually owned resources into a corporation and then hire managers to represent them collectively in negotiating with the owners of labor, are they not themselves bargaining collectively with labor? One side is bringing labor and skill to the transaction, the other is bringing capital and risk. Why should the owners of labor not have the same ability to be represented en bloc as the owners of capital? The libertarian “right to contract” argument is what’s asymmetrical. The analogue of an individual worker stripped of collective bargaining rights is a sole proprietor stripped of limited liability and the other state-protected advantages of incorporation.

    WARREN MOSLER Reply:

    right,
    i was trying to give the issue context i don’t see anywhere else

    Reply

  2. ESM Says:

    Agreed. This is an elegant argument which incorporates MMT principles, and one which is appealing to conservatives. Although admittedly, it applies only to the federal government in the MMT context, and most federal employees to not have bargaining rights.

    Of course, the conservative argument goes further in that in practice the public sector unions and the Democratic Party have created a symbiote that functions to expand the state, enrich those fortunate enough to have a public sector job, dilute incentives, and distort the labor market (where over-qualified people are content staying in their public sector jobs, and merely qualified people have to compete with them for the same jobs — and lose out).

    Interestingly, in most states with public sector collective bargaining, union dues are deducted directly from workers’ paychecks by the state itself. Thus the distinction between the union and the state is blurred completely, and one is left wondering why there is a government agency dedicated to increasing the costs of government.

    Reply

    zanon Reply:

    they do nots need it ESM, they have civil service protection.

    only thing worse than civil service protection is NOT having civil service protection

    Reply

  3. JKH Says:

    Although public sector compensation equates to real taxation, prohibiting negotiation for that reason alone seems biased, in that public sector compensation is also taxable. It might be cleaner logically if public sector compensation was set at levels so as to be non-taxable.

    Reply

    Tom Hickey Reply:

    I like that. Public sector employees have their own pension system and do not participate in FICA. So there is consistency here. Could make state bond tax-exempt too, like munis. Makes no sense to tax anything to do with the state.

    Federal, state, and local government could be modeled strictly on the military system of rate/rank, performance review, and promotion.

    Separate private and public sectors and completely regiment the public sector, putting all taxation on the private sector.

    Reply

    ESM Reply:

    I could get on board with this. Just the savings from sparing millions of workers from having to invest the time and energy required to file tax returns is worth exploring.

    IRS employees should still have to pay tax though. They need to understand intimately how difficult the process is.

    Reply

    Tom Hickey Reply:

    I would take all government completely off taxes, including the IRS. Tax policy is in the hands of elected representatives of the people. IRS is simply an agency. They have to be hard nosed, just like security officials and military officers. It goes with the territory.

    It is crazy to tax military personnel, too. No one associated with government, whether federal, state or local, should be taxed, and their jobs should be totally regimented under the direction of elected representatives responsible to the people.

    Private parties contracting to government should also pay a hefty franchise fee for the privilege also. Add it to the bid.

    This way all government is completely accountable to voters.

    Tom Hickey Reply:

    Let me add to this. The private sector (as presently organized) is about risking capital to obtain a return, or selling time, energy and skill as a commodity in the labor market. The public sector has zero, zip to do with this.

    The purpose of the public sector is to meet public purpose as determined by voters through their representatives and to do so as effectively and efficiently as possible. Here, effectiveness trumps efficiency in that government can afford inefficiency in the interest of effectiveness.

    In the military, for example, personnel do not sell their services as a commodity. They buy into a set system that is rarely changed and they follow a laid-out track as a career in public service, with established pay grades. There is no merit pay or different of pay. Merit is through promotion and one can either get ahead of one’s peers or fall behind them. If an officer is passed over for promotion twice, one has to retire. Very clear demarcations.

    Mixing the goals, functions, and operations of public and private results in confusion since the goals, functions and operations are completely different. They need to be separated and kept separate.

    This relates directly to MMT. Government finance is completely different from nongovernment finance. They should never be confused or mixed, i.e., government finance approach as nongovernment finance, as now.

    The wall of separation between public and private should be absolute, like the blood-brain barrier.

    zanon Reply:

    there are material incentive elements tied to taxation. if those inventives are good, then public sector worker should face them as well.

    nevertheless, i agree that all public employee should be free from taxes. it makes the master/vassal relationship clear and I ams fan of clarity

    selise Reply:

    i completely disagree — and twice to boot!

    1) public sector employees are also citizens. by having one group of citizens taxed and another not, solely by virtue of their employment status, we would be creating two competing interest groups (the taxed and the untaxed). i prefer institutional arrangements that help align the interests of citizens rather than creating competing interests where there need not exist.

    2) for most people, who we work for is not the public sector or the private sector. rather it is our boss, their boss and maybe a little higher up the chain. bargaining power is not only about $$$ compensation. it’s also about job safety and other areas of worker’s rights. organizing is an important avenue for protecting ourselves from unfair and unsafe work environments (and bosses).

    Reply

    WARREN MOSLER Reply:

    right, best to look at net pay at least for federal employees
    international agencies do that when computing tax revenues for nations

    and i didn’t suggest prohibiting negotiation, just putting it in context

    Reply

  4. pebird Says:

    i thought a sovereign government could spend up to the point of real econmic constraints. Taxation regulates demand, it does not provide funds to pay public employees. Public employee compensation negotiations do not impact taxation rates, unless they create real economic constraints. State governments should “borrow” from the federal government! not from the bond market.

    That is all.

    Reply

    WARREN MOSLER Reply:

    the real tax is paid by the employee/private sector who’s labor goes to the govt.

    lower pay means the same dollar of nominal taxation results in more real taxation- more people working for the state for the same tax than if the wages were higher.

    Reply

  5. Mr. E Says:

    In some perfect world, there is no need to negotiate. But I think it leaves a potential “marketish” discipline behind.

    Somehow people should be able to make their wants and needs known to the price setting arm of the government. Without a negotiation process, those wants and needs are more obscure. The govt. does set prices in its currency, but that doesn’t mean it shouldn’t negotiate those prices to gain information about the correct price.

    Reply

    Tom Hickey Reply:

    If we organize government on the model of the military, then everything is cut and dried. And the public and private sectors are completely different and cannot be mixed.

    Reply

  6. ESM Says:

    @JKH and @Mr. E:

    You’re not taking away the right to negotiate. Each individual still retains the right to negotiate for his own compensation just like in the private sector. The difference is that he is negotiating for himself with his immediate manager, just like in the (non-unionized) private sector. Yes, the government can be very bureaucratic, so that a manager might not have the flexibility to compensate a superstar employee appropriately. But you have that problem in almost every private company too.

    Collective bargaining does not just give enormous negotiating advantages to union members on average, it also infringes the rights of individuals who prefer not joining the collective. Some individuals might not want to pay union dues. Some might not value the benefits the unions are bargaining for (and perhaps making wage concessions for). And some might be superstart employees who could get a better deal on their own.

    Reply

  7. Ivan Says:

    Those working in the public sector who are not satisfied with their compensation or benefits should look to find employment in the private sector. Collective bargaining allows workers to collude to the detriment of their employers. If businesses or local governments colluded to the detriment of employees, it would be criminal.

    Reply

    Tom Hickey Reply:

    Yes, this is what is going to happen as public employee compensation sinks below private. This is key to the plan to privatize public education. Those who think public education is a public good will be opposed to this.

    Reply

  8. markg Says:

    What about workers that fall under the private sector but have public contracts? Is an employee of GE working on military aircraft engines a public or private employee? How is the wage set for such person; by the value of the contract or the market based on the skill? Should they pay taxes? Just curious if anyone has any thoughts on this.

    Reply

    Ivan Reply:

    The argument that public sector employees shouldn’t pay taxes may make sense operationally but is a political non-starter. It will never happen so why are we discussing it? With all due respect to everyone on this blog, these types of discussions undermine the far more important message that taxes need to be cut to close the output gap and that our children and grandchildren will be just fine if we increase the deficit in order to do so.

    Reply

    Tom Hickey Reply:

    Ivan, we are discussing it for the reason that debate takes place. It illumines issues. I am not seriously proposing this as an option. As you say, it is a non-starter. It is meant to case light on underlying issues that are presently confused, especially by people who think that government should be run like a business. Government is not a business and it is not like a business, although it can be made to look like one.

    Virtually no economist thinks that theoretical economic models translate directly to the real economy. Models are ways of thinking about real issues by simplifying them and casting light on core fundamentals as well as marginal differences.

    Reply

    Ivan Reply:

    Tom:

    Sorry if I offended you. I responded to that idea the same way I do to Warren’s idea of promising everyone a job. It comes across as too radical…almost socialist…and diminishes the budget deficit operational argument. MMTers are only as credible as their least credible argument. The traditional economists and television commentators want to say we’re nuts. Let’s not give them any ammo.

    Neil Wilson Reply:

    It’s a bit of a beggar when giving everybody a job is seen as a non-credible idea.

    It is absolutely required that everybody has an income with which they can live free of poverty – unless you subscribe to the ‘meat pie’ approach to dealing with the ‘excess livestock’.

    Tom Hickey Reply:

    Ivan: Sorry if I offended you. I responded to that idea the same way I do to Warren’s idea of promising everyone a job. It comes across as too radical…almost socialist…and diminishes the budget deficit operational argument. MMTers are only as credible as their least credible argument. The traditional economists and television commentators want to say we’re nuts. Let’s not give them any ammo.

    No offense perceived.

    The position I put forward is a rather stark division of capitalism in the private sector and state socialism under liberal democracy in the public using the institutional structure of the military as an exemplar. I believe that this exercise is useful as a way of modeling choices by separating public and private sectors. If these are the extremes in a liberal democracy, what are the alternatives and what are their respective advantages and disadvantages.

    Are we just going with the present system because it is in place. Are we proposing a modification to make the public sector more like a private sector enterprise. What are the goals, functions, operations, expected outcomes, and cost, and how are the costs to be borne?

    It is interesting to see people react both normatively (worst) and pragmatically (never happen). The issue is however, how to combine public (socialism) and private (capitalism) sectors in a single economy — and just as importantly why select one option rather than another.

    WARREN MOSLER Reply:

    best i can tell this topic probably isn’t being discussed anywhere else?

    once again, those involved in the nationally debated issues have missed the fundamentals?

    beowulf Reply:

    Ivan, I agree 100%. Even from the standpoint of those who want a larger role for government its a bad idea. There’s no surer way to create a voter backlash against the government than to exempt public employees from the legal obligation to pay taxes the rest of the country has.

    People more readily accept government obligations if everyone has skin in the game. One of the reasons the American public supported President Roosevelt policy of universal military service for all able-bodied young men was that the public knew the President and First Lady had four sons on active duty.

    Reply

    Tom Hickey Reply:

    Clearly, employees working in the private sector are private regardless of where the $ come from. This is a key distinction between capitalism and state socialism.

    Reply

    zanon Reply:

    then we are in state socialist economy in US.

    as if that was not obvious to eeryone

    Reply

  9. Adam Says:

    Public sector employees to not pay taxes or have collective bargaining is one of the worst ideas I have heard on this site.

    Public sector employees are not just employees but also citizens. All citizens should have a say on where the tax money goes not just the private sector. It is already being shown as a trump card for the rich to say “why should my taxpaying money go to your lavish pensions.”

    In reality this is just a political ideal and has nothing to do with economics.

    Reply

    Tom Hickey Reply:

    Yes, and this illuminates some of the basics of the argument.

    MMT’ers could respond by saying that taxes don’t fund anything.

    The other person’s response could be, Well, state and local taxes do.

    The MMT’er might respond, Let’s make all funding stem from the federal level and let distributional decisions be made as locally as possible. There is no inherent tax problem or affordability problem with respect to funding.

    Reply

  10. Dan F Says:

    Although I have no data, I believe that teachers are really a small problem when compared to initiatives like “no child left behind” or the issues faced by inner city schools.

    I agree things need to change but to me collective bargaining is being politicized much like the debt and inflation.

    Reply

    zanon Reply:

    what are you talking about Dan F?

    Have you no conception of what happens in US? COllective bargaining *is* political and has been political since its inception

    Reply

  11. beowulf Says:

    Roger Lowenstein wrote a great book about the pension crisis a few years ago, “Why America Aged”. Basically public sector unions buy the support of politicians (Democrats in New York, Republicans in San Diego) who then jack up their benefits, healthcare (even for early retirees) and pensions are most popular since future costs are some future politician’s problem. What makes matters worse is that many state supreme courts have decreed a constitutional obligation that public employee benefits cannot be modified or defaulted on. Thus the push in Congress to allow for state bankruptcy (which would allow a bankruptcy judge to cram down public employee pension and healthcare obligations).

    Lowenstein makes the point that UAW honcho Walter Reuther had the right idea– take pensions and healthcare off employees and put it on Uncle Sam. Transition pensions into an expanded Social Security system and replace employee healthcare spending by transitioning to National Health Insurance (or what we’d call today, Medicare for All). That would help states both by reducing labor costs and by zeroing out the $175 billion a year or so they spend on Medicaid and other healthcare programs

    Many states, like Wisconsin are “closed shops”, you can’t work at a unionized employer unless you join the union and pay dues. Open shop (or “right to work”) rules– which Uncle Sam uses and is common in Europe– make union membership voluntary. Labor lawyer Tom Geoghegan had an proposal recently, basically he would trade a national open shop rule for adding labor organizing to the Civil Rights law. Where unions have a legitimate beef is in the private sector, it is certainly true that employers block unions from organizing by violating labor laws left and right confident the toothless National Labor Relations Board can only slap them on the wrist if they get caught. On the other hand, violate a Civil Rights law and get ready for the pain.

    http://www.thenation.com/article/154607/ten-things-dems-could-do-win?page=0,3

    Reply

  12. Pro Blogger News Says:

    Why Public Sector Workers Should Not Have Actual Bargaining Power…

    [...]Therefore, the hiring and compensation of public sector employes is the real taxation, which is a legislative function. Leting[...]…

  13. Winslow R. Says:

    “Therefore, the hiring and compensation of public sector employees is the real taxation, which is a legislative function.

    Letting individuals negotiate the terms of their taxation other than through the legislative process makes no sense whatsoever.”

    Public teachers provide a buffer of trained educators available to the private sector at a level of experience considered the minimum acceptable level by local school districts. Really good teachers move to the private sector, right :?

    The problem is the public shouldn’t be subjected to no bid contracts. Salaries of public employees should be made public so that they are ‘open’ for bid to anyone that qualifies. Collective bargaining helps provide that information to the public.

    Walker’s bill creates the possibility of no bid contracts for power stations distorting the market price of power stations. At the same time he is attempting to remove public information for what it costs for a minimally acceptable educator. The idea that the best teachers would work in the private sector, assumes educators, as bankers, are driven by money. :)

    Reply

    zanon Reply:

    winslow:

    what are you talking about? private sector teachers are paid LESS than public sector teachers.

    ALso, no one mentions the work rules that unions bring. this is bigger issue than compensation, not because compensation is small, but because work rule is so big.

    I had drunk employee show up one morning, collapse on desk, and urinate. could not fire him because he showed up on time and there was no “cannot pass out on desk and urinate clause” in union contract

    Reply

    ESM Reply:

    Correct. Public school teachers make much, much more than private school teachers. And it’s nearly impossible to pay public school teachers according to merit, or even to layoff according to merit. Everything has to be done according to seniority, which at best only has a weak positive correlation to performance. Because of the perverse incentives, seniority might even be negatively correlated to performance.

    Reply

    Jason Reply:

    <>

    This is one of my fears about Warren’s “guaranteed job” proposal. Although it’s great in theory, I suspect in reality a large minority of the participants (like students in many public schools) would be destructive to the work environment and there would be huge pressure or outright prohibitions from “firing” them. If they become too destructive to ignore, what then? Should these individuals then be supported at the same level that someone truly unable to work due to a huge handicap would be? Do we have another welfare system for those “able to work, but unwilling”?

    Reply

    WARREN MOSLER Reply:

    the job guarantee is a transition job to help the transition from unemployment to private sector employment.

    it shouldn’t wind up being more than 3% of the workforce

    Winslow R. Reply:

    “what are you talking about? private sector teachers are paid LESS than public sector teachers.”

    Yes, so what’s behind that?

    Looking at the situation from the perspective of a ‘minimum job’ pool, wages in the private sector should be higher for the same quality, experience, etc.

    Unlike firefighters, teachers compete with the private sector. Even the police, ambulance services, and now the military compete with the private sector.

    Minimum jobs won’t be $8/hr if they serve a specific public purpose.

    It looks like the public purpose requires a higher wage, sometimes higher than the private sector is willing to pay.

    Reply

    zanon Reply:

    Winslow:

    It is because the bureuacracy of teaching in public school is a nightmare. Unions destroy management, because manager without power to hire, fire, and excercise judgement is useless. and most manager are pretty useless anyway.

    so, anyone with the least interest in being a teacher but also interest in being in job situation that is half-way sane will take LOWER WAGE and go private.

    Those who can tolerate (or maybe even thrive) is brezhnev idiocy take the $ and teach in public school.

    Winslow R. Reply:

    “so, anyone with the least interest in being a teacher but also interest in being in job situation that is half-way sane will take LOWER WAGE and go private.

    Those who can tolerate (or maybe even thrive) is brezhnev idiocy take the $ and teach in public school.”

    Ouch. I’d agree there is insanity though it comes from poverty.

    Several years ago, I did a semester stint as a long-term sub at an inner city school teaching geometry, ‘for the experience’. I was paid $10/hr so it wasn’t for the money. I met all qualifications (advance degrees, became certified etc.) I found it is a job someone NEEDS to do. Not every teacher was waiting for the opportunity to transfer to a job in the burbs or a private school. Many of the best had higher ambitions, but all were interested in serving the public purpose of educating children.

    I eventually had enough of the overworked administration. Even as I was resigning, a fight broke out in the vice principal’s office and the principal left to intervene.

    I’d recommend you try it :)

    zanon Reply:

    what makes you so sure i have not witnessed the behavior you see in typical “urban” school (and by urban i assume you mean predominantly black or hispanic population)?

    there is deep insanity in that situation, but it does not come from poverty. it comes from not seeing what is right in front of eyes (and no, I am not blaming kids or parents)

    Winslow R. Reply:

    “there is deep insanity in that situation, but it does not come from poverty.”
    Poverty takes many forms, it is not just economic.

    “what makes you so sure i have not witnessed the behavior you see in typical “urban” school”

    I wasn’t sure, until you wrote this…

    “(and no, I am not blaming kids or parents)”

    No, the kids are irresponsible.
    The parents too often ARE responsible for the insanity, as are their parents, etc.

    Just as Catholic priests are responsible as are the abusers of these priests etc.

    Our societal institutions are to blame for not stopping the cycle.

    Just as the Catholic Church is responsible for not acting to stop the cycle.

    Our society asks (requires?) people to work in a war zone to break these cycles.

    Collective bargaining sets out a published wage and set of qualifications for those that think they have the skilz.

    Question, think we should quit publishing the wage for congressmen and allow each one to negotiate individually?

    zanon Reply:

    Winslow — you are too funny! the parents are as (ir)responsible as the kids.

    Do not ask a male cow to produce milk

    Winslow R. Reply:

    “Do not ask a male cow to produce milk”

    Nature vs. Nurture

    Sounds like your a pure nature kind of guy.

    My guess is most people’s dispositions are 30% nature, 70% nurture.

    zanon Reply:

    Winslow:

    I am not “nature VS nurture” guy. what element of “nature” a person presents depends on their environment, and what exactly that “nurtuers”

    An envrionment nurtures very specific elements in its populations natures. If you look at school situation, and urban situation in general, it is clear what it is nurturing and what impact that has on different populations. Some can withstand the toxin, other succumb

    but I do not blame the population for being placed in a fetid swamp.

    Mr. E Reply:

    ESM,

    This is because private school teacher are largely comprised of “Catholic School Teachers”. These teachers usually feel they are giving back to the church community in some real way, so decide to not join the union and go for the big bucks. I know this is what the teachers in my catholic school were like. However, for private schools that aren’t associated with churches, I’d imagine the wages to be higher than public schools.

    I’d say this isn’t a fair comparison of wages – it’s entirely possible that the public school teachers make “too much” and the typical private school teach makes too little”, at least compared to some perfect free market populated by hyper rational beings from another planet.

    Reply

    zanon Reply:

    Mr E:

    This is garbage. Please go to non-catholic private school and compare it to local public school.

    given sorry state of catholicism in US and the world it is the height of nonsense to blame it for ridiculousness in public education

    ESM Reply:

    @Mr. E

    If you google around a bit, you’ll see that the compensation scale for even non-religious private schools is quite a bit lower than for public schools. Obviously, there are some outliers where an amazingly rich private school attracts an amazing teacher and pays top dollar — something that could never happen in the public sphere.

    As for what a teacher should be paid, my answer comes in two parts.

    First, it should be whatever the free market determines based on supply and demand. Even if a teacher is amazingly useful to society, compensation for teachers will be low if the number of people who have the capability and desire to become a teacher is very high. This is the opposite of Marx’s theory of value.

    Second, as Warren Mosler says all the time, institutional structure matters. The institutional structure we have set up determines to a large extent how much demand there is for a certain kind of labor and how much supply. For example, the government-designed income tax code is a horrible, complicated mess, and yet extraordinarily important. There are few people who have the capability and desire to become tax lawyers, but demand for tax lawyers is high, and therefore they are paid very well. The fact that basketball has been built into a popular sport around the world makes it rather lucrative to be a mildly agile 7-foot tall young man.

    Now, we have actually set up an institutional structure where teaching should be rather well paid. We have created artificial demand by requiring every child to go to school through age 16. And we have artificially restricted supply by creating onerous teacher certification requirements and allowing the formation of unions (which allow the suppliers to collude as well as to shut out competing teachers not willing or able to join the union).

    Furthermore, and somewhat perversely, poor results in our public education system lead to demands for more funding rather than less. Because of the unions and their collective bargaining power, teachers capture a significant fraction of each additional dollar spent on education, either as extra compensation or as reduced workload.

    Given this dynamic that has been going on for at least 40 years, I’d conclude that public school teachers are probably overpaid.

    WARREN MOSLER Reply:

    with the price level a function of prices paid by govt, the actual way govt spends matters a lot with regards to inflation.

    govt. paying less than otherwise = the currency being more valuable than otherwise, etc.

    a monopolist sets two prices, directly or indirectly

    one is how his thing exchanges for itself, called the ‘own rate’ by Marshall, which, for a currency, is the interest rate

    the other is how his thing exchanges for other things, which we call the price level for a currency

    http://www.moslereconomics.com/mandatory-readings/a-general-analytical-framework-for-the-analysis-of-currencies-and-other-commodities/

    Reply

    Ramanan Reply:

    Curious .. some of the below is trying to read minds…

    To me the main posts sounds like enforcing “the other is how his thing exchanges for other things, which we call the price level for a currency” by banning negotiation for wages for government sector jobs!

    Right ?

    Reply

  14. Tom Hickey Says:

    Sociologist/philosopher David Little posted this on education yesterday.

    Conclusion: So it isn’t really possible to answer the simple question with a simple answer: do modern educational systems in democracies level inequalities or increase inequalities?  It would seem that they do some of both; they provide access to disadvantaged people who can then leverage success for themselves and their families, and they also create mechanisms of recruitment into elite organizations that are anything but egalitarian.

    The challenge for liberal democracy is to structure education as an institution that doesn’t perpetuate inequality or create a privileged class. This challenge involves creating an educational system that functions effectively and efficiently to produce an optimal outcome, along with also providing options and choice.

    The question at hand is how teachers’ unions, pay, and collective bargaining relate to this while being fair to teaching as a profession vital to the success and prosperity of the nation? But shouldn’t we be looking at the system as a whole in terms of outcomes. It seems to be broken in large swaths and in need of an overhaul, but in others it requires only a upgrade. In some areas it is doing OK, or even fine.

    Are these issues regarding which funding is lacking or could fix? Or, rather, is institutional change called for?

    My view is that the institution is no longer meeting current needs as a whole, and where this is true, outcomes show it. We should be looking at successful models, and imitating them and innovating on them. Easier said than done.

    Reply

  15. LetsGetItDone Says:

    Hi Warren,

    You said:

    Government, desirous of provisioning itself, does it as follows:

    1. It imposes nominal tax liabilities payable in it’s currency of issue.

    2. This serves to create a population desirous of obtaining the funds needed to pay the tax.

    3. The real tax is then paid as government transfers real resources from private to public domain by spending it’s otherwise worthless currency, hiring its employees and buying the goods and services it desires to provision itself and function as directed by the legislature.

    4. Prices paid by government when it spends defines the value of the currency, and therefore the terms of the real taxation.

    I’m with you up to here:

    Therefore, the hiring and compensation of public sector employees is the real taxation, which is a legislative function.

    I don’t think this follows. First, taxation in America is not in-kind taxation. It always involves currency being taken back from the private sector. And when resources and labor are taken from the private sector through the use of currency, this is not “a tax” in any common use of the term. Nor, even in real terms is it felt as imposing scarcity on the private sector as long as the good and services hired by the Government aren’t scarce. In the present economy of slack employment, the Government hiring services is in no way a tax on the private sector. If it were, it would cause inflation; but as you’ve pointed out many times, at less than full employment there is no demand-pull inflation.

    As for the hiring and compensation of public sector employees, that is not a legislative function. The legislature can specify an appropriation for hiring employees. It can even specify what it is willing to pay; but except for military service, it cannot compel people to take what it is willing to pay; and it cannot guarantee that if some are not willing to hire on its pay scale that its appropriation will be enough to pay for the number of employees its appropriation is intended to pay for.

    Letting individuals negotiate the terms of their taxation other than through the legislative process makes no sense whatsoever.

    While this is true, the people who work for the Government are not negotiating the terms of their taxation when they decide to accept employment. They are negotiating the terms of their employment, and neither the legislature nor the executive can compel their acceptance of that employment. (See the 13th Amendment to the Constitution)

    This is not to say that public employees can not have representatives to make their case before the legislature, much like any tax payer or group of taxpayers might address the legislature.

    Of course, they can have representatives to make their case before the legislature, but their case is not similar or analogous to the case made by any other group of taxpayers, simply because they are the employees of the Government, as well as taxpayers in the conventional sense, and if the legislature and the Executive want to have employees who will function well and creatively, then those employees need to have at least some power relative to the Executive and the Legislature. Unions that can collectively bargain are currently the best way for low status employees to have a modicum of power.

    And this is not to say public employees should not be treated well, well paid in real terms, or abused.

    It is to suggest public employee compensation be recognized as part of the real process of taxation of the electorate and treated accordingly by all parties involved.

    I agree that pubic employees, and private employees too, should be well paid and also not abused, but I don’t understand the second part of this paragraph. From you I’ve come to understand that taxation is not about funding, but about establishing the value of a Government’s currency, and regulating inflation; to which I would add re-distributing net financial resources so that their possession is less hierarchical. But I don’t see that public employee compensation is part of this process.

    Finally, I suspect that the issue you’re raising here is one on which MMT economists probably disagree. Don’t you think so?

    Reply

    beowulf Reply:

    Interesting points Joe. The baseline issue Warren should have been clearer on (and that ESM picked up on) was right at the beginning…
    Government, desirous of provisioning itself, does it as follows:
    1. It imposes nominal tax liabilities payable in it’s currency of issue.

    Of course, only the federal government issues currency, state and local governments do not. So Warren’s point vis a vis MMT should be the narrower one of whether “federal workers” (versus”public sector workers”) should have actual bargaining power. Having reading the Roger Lowenstein book, While America Aged (I made a typo with the title above), I’m not terribly sympathetic to public sector unions at any level of government.
    http://www.nytimes.com/2008/05/04/books/review/Madrick-t.html

    It is irritating to read the Fox News headline “Federal Workers Thrive Without Collective Bargaining”, in which they completely confuse the issue of collective bargaining and open shop vs closed shop.
    http://nation.foxnews.com/politics/2011/03/04/federal-workers-thrive-iwithouti-collective-bargaining#

    Federal workers have both collective bargaining and an open shop, which is, as Tom Geoghegan notes, the standard rule in Europe.
    http://www.thenation.com/article/154607/ten-things-dems-could-do-win?page=0,3

    Reply

    LetsGetItDone Reply:

    Hi Beowulf, I agree that Warren’s chain of logic is disturbed right at the beginning, when he assumes that something that is true for the Federal Government also applies to State Governments. Having said that it seems to me that makes it even less justifiable for the Federal Government to avoid collective bargaining than for State Governments to do so, since the FG can more easily adjust to compensation increases than State governments can because of its lack of solvency limits.

    Having said that, however, I want to point out that in any organization, the interests of the employees, from the CEO on down are different from the interests of the organization’s stockholders, or in the case of the Government from the voters. To make organizational representative of stockholders or voters we need to find ways to bring them into alignment.

    This is difficult. For many years now, it’s been clear that corporate behavior is geared much more to big financial payoffs to CEOs and other top Executives than it is to the well-being of stockholders. It’s also been clear that stockholders can do little about creating stockholder democracies in corporations.

    A similar trend has occurred in the Governmental sector where Government behavior seems much more designed to benefit office holders than to benefit either voters or civil service employees of the Government. So again, we have the problem of alignment of the interests of those who hold power in organizations with those who are the source of their authority.

    So, the question is, how do we make powerholders in organizations accountable to stakeholders or to the people? I think we must do that by placing constraints on the elite power holders that they cannot escape from. I also think that to accomplish this one needs a 360 degree control strategy. Greater control over leaders from the direction of stakeholders and the people over Boards, Congress, and the Executive, greater control by Boards over the Executive, and greater influence by middle and lower level employees over higher level employees.

    We need that greater influence because organizations need to be able to adapt and all too often their executives don’t want to either recognize problems, or consider various alternative ways of coping with them from a critical perspective, or to recognize facts that are in conflict with their preferred strategies. They view themselves as smarter than everyone else, decide on courses of action based on intuition or uncritical immersion in elite consensus, and are closed to facts that emanate from below about the likelihood of their favorite strategies failing.

    What I’m getting at here is that we need to have employees in large organizations do more than just obey managers. They also need to see, formulate, and solve problems along with managers so that organizations can adapt better through distributive problem solving. This means that our big organization should be more democratic. They should be open enterprises. For that to happen employees in all large organizations, including Governmental ones have to be more powerful even if it means that their increased power will make them more expensive for stockholders or voters. The greater expense involved will be more than compensated for by the increased adaptiveness of more democratic organizations.

    One way to make organizations more democratic is through strong unions and expanded collective bargaining. American unions are too narrow in their focus. They ought to go beyond concern with wages and benefits and become much more concerned with protecting employees against the exercise of arbitrary authority, and also with the future of the organizations their members are working for. In general, other than in the areas of wages and benefits, the interests of employees are often more in line with the interests of stockholders or voters than the the interests of top managers.

    Often, the latter are managing organizations from the viewpoint of getting the quick hit for themselves. They don’t expect be serving for more than a few years. But middle and low-level employees are often interested in long careers with a particular company or organization. For that to happen, the organization has to adapt to changing conditions, and that’s where empowered middle and lower-level employees come in. They’re needed to place checks on executives whose main interest is in the quick hit.

    Now, I’m aware that the chain of reasoning I’ve presented above may seem far-fetched to some, especially given the stupidity and short-sightedness of some of our unions in choosing the immediate interests of workers over the long-term interests of their companies, particularly in the auto and other manufacturing industries. However, stupidity and short-sightedness was no monopoly of unions in these instances. The decline of the American auto industry was not primarily due to the unions, or even to high labor costs. It was due to repeated failures by top-level managers to adapt to change. First they failed to adapt to small car invasions and price competition, giving foreign brands a foothold. Then to quality challenges, and finally even to technology challenges from foreign manufacturers. One can even argue that the auto companies in supporting the conventional wisdom that it’s best to retain control over your own employees by providing health benefits, dug their own graves due increasing costs of these, when they might have supported Medicare for All from the 1970s on, a change that would have made them much more competitive as the years went by.

    My point here is that we can find many negative examples of union behavior, but just as many of stupid corporate and Governmental Management. And my key point is that we get better and avoid mistakes by recognizing and learning from error, and that it would be much better for organizations and their senior management if they could not so easily silence employees who can point out problems and errors. In turn, the key to that is m ore powerful unions that can counter arbitrary actions by managers and also ways for those unions to communicate with stockholders, legislatures, boards, and voters.

    Reply

    Tom Hickey Reply:

    Joe, I wonder if it is possible to resolve this kerfuffle without getting away from the economic notion that labor is a commodity that is priced like other commodities. This is a fundamental presumption of capitalism that is accepted unquestioned.

    This cuts to the basic question of libertarianism, a key presumption of which is self-ownership. Does self-ownership provide for selling oneself as a commodity, that is, as someone else’s property? I think many people would say that this is a form of slavery and in a liberal democracy that forbids ownership of other people, this is ruled out.

    If that is the case, then we have to cast the debate in other terms. The state does purchase labor in the same way that it does goods, and government service is not a real tax in the same sense.

    I think this is what is behind your argument at the normative level.

    WARREN MOSLER Reply:

    Hi,

    I’m not at all against collective bargaining.

    Quite the opposite. Especially when it comes to govt.

    The constitution, for example, is the instructions for the govt. from ‘the people’ that imposes substantial limits on govt., as well as the terms, conditions, rules, etc. for engaging the population. And it’s a work in progress that can be changed by ‘the people’ (at least sort of in theory).

    Govt can be abusive at all levels, and we must be ever vigilant to work against that, yet not to the point where we lose the necessary benefits of govt. including a common defense, legal system, and all the other public infrastructure we may desire.

    What I am saying is that the transfer of real goods and services to govt. at any level is the point at which the real taxes are paid, and it’s my humble
    opinion that recognizing that operational fact serves public purpose.

    And not recognizing how the monetary system operates in general has gotten us to this point and is highly counter productive.

    LetsGetItDone Reply:

    This is a reply to Tom,

    Joe, I wonder if it is possible to resolve this kerfuffle without getting away from the economic notion that labor is a commodity that is priced like other commodities. This is a fundamental presumption of capitalism that is accepted unquestioned.

    Didn’t think it was a “kerfuffle,” just a disagreement.

    This cuts to the basic question of libertarianism, a key presumption of which is self-ownership. Does self-ownership provide for selling oneself as a commodity, that is, as someone else’s property? I think many people would say that this is a form of slavery and in a liberal democracy that forbids ownership of other people, this is ruled out.

    Yes, I’d say that.

    If that is the case, then we have to cast the debate in other terms. The state does purchase labor in the same way that it does goods, and government service is not a real tax in the same sense.

    I think this is what is behind your argument at the normative level.

    Did you mean to say above, “does NOT purchase labor in the same way . . . “? If so, I think that’s part of what’s behind my argument at the normative level.

    WARREN MOSLER Reply:

    govt’s transfer of labor from the private sector to the public sector is, at the macro level, necessarily coercive and in that sense can be considered slavery

    all for public purpose, at the will of the electorate, of course

    Tom Hickey Reply:

    Did you mean to say above, “does NOT purchase labor in the same way . . . “? If so, I think that’s part of what’s behind my argument at the normative level.

    Yes, NOT is what I meant. Labor is NOT a commodity, a commodity being that which is produced for money exchange rather than for use. Therefore, labor should not be treated as a commodity, with wages thrown in with other costs and treated on the same level.

    This critique goes back to Marx’s criticism of the Classical economists and remains viable today. See, for example, Western Civilization and Classical Economics: The Immorality of Austerity by Prof. John Kozy, in criticizing a claim of Gavin Kennedy about Adam Smith.

    Classical theorists like Smith aver that products derive their value from the labor that goes into producing them, and that labor, itself, is bought and sold. Wages, which are the price of labor, have a natural price which is the price needed to enable labor to subsist and to perpetuate itself without either increase or decrease. These dogmas are known as the labor theory of value and the subsistence theory of wages respectively. Some revealing implications can be derived from them.

    First notice this oddity: labor produces products and the amount of labor expended determines their value. But labor is paid not the value of the products it produces but merely a subsistence wage. I defy anyone, economist or not, to justify that principle on moral grounds. Can Cook or Kennedy [writing about Smith] find an application of sympathy in this principle?

    Second, the subsistence theory of wages describes a condition similar to that used by animal husbands in dealing with livestock. Classical economics treats labor as animal husbandry treats cows. Can treating a fellow human being as a farm animal ever be morally justified? Where is sympathy found in this? Working people, labor, those who create all the culture’s wealth, are nothing but farm, factory, and when necessary, cannon fodder.

    But economists will say that these aspects of classical economics are not paid much attention any more. Perhaps, but what economists pay attention to and what goes on in the economy are different things. The Wall Street Journal’s report that 70 percent of people in North America live paycheck to paycheck demonstrates conclusively that the subsistence theory of wages is still being applied; our economists are just not honest enough to tell us about it.

    If a subsistence wage is all that this economy pays working people, how would the culture determine how to treat those people not in the workforce—the aged, the infirm, and the handicapped, even the unemployed? Classical economics has no answer to this question because classical economics does not exist to provide for people generally. Classical economics divides the populace into two groups—capital and labor. Anyone not in one of these groups is somehow irrelevant, which explains why the President and other governmental officials always speak of the upper class and the middle class but never mention the lower class. Yet no one seems to notice that speaking of an upper and middle class without speaking of a lower class is meaningless.

    ………..

    All the moral codes mentioned in this piece are Western in origin; yet none now plays a role in how the people of this civilization behave. When a civilization abandons its morality, no rationalization can be devised to justify its continued existence. It is likely that many reasons can be given for this abandonment, although I am convinced that one predominates—the expansion of law. Law once governed various kinds of behavior. It has now encroached upon various kinds of speech and is even being applied to the realm of belief. If there is a single aspect of human life that is not now circumscribed by law, I do not know of it. So when someone is accused of having done something wrong, the reply offered usually is something like, “What was done complied with all legal requirements.” But “right” has never been defined as “conforms to law,” because thoughtful people have long noticed that the law itself can be a great crime, and that the worst criminals in a culture can be its lawgivers, as the people of Ireland, Portugal, France, Spain, Greece, and Great Britain are now finding out. Americans will soon find it out too.

    WARREN MOSLER Reply:

    Hi Joe,

    Sort of point by point:

    I was making the distinction between nominal taxation- exchange of funds- and real taxation- transfer of real goods and services from private to public domain, which is the point of government and taxation in the first place.

    The real tax, therefore, is paid at the point of purchase by the govt.
    And, as monopoly issuer of the currency, the govt. sets the terms of the exchange.

    So hiring public employees and determining the terms of employment is the point of exchange where that element of real taxes collected takes place.

    This not to say employees should not have rights, and that govt power should not be limited. In fact, I’m all for limiting govt. power in general. including limiting what it can do with regards to taxing and tax collection. Particularly the IRS which is criminally abusive in my humble opinion (examples on request).

    As for slack, including unemployment, that too is caused by taxation. In fact, in the first instance taxation creates unemployment and excess capacity in general.

    Right, the govt. can’t force anyone to work, apart from conscription, which it can impose for any reason at any time, but it can limit what it offers to pay. And with an economy that needs the govts. funding to pay its taxes, or face the consequences, at the macro level taxation is being employed as an indirect means of forcing the provisioning of the govt.

    I agree it makes sense for govt. to grant employee rights to its employees. Just like it makes sense not to execute people for minor tax violations.

    Public sector compensation is an element of inflation, and the headline latin american inflations have been largely traced to indexation of govt payments, which were largely public sector employment. Govt. paying more for the same thing is a redefining of the currency downward, etc.

    so yes, at the extreme, govt could increase all public sector pay to $1 billion a year, and the checks would not bounce, but I assure you there would be what I would call a very large one time price adjustment that most everyone else would call ‘inflation.’

    But lower levels of public sector compensation increases can be accomplished in real terms without adding to demand beyond the capacity of the economy to deliver real goods and services.

    For me, the key is to get the debate down to its elements, recognizing public sector employment is an extension of taxation, with the debate conducted in that context.

    Reply

    Tom Hickey Reply:

    I think that the discussion would have to clarify that “employment” is not being used in the same sense wrt public and private sector. For example, military personnel, politicians, etc., are not “employed” in the same sense as those in the private sector. It would be necessary to get the public to recognize that public “service” is not “employment.”

    In this sense, conservatives are correct that government cannot create “jobs.” Conservatives also are well aware that government expenditure on goods and services is real taxation. Liberals deny the former and are in denial of the latter. A lot of the kerfuffle revolves around this.

    Framing the issue in terms of real taxation has political implications that stand in the way of instituting a JG, too.

    The economic reality is a political hot potato. :o

    Reply

    Tom Hickey Reply:

    Michael Moore: The Smug Wealthy Have Gone Too Far — And We’re Finally Fighting Back By trying to destroy us corporate America has given birth to a movement — a movement that is becoming a massive, nonviolent revolt across the country.

    I have nothing more than a high school degree. But back when I was in school, every student had to take one semester of economics in order to graduate. And here’s what I learned: Money doesn’t grow on trees. It grows when we make things. It grows when we have good jobs with good wages that we use to buy the things we need and thus create more jobs. It grows when we provide an outstanding educational system that then grows a new generation of inventers, entrepreneurs, artists, scientists and thinkers who come up with the next great idea for the planet. And that new idea creates new jobs and that creates revenue for the state. But if those who have the most money don’t pay their fair share of taxes, the state can’t function. The schools can’t produce the best and the brightest who will go on to create those jobs. If the wealthy get to keep most of their money, we have seen what they will do with it: recklessly gamble it on crazy Wall Street schemes and crash our economy. The crash they created cost us millions of jobs.  That too caused a reduction in revenue. And the population ended up suffering because they reduced their taxes, reduced our jobs and took wealth out of the system, removing it from circulation.

    WARREN MOSLER Reply:

    you can argue his heart’s in the right place but you can’t argue he gets it in respect to monetary operations and is therefore part of the problem.

    Tom Hickey Reply:

    Public Teachers: America’s New “Welfare Queens”

    [SS & Medicare]

    What it all boils down to: the push for privatization

    If It Sounds Too Good … What You Need to Know, but Don’t, About Privatizing Infrastructure

    zanon Reply:

    No Toms Hickey:

    It boils down to poor fools in private sector see their hard earned money taken by deadbeats on government payrool and want some justice.

    the right is exploiting these poor slobs to push their privitization agenda.

    fortunately, the right will fail and nothing will be privitized. the public sector unions will continue to live their depressing parasitic lives. and the poor slobs will do what poor slobs do — go to work, then hand 30%+ of paycheck to the Man

    this is actually best solution

    WARREN MOSLER Reply:

    that’s the appearance when you’re out of paradigm, where most everyone is

    Winslow R. Reply:

    I thought this was interesting….

    “Averaging voting behavior of the Presidential elections from 1992 to 2004 by elementary school teachers yields 50.8% supporting the Democrat, 43.8% the Republican, and 5.5% a third party candidate. Among the general electorate, 47.2% backed the Democrat, 44.2% the Republican, and 8.6% someone from a third party.”

    http://anepigone.blogspot.com/2009/09/elementary-school-teachers-presidential.html

    Not sure the country could survive the chaos if the carrots allotted to college economics professors were threatened. Just mention auditing the Fed and they start protesting in droves.

    Winslow R. Reply:

    “Right, the govt. can’t force anyone to work, apart from conscription, which it can impose for any reason at any time, but it can limit what it offers to pay.”

    Various exchanges and whether they produce a nominal or real tax.

    Conscription is a real tax on labor resources.

    “For me, the key is to get the debate down to its elements, recognizing public sector employment is an extension of taxation, with the debate conducted in that context.”

    Public sector employment is an exchange with an element of taxation. A tax suggests coercion. The coercion can either be on the part of government or the union.

    Negotiating a contract, without collective bargaining (any power), more likely will create a one sided exchange favoring government and therefore is a real tax. If a Union, through collective bargaining is able to derive a contract where its power exceeds the power of the state, in effect the union is imposing a nominal tax on government.

    Somehow your idea needs to incorporate no bid contracts and corruption. If the state sells real resources for pennies, this is a private corporation or individual imposing a real tax or nominal tax on government. If the power of a corporation or individual exceeds the power of the state, corruption or no bid contract Boeing or Haliburton style, the effect on government is a nominal tax.

    Reply

    WARREN MOSLER Reply:

    this is exactly the type of discussion i’m trying to promote that i don’t see taking place at any level.

    Tom Hickey Reply:

    If a Union, through collective bargaining is able to derive a contract where its power exceeds the power of the state, in effect the union is imposing a nominal tax on government.

    This is a claim often heard, but what is the evidence other than claims on the part of those that would profit from limiting the power of unions, namely, the GOP? Do public unions really coerce the state? Proof?

    Winslow R. Reply:

    Okay……

    How does MMT define political power?

    It looks like a contract has an exchange component (fair market value, which changes depending on inflation/deflation) and a tax component (coercion through market or political power).

    Currently the price level of Wisconsin teachers (all public teachers for that matter) exceeds what was previously a politically acceptable level. With the deflation of private nominal wages, politically the power terms have changed.

    Federal stimulus supported the price level of Wisconsin teachers through nominal transfers (which also impacted the price level), but no longer. Now that nominal funding for teachers no longer comes from nominal increases in the money supply, it instead must come from nominally taxing the Wisconsin private sector, the political process erupts. It seems the teacher’s union never had much political power with regards to Obama.

    I’d say a lack of political chaos is an indicator of whether previous contracts ‘coerced’ the state. The purpose of government is to govern :) As long as nominal cuts don’t bring about a political reaction, nominal cutting will continue.

    Coercion is a part of the political process. ‘Corruption’ will continue until political chaos erupts. No chaos, no change.

    I haven’t thought this through. It seems there is a ‘buffered’ state where things are peaceful until they aren’t. All kinds of exchanges (including those involving coercion) can occur in this state without chaos erupting. Those studying political optimization might try to increase this ‘buffered’ range to include most of the time.

    zanon Reply:

    the public unions ARE the state?

    I mean seriously TOms Hickey, for someone who pleasures himself thinking about Halls of Power to the degree you do your cluelessness on this point is incredible.

    Every few years, about 500 elected officials rotate in and out of washington DC. Add in another 5000 or so of ppl they appoint, plus state and local and now you have maybe 20,000 ppls.

    However, number of government employees actually is around about 50,000,000. And none of them can be fired by anyone. THis is the “permanent government” and it is how things are actually run.

    So, you can see how 20,000 cannot possible effect 50,000,000 who have job for life.

    This is actually much better than the alternative

    Mario Reply:

    what about the fact that MMT recognizes that the private sector, without assistance from government spending, cannot seem to reach full employment? Doesn’t this make a case against this notion that government workers are a “tax” on the private sector by the very fact that the private sector seems to have “no place” for them anyway. How can you tax something that is not there?

    Also I don’t understand how you can claim that government expenditure on goods and services is also a tax on the private sector when the private sector is the one that profits from that expenditure. I think you have it backwards there no?

    Whether or not a union fights for a “better deal” on a government job is really irrelevant simply b/c those government workers spend and exist in the private sector and therefore grow the private sector through consumption, etc. Any “taxation” the private sector “experiences” through bargaining and/or government employment is surely counteracted by the net financial asset growth those jobs put into the private sector economy through consumption, etc.

    I thought this was all basic MMT principles no?

    Eventually, as Billy Blog loves to point out, once we hit full employment (and as Warren has stated, those private sector jobs start to INCREASE in wage pressure–rather than attempting to decrease public sector wages), more and more people will transfer from government jobs into private sector jobs. The system will take care of itself in that way as far as I see it, and of course just practically speaking the government does need workers to get their work done so that will never go away. Collective bargaining and unions are really a moot issue as far as I can see in this regard. They merely set a standard of wage, living, and private sector nfa which the private sector job market can both rely on as well as compete against for labor, goods, and services.

    The question really becomes would you rather have government jobs inject nfa into private sector through steady wages for workers which makes the private sector rise to that standard of wage or would you prefer lower wages for government jobs which allows the government workers to go into the private sector (if there’s room for them there at all in the first place!). Honestly, from what I see of wage pressures in the private sector…I like unions helping to keep wages competitive in the private sector, b/c the private sector doesn’t raise wages when it CAN…it only raises wages when it HAS TO.

    The government then, once again and in perfect MMT style, sets the tone for private sector nfa through allowing the manipulation of government sector wages. I think it’s quite clear to see why Wisconsin is trying to get rid of unions/collective bargaining and it has NOTHING to do with “taxing” the private sector aggregate…it has to do with competing upward wage pressures and therefore profit margin and therefore innovation. In other words…it’s not a good idea to let these guys get what they want in this regard.

    Reply

    WARREN MOSLER Reply:

    the private sector can’t reach full employment when the govt applies the brakes of fiscal drag, which means, for a given size govt, grossly over taxing us

  16. LetsGetItDone Says:

    Warren,

    I was making the distinction between nominal taxation- exchange of funds- and real taxation- transfer of real goods and services from private to public domain, which is the point of government and taxation in the first place

    .

    I know you were making that distinction. I’m saying 1) that when talk about taxation, the normal connotation is the removal of money from the private sector, not the transfer of real goods and services. Real goods and services are removed from the private sector when the Government spends, not when it nominally taxes. Not is this removal a “tax” even in real terms when the economy is slack, since then no one is short of the goods and services the Government is removing.

    The real tax, therefore, is paid at the point of purchase by the govt. And, as monopoly issuer of the currency, the govt. sets the terms of the exchange.

    So hiring public employees and determining the terms of employment is the point of exchange where that element of real taxes collected takes place.

    I understand what you’re saying here. But it’s not taxing me for the Government to purchase my labor in return for nominal financial resources, if I have no other job offer. And if no one else is willing to employ me anyway, then that Government purchase of my services isn’t a tax on them either.

    This not to say employees should not have rights, and that govt power should not be limited. In fact, I’m all for limiting govt. power in general. including limiting what it can do with regards to taxing and tax collection. Particularly the IRS which is criminally abusive in my humble opinion (examples on request).

    I agree about the IRS and about limiting Government power in many areas. But I am saying that the best way to limit arbitrary Government power over workers is strong unions. That’s because you need countervailing power as well as formal rules to limit Government power. John Kenneth Galbraith knew this very well, and I suspect Jamie is a strong supporter of unions too.

    As for slack, including unemployment, that too is caused by taxation. In fact, in the first instance taxation creates unemployment and excess capacity in general.

    Right, the govt. can’t force anyone to work, apart from conscription, which it can impose for any reason at any time, but it can limit what it offers to pay. And with an economy that needs the govts. funding to pay its taxes, or face the consequences, at the macro level taxation is being employed as an indirect means of forcing the provisioning of the govt.

    I agree.

    Public sector compensation is an element of inflation, and the headline latin american inflations have been largely traced to indexation of govt payments, which were largely public sector employment. Govt. paying more for the same thing is a redefining of the currency downward, etc.

    so yes, at the extreme, govt could increase all public sector pay to $1 billion a year, and the checks would not bounce, but I assure you there would be what I would call a very large one time price adjustment that most everyone else would call ‘inflation.’

    I agree, but it’s a straw man. I’m not suggesting that, and with respect to the present situation in Wisconsin, the conflict is about cutting back the pittance that public employees are getting paid now.

    But lower levels of public sector compensation increases can be accomplished in real terms without adding to demand beyond the capacity of the economy to deliver real goods and services.

    For me, the key is to get the debate down to its elements, recognizing public sector employment is an extension of taxation, with the debate conducted in that context.

    I think you’ve been shifting the meaning of “taxation” throughout this discussion and that’s what is making it hard to come to agreement. I still don’t see the sense of saying that “public sector employment is an extension of taxation.” I don’t know exactly what that means. And my first reaction to it is that it may be true in conditions labor or resource “crowding out,” but not in a slack economy.

    Reply

    WARREN MOSLER Reply:

    first, the slack is created by taxation, particularly unemployment.
    that’s how taxation works- it creates sellers of real goods and services desirous of the govt’s unit of account, for the purpose of the govt obtaining those resources. if slack remains after the govt has provisioned itself it means for that size govt the economy is being over taxed.

    i’m always open to other ways of saying things. Just seems to me that the main reason govt taxes is to spend it’s otherwise worthless currency
    to provision itself, mainly with employees. It’s how a currency is used to provision govt, vs a command economy, for example, where the public sector workers are obtained via other means.

    one can argue for public sector unions within this ‘correct paradigm’ perhaps even more so than trying to argue out of paradigm, which so far has failed miserably?

    Reply

    Mario Reply:

    it could be over taxed or it could be under-spent. There is a difference b/c taxation has an obvious floor of zero while government spending is unlimited. Since it is obvious that taxes will never go to zero as MMT proves, it is clear that it is possible to have a scenario where taxes are in their appropriate place for full employment, however the government deficit is still not high enough.

    Therefore taxation does not necessarily create unemployment, nor does it mean that the private sector is being over taxed.

    Reply

    WARREN MOSLER Reply:

    nope

    0 taxes is hyper inflation.

    Mario Reply:

    Warren,

    I agree 0 taxes is hyper-inflation since there is no extraction from the private sector at all. However I was not suggesting 0 taxes to occur. In fact, I stated that 0 taxes could NOT occur based on the MMT principle that taxes keep the currency in use. So by default there will always be some level of taxation whatever that may be.

    What I was stating is simply that at whatever level of taxation (not including zero taxation), you could still have an economy operating at less than full employment (slack). At that point it would become clear that increased government spending would be necessary to reach full employment.

    This makes sense to me at least b/c the government can always spend more than it can drop in taxes. Just like you cannot short a stock forever b/c once it hits zero the short is over. However you can go long a stock hypothetically forever b/c there is no ceiling to the upside. The same is true with taxes and government spending respectively.

    In other words, a society could be under-employed even though it’s taxation levels were where they should be for maximum employment. The added feature in that scenario is to increase government spending. You could forsee such a scenario occurring in an economy that has demand leakages (savings desires). I think the US may fall into this category and is why I am suggesting that regardless of how low we bring taxes, we will likely need to always have some type of government spending as well to effectively reach full employment.

    That makes sense to me…where do you see me going off?

    WARREN MOSLER Reply:

    0 taxes are hyper inflation from the demand side- people willing to spend the worthless currency with no one willing to sell real goods and services.

    therefore there is no one looking for a job that pays in that currency, hence no unemployment as defined.

    if there is no other currency- no other taxes, etc. anywhere- it’s a non monetary economy with no unemployment. Indian tribes and Africa before the Brits monetized it, army units, monasteries, and other non monetary societies don’t have unemployment/excess capacity as we know it.

    Unemployment is a monetary phenomena.

    So for a given size govt, as taxes are cut unemployment will come down and you will reach ‘full employment’, well before hyper inflation, depending of course on how you define all the terms.

    Neil Wilson Reply:

    0 taxes is only hyperinflation if the flow of currency exceeds aggregate supply. If the money is still leaking into Net Financial Assets surely that will constrain the system the same way that taxes do.

    Money in Net Financial Assets is inert isn’t it?

    WARREN MOSLER Reply:

    the desire to save financial assets in a currency with no taxation comes down to only ‘collector value’ like confederate dollars.

    Matt Franko Reply:

    Neil, Perhaps WM means that without taxes (taxes=0), currency value (imputed only by coercive force of taxation) goes to zero… everything becomes hyper expensive, etc.. (disregards quantity theory entirely) Resp,

    beowulf Reply:

    As Rodger Mitchell has pointed out, even if the US had no federal taxes, there are still state and local taxes that must be paid in dollars. Of course it would be best if state/local govts ere encouraged to collect their revenue via land value taxes (more on that later).

    Since state and local taxes aren’t going anywhere and are unavoidably pro-cyclical, the feds still need some kind of tax regime to allow it to adjust its fiscal stance in a counter-cyclical manner to boost aggregate demand during recessions and to maintain a stable price level when the economy is at full employment. And that tax can actually be a regulator fee. The Federal Reserve has authority under the Monetary Control Act of 1980 to set user fees to collect direct and inirect costs of its services (Fedwire transfers, check clearing etc) and since its net earnings end up (like tax payments) in Tsy General Fund, the Fed could adjust its user fees periodically (after as a fiscal policy tool.
    http://www.federalreserve.gov/paymentsystems/pfs_feeschedules.htm

    Since as Neil points out “0 taxes is only hyperinflation if the flow of currency exceeds aggregate supply”, inflation is an indirect cost of excessive flow of currency. Likewise high unemployment is an indirect cost of an inadequate flow of currency, so the Federal Reserve is permitted, nay, mandated (a “dual mandate”you might say) to adjust transaction fees to accurately account for these costs.
    If Congress did cut taxes to 0– say, by giving a 100% federal tax credit for all state/local Land Value Taxes paid, the Fed would simply adjust its fees accordingly.

    beowulf Reply:

    To give some backfill, UW-Madison Economics Professor Edgar Feige has done some excellent analysis on bank transaction taxes (range of rates, effect on transaction volume, distributive impact, etc).
    http://www.scribd.com/doc/25299549/Feige-APT-Presentation-to-Tax-Reform-Panel-2005
    http://www.scribd.com/doc/25299550/Feige-APT-article-2000

    Encouraging states to shift from other kinds of taxes to an LVT by means a federal tax credit for state LVT paid is a variation of the old “sponge tax” provision in the estate tax code (it was phased out a few years ago).
    The federal estate tax regulations provide a direct credit for a specific amount of state estate tax paid. This is called a sponge tax because the state sucks up whatever the federal government allows as a credit…without increasing the total estate tax payable.
    http://www.douglasturner.com/2007/06/04/decoupling-a-dirty-little-estate-tax-secret/

    Mario Reply:

    neat points Beowulf. Doesn’t that mean then that Primary Dealers would basically be paying that tax while everyone else is getting 100% tax credit? Therefore why not just adjust the tax credit to less than 100% across the board all things being equal?

    Also doesn’t Mosler’s Law imply that 0 taxes does not necessarily create hyper-inflation but instead powerful inflation…such that could pull an economy out of a recession/depression? It just seems to me that there is a very highly probability of an economic scenario where 0 taxes did not create hyper-inflation.

    Anyway, I also wanted to state that labor is NOT a commodity. Marx proves this in a very conservative, logical, and linear fashion in the very beginning of Volume One of “Capital.” The human labor-force cannot be a commodity b/c it lies BEYOND the use-value and the exchange-value of ALL commodities. Labor in fact is THE VALUE that sets the exchange-value for all commodities and therefore as a point of logic cannot be a commodity in and of itself. It lies beyond commodities and unifies all commodities and therefore all profit & loss as well. The human labor-force CREATES commodities and is therefore THE value behind all commodities and by extension all economies. If you look at the divergences in labor initiatives from 3rd world to 1st world nations this point becomes glaringly obvious where in 3rd world nations there is a massive under-supply of jobs compared to the population but still very little competition amongst laborers for those jobs while in 1st world nations there is typically a fractionally smaller under-supply of jobs but interestingly much more extremely competitive laborers for those jobs. This is b/c of the differences in LABOR INITIATIVE. It is this INITIATIVE…this life…this human labor-force which is exactly what PRICES AND VALUES the commodities that economy creates. Hence 1st world countries are more highly valued than 3rd world countries. Labor is NOT a commodity. It is the PRIME VALUE of an economy and as such has every right to compete and bargain for itself wherever and however it wants to, within legal and practical reason, just as business can compete and bargain for profit wherever and however it wants to, within legal and practical reason. The viable economic meeting point becomes striking a balance between labor wages and labor output (aka profit/loss). Regardless labor itself lies beyond that value exchange between wages and output as it acts as the over-arching equilibrium that establishes the direct relationship between the two (wages and output). In these regards, and many, many others, Marx is not radical or “communistic” in the least…in fact he is arguably one of the most fully realized thinkers of capitalist economies we have yet to see. If you haven’t read him I highly suspect you will be quite surprised at what you find in his works and how greatly they diverge from what you “hear” about his works. He is far more in favor of individual values, democracy, and self-sustaining economies than anyone would have you believe…at least in my professional and limited opinion that is.

    beowulf Reply:

    The tax put on primary dealers (and other users that list of Fed services) can be passed through to customers, employees or shareholders. All three would benefit from having Federal income taxes reduced dollar for dollar by whatever state levies in Land Value Taxes. The Fed could charge a fee (as Professor Feige suggests) on every single payment it clears, but taxing payroll and rent checks seems almost a waste of time ($20 trillion cleared annually via FedACH) when the wire transfer totals are so damn enormous.

    In 2009 ($14 trillion GDP), $630 trillion in Fedwire Funds, $300 trillion in Fedwire Securities plus outside the Fed (but still taxable when it enters or leaves a Fed account) there’s CHIPS ($508 trilion in wires), DTCC ($600 trillion in securities trades cleared) and much more besides (GAO has a good rundown starting on p. 25).
    http://webcache.googleusercontent.com/search?q=cache:DWF78rDo-DQJ:www.llsdc.org/attachments/files/279/CRS-R41529.pdf

    Thanks for the comments about Marx, pretty interesting read, however quoting Abe Lincoln is always safer bet.:o)
    labor is prior to, and independent of, capital; that, in fact, capital is the fruit of labor, and could never have existed if labor had not first existed; that labor can exist without capital, but that capital could never have existed without labor. Hence they hold that labor is the superior – greatly the superior – of capital.
    http://dig.lib.niu.edu/teachers/econ1-lincoln.html

    WARREN MOSLER Reply:

    the public purpose of transactions taxes would be to discourage those transactions.

    so the question is whether public purpose is served by reducing the number of transactions in question.

    (same goes with the proposals to tax emails, etc)

    Sergei Reply:

    Capitalism can not read Marx for ideological purposes because Marx was a convinced socialist and was purposefully looking to show that capitalism is not a viable concept which will be eventually replaced by socialism. As matter of fact Marx disproved his own labour theory of value but for ideological reasons did not find academic courage to admit it and reject his own previous writings.

    However if one forgets about this theory while reading his works then Marx approached understanding of capitalism like probably noone ever managed. I find it amazing that absolutely everybody speaks of inflation however noone can actually offer a proper theory of prices. In this sense neoclassical/neoliberal writings about all firms being price-takers and prices are set by the market at the level of marginal costs is simply ridiculous. How can central banks be serious thinking about inflation when they even have no clue how prices are established in capitalism by capitalism?!

    And Marx provided a clear basis to understand how prices are established. Honestly, capitalism and its economic theory should treat Marx like Einstein in physics yet the absolute majority of economists seriously refuses even to hear his name. And we must omit here normal people. These are simply blind.

    WARREN MOSLER Reply:

    proper theory of prices is found under ‘mandatory readings’ on this website:

    http://www.moslereconomics.com/mandatory-readings/a-general-analytical-framework-for-the-analysis-of-currencies-and-other-commodities/

    :)

    beowulf Reply:

    Warren, since federal govt doesn’t actually tax to spend, lets recall Beardsley Ruml’s four reasons federal govt levies taxes:
    1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;
    Govt levies taxes to keep inflation in check. But replacing federal income tax with transaction tax (one that’s already up and running, albeit at microscopic rates) would remove deadweight cost of income tax regime. Fiscal policy is a more effective tool than monetary policy, adjusting fee schedule allows the Fed to directly adjust fiscal stance almost immediately (Congress is rather more… deliberate, Kennedy’s tax cuts took 2 years to get through).
    2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;
    As Feige points out, because of regressive nature of financial asset holdings, a bank transaction tax is the only kind of flat tax that raises revenue progressively.
    3. To express public policy in subsidizing or in penalizing various industries and economic groups;
    Pre-crash, the FIRE sector was generating 40% of all corporate profits, the tail was wagging the dog. Cutting income taxes and indirectly sales and prop. improvements taxes if states shift to LVT in real economy, even at the expense of lower financial transaction volume (with his revenue-neutral pla, Feige estimate volume falls 50%), would be more like a Pigovian tax benefit than a tax burden.

    What’s more, if the Fed wants to pop a bubble, instead of jawboning markets or raising interest rates on everybody, they can target transaction tax hikes on specific markets to slow down volume and to widen wedge between bid and ask, making computerized flash trading unprofitable.

    4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.
    The simple answer is no one benefits from banking system more than bankers and when they sneeze, the rest of the economy gets the plague. Besides, its not like Jamie Dimon will take his the money out in cash and start selling black market loans on Indian reservations. More to the point, since the govt doesn’t tax to spend and the Quantity of Money theory is P(t) = V * M(t), if the govt reduces velocity of money, it doesn’t need to drain as much Money in circulation to keep Price level stable than if V were fixed. A transaction tax (sorry, “user fee”) would certainly reduce the velocity of money. On the other hand, an email tax would only reduce the velocity of money headed towards Lagos, Nigeria.

    ESM Reply:

    “More to the point, since the govt doesn’t tax to spend and the Quantity of Money theory is P(t) = V * M(t), if the govt reduces velocity of money, it doesn’t need to drain as much Money in circulation to keep Price level stable than if V were fixed. A transaction tax (sorry, “user fee”) would certainly reduce the velocity of money.”

    But having a high velocity of money is not an intrinsically bad thing. It is only bad if it is caused by a lack of confidence in the value of money and lack of desire to save. If it is caused by low transactions costs, that’s only a good thing.

    Mario Reply:

    yes that makes perfect sense now Warren about demand-side hyperinflation with zero taxes and all you say there. I get what you’re saying now and agree completely. way cool. Thank you.

    Although I do agree with you that government worker negotiations are a tax on our society, I also feel that lobbying is also a tax on our society too in that same regard. For that reason I have to say we need the former to offset the latter UNTIL our government is truly “blind” to private ownership (as Marx talks about)…until then I cannot support taking down unions. I just instinctively believe in workers’ rights and believe that the human labor-force has every right to negotiate its own worth in our economy regardless of taxes. I also do think that the taxes made from negotiating those wages are more than offset by the increased spending that takes place in the economy b/c of those wages. It seems to me that either stance can be supported by MMT and both are cool with me. It really is a great discussion. ;)

    Mario Reply:

    Sergei,

    I am not exactly disagreeing with you but just clarifying some things…marx was not a “convinced socialist.” He was rather working off a premise that was the materialist inverse of Hegel’s philosophy of Idea and thought. B/c of his theories were an exact inverse of Hegel’s, this naturally led Marx to a conclusion that the people would eventually dissolve all institutions b/c they would no longer be necessary not in a sense of anarchy or in a sense of social “welfare” or “distribution” but rather in the sense that the FUNCTION of those institutions would be fully internalized by the people and therefore those institutions would no longer be necessary. This would occur b/c we the people CREATE our institutions ourselves (from our own human labor-force you might say) not the other way around. I think you can clearly see that this idea is not only far from radical in America (considering we the people created our constitution, etc.) but is also far from what we all refer to as “socialism” or a “welfare state.” In fact Marx continually makes it a point to reject, discredit, and discount any and all notions of a “welfare state” where asset distribution would be equalized amongst the people (and there were MANY such ideas going around in his time in that regard by the way). He repeatedly states publicly that such utopian notions are unsustainable, stupid, and actually still perpetuate a belief in those institutions that inherently dis-empower the individual. Instead of distributing the PRODUCTS of an economy Marx suggests that we distribute the PRODUCTION of an economy. This is what he means by destroying land ownership. You must understand Marx is writing in the middle of the 19th century in Europe where basically if you owned land (something in small supply in Europe btw) it was b/c you likely inherited it from the nobility of feudal times. He continually references America as a great example of the destruction of private ownership b/c anyone could go there and buy land and own it and operate on it…the government and social economy was BLIND to land ownership. This is what he meant by destroying private ownership. It was NOT some sort of distribution of all land ownership and we all must give up our deeds on our property to some “greater good.” NO WAY!! No he thought such “pooling” was ridiculous and distanced himself from it from the start. He more intent on the governing institution being “blind” of each citizen so that, like justice, it could treat all in the same manner and in so doing would destroy private ownership. This is why I say Marx would likely hate lobbying too.

    Do you have any citations that show where Marx “disproved his own labor theory of value”? I ask not as a challenge to you but rather out of pure personal interest…I’d like to read more about that and I have never heard such a claim before in his scholarly works.

    Finally I completely agree with you that we need to look at Marx as we do Einstein or someone of that caliber. Just as people took Einstein’s works and made something as horrendous as the atomic bomb for their own benefit, so it seems others in history have taken parts of Marx’s works and attempted to construct their own “atomic bomb” (aka the Soviet Union, McCarthyism, Cuba, etc.) but none of them seem to ever actually understand Marx…they are just USING Marx for their own ends. I couldn’t agree more with you about economists refusing to even touch Marx and how ridiculous such a notion is (it’s like a psychologist choosing not to even consider who Freud was!!! haha!!). And then most people just freak out over him without even knowing what he’s saying!! haha!! It’s really a shame considering the kind of mind and contribution he made to modern thought and economy…it really is laughable to equate Marx to the Soviet Union…at least imho. Cheers!

    Sergei Reply:

    Mario, Steve Keen liked to cite the original Marx reference in this regard. I was so curious about it that I googled the citation and it really came from Marx. Though I actually think now it was from the draft of Capital … ok, checking …

    Here is the link http://books.google.com/books?id=KdITT4ukfhoC&lpg=PP1&dq=debunking%20economics&pg=PA295#v=onepage&q&f=false

    I would be curious to hear your opinion. On my reading of that part of Grundrisse I would tend to agree with Keen’s interpretation.

    Mario Reply:

    Sergei,

    That’s interesting. Thanks for the link.

    What it looks like to me Keen is saying is that in Capital Marx contradicts his past statements that technology is not good for an economy b/c it depreciates the economy at large. Marx contradicts himself b/c in Capital he admits that a technological advance can create wealth. In his views of technology I think Marx is off but I think it’s still an interesting point to consider. Regardless his anxieties about technology don’t really effect his theories of the human labor-force either way. Honestly, I noticed that too when I read that part of Capital and was kind of surprised Marx admitted that.

    Great link and thanks. ;)

    LetsGetItDone Reply:

    I thought I was arguing for unions within paradigm. -:) -:) -:)

    Reply

    WARREN MOSLER Reply:

    :)

    beowulf Reply:

    Public sector workers are in the same economic position as government vendors or contractors. If left to their own devices, govt contract officers more often than not do their best to get the best value via competitive bids. The problem is usually Congress putting its thumb on the scale. For example Medicare reportedly overpays by $30 billion a year by the statutory ban from negotiating prescription drug prices. And I suppose more on point, any federally funded construction contract must include a Davis-Bacon “prevailing wage” standard– that is, union scale.

    Davis-Bacon adds up to 10% to the cost of govt construction projects. And sometimes the time costs are even larger, Obama’s stimulus package allocated $5 billion to weatherize homes (via local govts and nonprofits). The goal was the weatherize 20,000 to 30,000 homes a month (over three years). After a year, the GAO reported that the program lagged behind its goal by more than 90%, the problem?
    The Department of Labor spent most of the past year trying to determine the prevailing wage for weatherization work, a determination that had to be made for each of the more than 3,000 counties in the United States, according to the GAO report.
    http://abcnews.go.com/WN/Politics/stimulus-weatherization-jobs-president-obama-congress-recovery-act/story?id=9780935

    Frankly, the federal govt’s motto should be “pay and then get out of the way”. Give a 100% tax credit to homeowners weatherize or (to minimize the paperwork) pay the credit to utilities who offer “free” energy audits and weatherizing to consumers. There’s no Davis-Bacon requirement for tax expenditures (though periodic sunset clauses wouldn’t hurt).

    Reply

    ESM Reply:

    “For example Medicare reportedly overpays by $30 billion a year by the statutory ban from negotiating prescription drug prices.”

    This is a different kettle of fish. The government has decided (wisely in my opinion) to allow the private sector to determine the price (actually, to be “MMT-correct”, the relative price) of a particular drug. If the government could negotiate, the price would end up being awfully close to the marginal cost of production, which is too low to justify research and development investment for new drugs. This is not to say that the government shouldn’t be a prudent shopper. If there is a drug that isn’t cost-effective, it shouldn’t buy it. Likewise, if there is a cheaper equivalent, it should buy that instead.

    The same holds true for labor. The government should generally aim to pay prevailing private sector wages and benefits, but if it finds that there are too few applicants for a job, it should increase compensation to attract enough workers. If there are too many applicants, it should lower compensation. There should be no conscription, but also no subsidies to favored groups of workers.

    The government should set price for only one commodity (e.g. an hour of unskilled, mind-numbing labor), but let all other prices be determined by the free market.

    “Give a 100% tax credit to homeowners weatherize or (to minimize the paperwork) pay the credit to utilities who offer “free” energy audits and weatherizing to consumers.”

    How about if the government paid for a weatherization analysis and that’s it? The homeowner gets the report and can decide for himself whether it makes sense to weatherize.

    beowulf Reply:

    Well, Pharma wins three ways– Medicare’s laydown bargaining, R&D tax breaks and, of course, the legal monopoly they have on the drugs they develop for the term of the patent. Is drug research important? Sure that’s why we subsidize it. Are they entitled to a fair profit? Absolutely, but Pharma sector profit margins always exceeds market average. Last I checked, it was 16%, S&P 500 profit margin 8.7%? Selling drugs to Medicare at the price VA hospitals pay won’t break Pfizer.

    I agree with your points otherwise, especially about weatherization. If weatherizing was made a condition to get a mortgage (with the weatherizing costs rolled in), people would hop to it.

    ESM Reply:

    I agree that R&D tax credits and patents are “institutional structure” advantages for pharma companies, as they are for any technology company. And I agree with the Medicare advantage, but only to the extent that government is subsidizing demand (and government is not doing this to encourage pharma R&D, but rather to keep old people in good health).

    But remember that there are structural disadvantages too. The FDA approval process for new drugs strikes me as unnecessarily onerous.

    Also, the legal tort system leaves a lot to be desired.

  17. Mario Says:

    I put these comments in the wrong place above…here they are again in the more proper place in the thread.

    what about the fact that MMT recognizes that the private sector, without assistance from government spending, cannot seem to reach full employment? Doesn’t this make a case against this notion that government workers are a “tax” on the private sector by the very fact that the private sector seems to have “no place” for them anyway. How can you tax something that is not there?

    Also I don’t understand how you can claim that government expenditure on goods and services is also a tax on the private sector when the private sector is the one that profits from that expenditure. I think you have it backwards there no?

    Whether or not a union fights for a “better deal” on a government job is really irrelevant simply b/c those government workers spend and exist in the private sector and therefore grow the private sector through consumption, etc. Any “taxation” the private sector “experiences” through bargaining and/or government employment is surely counteracted by the net financial asset growth those jobs put into the private sector economy through consumption, etc.

    I thought this was all basic MMT principles no?

    Eventually, as Billy Blog loves to point out, once we hit full employment (and as Warren has stated…once those private sector jobs start to INCREASE in wage pressure–rather than attempting to decrease public sector wages), more and more people will transfer from government jobs into private sector jobs. The system will take care of itself in that way as far as I see it, and of course just practically speaking the government does need workers to get their work done so that will never go away regardless of full employment. Collective bargaining and unions are really a moot issue as far as I can see in this regard. They merely set a standard of wage, living, and private sector nfa which the private sector job market can both rely on for consumption as well as compete against for labor.

    The question really becomes would you rather have government jobs inject nfa into the private sector through steady wages for workers which the private sector benefits from and also makes the private sector rise to that standard of wage OR would you prefer lower wages for government jobs which takes away (taxes in fact?) the private sector through less consumption and thereby forces government workers to go into the private sector for more competitive wages (that is if there’s any jobs in the private sector at all in the first place!).

    Honestly, from what I see of wage pressures in the private sector…I like unions and government jobs in place to help to keep wages competitive in the private sector, b/c the private sector doesn’t raise wages when it CAN…it only raises wages when it HAS TO. Practically speaking I think it is reasonable to set parameters for negotiation at the state and county levels simply b/c they too are users of the currency. At the Federal, although this is not necessary, it is still advisable simply due to supply/demand of labor balance and for capping inflation through ridiculous wages.

    The government then, once again and in perfect MMT style, sets the tone for private sector nfa through allowing the manipulation of government sector wages. I think it’s quite clear to see why Wisconsin is trying to get rid of unions/collective bargaining and it has NOTHING to do with “taxing” the private sector aggregate…it has to do with competing upward wage pressures and therefore lower profit margins and therefore a NEED for innovation and change in their current business models. In other words…it’s not a good idea to let these guys get what they want in this regard both from a political standpoint as well as from an MMT standpoint.

    As a side note…wouldn’t it be possible for the Federal government to simply “fund” all state and county liabilities? Thereby eliminating all state taxes, since they are useless to begin with, and it could be done by creating secondary dealers with the Fed (aka state run banks) as well primary dealers to participate at Fed auctions. What do you think?

    Reply

    LetsGetItDone Reply:

    I’m on board with this reasoning. It seems to be “in paradigm” to me.

    Reply

    Oliver Reply:

    There are two opposing goals that need to be met from an MMT perspective. One is that of price anchor to fulfill the inflation mandate, the other is that of keeping full employment which MMT achieves by functional finance, that is adjusting NFA. Trying to combine the two via the same channel probably isn’t the way to go. So I think what Warren is trying to say, is that wages of state employees fall into the first category, because they cannot be adjusted counter cyclically without completely distorting and destabilising prices in the most important market. The proper channel for functional finance is either the level of taxation or the amount of discretionary government spending. One can then discuss whether the taxation element of functional finance should include govt. employees or not, again wrt its function as price anchor which already has an element of counter cyclicality built in.

    To put it more graphically, the constant stream of government spending on its employees sets the price anchor and defines the level of taxation at full employment, whereas the output gap defines the amplitude of spending via the flexible channels (that should arguably be targeted as equitably as possible). I don’t think that makes gvt. wage negotiation impossible but, as I think Warren is trying to say, it must take the political route that is broadly based and not subject to individual or group lobbying. The electorate is its own lobby. Problem is, they don’t know that.

    Reply

    ESM Reply:

    I pretty much agree with that analysis Oliver.

    It’s silly to think the extraction of higher NFA from the federal government through coercive union action is an effective or appropriate mechanism to increase aggregate demand. You could say the same about counterfeiters or people who cheat on their taxes. The reason we crack down on those activities is obvious.

    In the case of government union workers, and this applies to state and local governments as well, there is a separate problem. Many of the benefits unions win for workers include workplace concessions (e.g. tenure, stifling rules for taking disciplinary action, seniority-based pay) which distort incentives and make government less efficient. In addition, the unions are savvy about winning exorbitant (and tax-free) health benefits (which distorts the health care market) and generous retirement benefits, which amazingly enough, provides incentives for people to stay in a job longer than they should, and incentivizes people to retire from a job when they shouldn’t.

    What’s lost in all of this argument about the right to negotiate is that it is the individual who should have the right to negotiate. Unions actually take away this right. Individuals who want a job that has been unionized have no choice. They have to join the union in order to take the job. After that, they have to accept whatever the union agrees to. This is usually a terrible deal for younger workers who prefer additional cash salary to the kinds of benefits the older-worker dominated unions tend to focus on. As for the employers, they are held hostage. At least a worker has the freedom to quit and find another job. But the employers don’t have the right to fire a union worker and find a non-union one.

    That’s why the label “collective bargaining” is extremely misleading. It is not just the right to pool together with other workers and negotiate together as a bloc. Workers actually always have that right, unless contractually forbidden by the terms of their expiring employment contracts (which, amazingly enough, I have been subject to in the past). Collective bargaining also means the stripping of individual worker rights. It means literally preventing a willing employer from hiring a willing employee. That can’t be a good thing for society, can it?

    Reply

    LetsGetItDone Reply:

    To put it more graphically, the constant stream of government spending on its employees sets the price anchor and defines the level of taxation at full employment, whereas the output gap defines the amplitude of spending via the flexible channels (that should arguably be targeted as equitably as possible).

    First, we don’t have full employment, so Government spending isn’t setting the price anchor and defining the level of taxation.

    Second, I think the way you and others, and Warren, as well have been looking at this is from a highly macro point of view. However, labor unions are neither a macro phenomenon, nor a strictly economic phenomenon and should not be evaluated wholly from these standpoints.

    More specifically, let’s take Warren’s FJG program. From the viewpoint of the individual in it, it’s a short term program, not a career or occupational choice. It would have an enormous effect as a price anchor because it established a miniwage, and also a basic level of fringe benefits including Medicare for All coverage for participants. Given this confluence of factors, I think the idea that collective bargaining and unions don’t fit this program is a good one.

    But when it comes to standard civil service jobs, workers need political power in their organizations. The existence of unions then, is not even primarily an economic issue, it is an issue of countervailing power in the workplace. The impact of unions on civil service rules is important, both for containing arbitrary managerial authority which is important for better knowledge processing (problem solving and knowledge sharing) in large organizations, and for providing a bargaining agent that would influence managers and the Congress to keep pace with private sector compensation, which, rightist propaganda to the contrary, it doesn’t easily do.

    Of course, given full employment, the market would take care of public/private pay disparities, but for public organizations, the market is a costly solution. Employee turnover in public organizations is often the enemy of organizational memory and the accessibility of previously worked out solutions to problems. Some employee turnover is good because it brings in new ideas. Too much, or turnover of the wrong kind is bad because critical knowledge leaves an organization.

    Bottom line? Not everything is about the efficiency of the market. Some things are about maintaining democracy and good Knowledge Management, and these considerations may trump the “price anchor” argument, when talking about the regular civil service.

    One reason why economics has become a less than satisfactory discipline is because it’s well, economics. It looks at inputs and outputs wholly in economic terms. MMT is a bit different from that. It looks at things in terms of the impact of Government policy on public purpose. The elimination of unions and collective bargaining from the public sphere, on grounds that collective bargaining distorts the Government’s function in providing a price anchor sounds very much in paradigm from the viewpoint of functional finance, but it’s not in paradigm from the viewpoint of public purpose, because it would have a negative impact on maintaining a modicum of internal democracy within the Federal Government.

    One can argue that the Government should not be a democracy, since there should be a clear chain of command from voters -> Congress -> Executive -> Government employees, and that internal democracy disrupts this chain. However this kind of reasoning assumes a machine-like view of the political system that’s impossible to achieve and also would counter-productive if we could achiveve it because it undermines adaptiveness in the political system.

    Adaptiveness is the ability to learn creatively. To have that in large organizations, you need distributed problem solving, transparency, inclusiveness, trust, and a modicum of honesty. And to have these you need a modicum of democracy in Government, even though the immediate interests of employees may be partly divergent from the interests of voters. The upside of this is that it is in the continuous interest of voters to have a high level of adaptiveness in Government and more democracy in our Government organizations fosters this.

    Btw, more detailed backup for the heart of the this argument; but not for unions specifically, will be found in these two blog series:

    http://kmci.org/alllifeisproblemsolving/?s=%22National+Governmental+Knowledge+Management:+KM,+Adaptation,+and+Complexity:%22

    http://kmci.org/alllifeisproblemsolving/?s=%22The+Problem+Solving+Pattern+Matters%22

    Reply

    Oliver Reply:

    Btw. Parts 3, 4, 5 are missing from your first link.

    ESM Reply:

    “Adaptiveness is the ability to learn creatively. To have that in large organizations, you need … [unions].”

    Not only does this claim have no theoretical basis, but I can’t think of any large company with a unionized workforce that isn’t stultified.

    Well, maybe I should give GM a little more credit. After all, they did come up with the Chevy Volt.

    Oliver Reply:

    Thanks for the links – looks interesting. I’ve only taken a glance but from that I’d say that the mechanistic views I portrayed above wrt pricing and what I take to be your views on quality are probably not mutually exclusive. In fact I’d say they require each other. How else would one generate a reliable price without market ‘discipline’ if not by studying (and evolving) the value of the service at offer?

    Reply

    WARREN MOSLER Reply:

    the only reason the private sector has ‘no place for them’ is because of the govt’s tax

    Reply

    Mario Reply:

    I understand what you’re saying theoretically but can you prove this? I mean more jobs don’t necessarily need to be created by the private sector just b/c there is extra labor supply. Your ELR concept implicitly agrees with that point it seems to me no?

    Reply

  18. Mario Says:

    note I did add a few things in this post above.

    If the Federal government funded all states/counties then state taxes really would be useless since they use the same currency already recognized by federal taxation.

    What do you think?

    Reply

    WARREN MOSLER Reply:

    it’s about total taxes

    Reply

    Mario Reply:

    right so then that would mean that if we eliminated state taxes, then Federal taxes would have to increase by that much to at least keep aggregate taxation at the same level. That makes sense and would be fine with me especially if our states would then no longer be budget constrained like they are now as currency users alone.

    What do you think?

    Reply

    WARREN MOSLER Reply:

    the problem is moral hazard for the states, if they get all their funding from the same federal govt.

    that funding has to be limited or else it’s a case of the state who spends the most wins, which would be highly problematic to say the least

    Mario Reply:

    hmmm yes I see what you’re saying. In fact that could cause hyper-inflation possibly or at least very high inflation b/c government unions as well as citizens would demand more money, wages, etc. and beauracrats would likely also skim from the pot too not to mention the competition that would likely exist between states competing for residents, etc., etc….yes I think you’re right…funding has to be limited and based on taxes, etc….at least until civilization can curb its own vices without the need of self-created institutions to do it for them. Cheers ;)

  19. Tom Hickey Says:

    Here is an oft-heard critique I am repeating. Since the decline of union power, productivity gains have not been passed along to workers. As a consequence worker’s income has fallen as a percentage of total income, while the bulk of the gain has risen to the top, where it is mostly saved. The result has been consumer demand supported by rising debt instead of increasing income. Finally, consumer debt became unsustainable and the system broke down when defaults rose. This is a balance sheet recession and it will stretch out until consumers can sufficiently deleverage and rebuild savings to the level that feel comfortable taking on more debt, since incomes are stagnant and the jobs being created are lower paying than jobs being lost.

    The argument is that without stronger unions — public and private — incomes will not grow proportionately with productivity, and either there will be another round of unsustainable private indebtedness, or else the US standard of living will decline unless prices of goods and services fall in line with income. But with commodity prices rising due to global demand, import prices threatening to rise due to inflation in the emerging countries, and energy cost volatile, prices don’t portend to be stabile in the US.

    Therefore, the kerfuffle in Wisconsin is just the tip of the iceberg toward which the country is steaming at full speed by adopting austerity.

    Anyone?

    Reply

    WARREN MOSLER Reply:

    you’ve read my ‘the “labor market” isn’t a fair game’ discussion from time to time on this website?

    Reply

    Mario Reply:

    Do you have a link to it by chance?

    Reply

  20. Mario Says:

    Personally I don’t know where I stand in terms of unions per say.

    I like the comments ESM makes when he states:

    “The government should generally aim to pay prevailing private sector wages and benefits, but if it finds that there are too few applicants for a job, it should increase compensation to attract enough workers. If there are too many applicants, it should lower compensation. There should be no conscription, but also no subsidies to favored groups of workers.

    The government should set price for only one commodity (e.g. an hour of unskilled, mind-numbing labor), but let all other prices be determined by the free market.”

    I agree with this and also think that it would likely be better to have a truly “unified” union for government workers in general. Heck if you can accomplish that then maybe we should do it for private sector jobs as well. I don’t know. But I do know that all standards in our society are set one way or another by the government (minimum wage, labor laws, regulations, nfa, etc.). The government creates the floor if you will. Then the private sector reacts and competes with that floor one way or another. Frankly, I find this healthy and support it. Warren’s suggestion of an $8/hr government job that is always available sets a floor for labor and employment. I propose that have some type of wage standard for work can do the same and that government jobs are the best place to set those standards. I agree that ideally, in a full employment economy, government job wages need to be somewhat below or at private sector job wages. And in slack employment economies, the government jobs could either be slightly below, at, or slightly above private sector job wages depending on the situation.

    In fact if nothing more, I think MMT shows that government job wages, just like taxes and government spending, is another economic lever that the government can and does in fact control in the economy. Therefore I support both a standard floor for government wages AND the possibility of fluctuating aggregate government job wages higher or lower to support whatever the full economy needs at that time. Just like taxes and government spending manipulation.

    I also agree with Tom in regards to the obvious fact that corporate profits, like hot air, rise to the top never to come down to the laborer in most cases. This is exactly why the government needs to set a standard for job wages imho. Whether this standard is accomplished through unions or a government oversight agency that is all fine with me. What matters is the efficacy of it not so much the form. I also support reasonable measures with union requests/demands on business such that we are balancing labor wages with business profits and sustainability with innovation.

    I also liked what ESM states regarding the disadvantages to unions for individual workers taking jobs, businesses getting workers, and workers rearranging their benefits. All good points that inho can all be worked out rather easily through risk/reward arrangements. In other words, a business gets certain incentives when they go union that offset other disadvantages and likewise for the union worker. However all of that could possibly just be thrown out the window with a government agency that regulates government job wages and benefits, etc. Just my 2 cents on the matter.

    Reply

  21. LetsGetItDone Says:

    ESM,

    I said:

    Adaptiveness is the ability to learn creatively. To have that in large organizations, you need distributed problem solving, transparency, inclusiveness, trust, and a modicum of honesty. And to have these you need a modicum of democracy in Government, even though the immediate interests of employees may be partly divergent from the interests of voters. The upside of this is that it is in the continuous interest of voters to have a high level of adaptiveness in Government and more democracy in our Government organizations fosters this.

    Not:

    “Adaptiveness is the ability to learn creatively. To have that in large organizations, you need … [unions].”

    You’ve simply miquoted me, and used a strawman argument.

    I’ve associated adaptiveness with greater democracy in large organizations. I think there’s plenty of evidence for that. Do unions increase democracy in organizations? Well, I certainly think that Government unions make Government organizations more democratic. Do private sector unions?

    I’ll agree that there may not be a lot of evidence for that connection in this country. But I think there’s a lot of evidence for it in the Eurozone where many innovative companies have both strong unions and innovation. As you may know, unions there have co-determination, and have contributed to the increased international competitiveness of European nations.

    Why not here? Because our unions have taken a very narrow approach to collective bargaining mainly focusing on wages, fringe benefits and working conditions related to safety. Over the years, companies that have become stultified because of lack of competent management have driven their unions into a defensive crouch, and their collective bargaining strategies and tactics have become much more rigid.

    Reply

    ESM Reply:

    It was not my intention to misrepresent your comment. I simply thought you were making an argument for unions and tried to simplify your statement to something that was logically equivalent. Of course, if there is another way to have a modicum of democracy in the government-labor relationship, besides allowing the formation of public sector unions, then my restatement wouldn’t be logically equivalent.

    Is there another way? I don’t know. It depends on what you mean by democracy. To the extent democracy means having certain freedoms and protections, then of course you don’t need unions for that. That can be provided by labor law or by contract. But to the extent that democracy means that labor has strong influence over management (as the people are in charge of the government in a democracy), to me that means you have a powerful union.

    Reply

  22. Tom Hickey Says:

    Ellen Brown, How Wisconsin Can Turn Austerity into Prosperity – Own a Bank

    When a bank makes a loan, neither the bank’s own capital nor its customers’ demand deposits are actually lent to borrowers.  As observed on the Dallas Federal Reserve’s website, “Banks actually create money when they lend it.” They simply extend accounting-entry bank credit, which is extinguished when the loan is repaid. Creating this sort of credit-money is a privilege available only to banks, but states can tap into that privilege by owning a bank.

    Reply

  23. Mario Says:

    Finally, it’s also relevant to note that the argument being made against unions as an unjust handicap of the government’s ability to tax appropriately the private sector EQUALLY APPLIES to lobbying as well. In fact lobbying is really nothing more than collective bargaining at the corporate (producer) level while unions are collective bargaining at the worker’s (laborer) level. Both are the same action in terms of handicapping government ability to properly and most effectively tax the private sector, HOWEVER since the government is clearly not “blind” to the private sector in these regards as an MMT economist would hope it to be, these “institutions” will likely still exist for some time merely as self-created mechanisms for our civilization to negotiate wealth amongst itself in a balanced fashion. The existence of the one (unions) seems to originate the existence of the other (lobbying) and vice-versa. Eventually, both will be destroyed as our civilization naturally internalizes the functions of these two “institutions” making wealth more of an organic outgrowth from itself whatever that distribution may be. In fact the distribution of wealth is really immaterial to the process of that distribution of wealth. Unions and lobbying and at this time unfortunately “austerity” too are all just ways and means we are currently attempting to distribute our own wealth. In time, with more education, discussion, etc. things will work themselves out, at least imho.

    Reply

    Mario Reply:

    and in fact I think Wisconsin represents a MAJOR shift in our nation’s “process” towards greater wealth. It is happening right before our eyes as we speak. Marx says, and I think history supports it, that a greater and natural wealth distribution will take place but he never said that distribution had to be from a centrally planned government!! In fact he says the opposite!!! From what I can tell, I think Marx is more of a Mixed-Market Capitalist, Democratic, Libertarian than anything else. Regardless it’s interesting times in USA and I’ll be VERY interested to see how this whole Wisconsin thing turns out in the end…already we hear/see rumblings a major political upset with Walker and what he’s doing to the tune of getting him kicked out of office. What will become of it who knows, but I think it’s clear that history, although acting slowly through time (though maybe in a compounded way?), is on the side of the aggregate of all the people.

    Cheers!

    Reply

    Tom Hickey Reply:

    Michael Moore, How I Got to Madison, Wisconsin

    Someone had sent me a link to a discussion Bill O’Reilly had had with Sarah Palin a few hours earlier about my belief that the money the 21st Century rich have absconded with really isn’t theirs — and that a vast chunk of it should be taken away from them.

    ……..

    I was, after all, putting them on notice: We are coming after you, we are stopping you and we are going to return the money/jobs/homes you stole from the people. You have gone too far. It’s too bad you couldn’t have been satisfied with making millions, you had to have billions — and now you want to strip us of our ability to talk and bargain and provide. This is your tipping point, Wall Street; your come-to-Jesus moment, Corporate America.

    Reply

    Mario Reply:

    cool article…another interesting passage from it that caught my eye (to no surprise):

    The scene in Madison is nothing like what they are showing you on TV or in the newspaper. First, you notice that the whole town is behind this. Yard signs and signs in store windows are everywhere supporting public workers. There are thousands of people out just randomly lining the streets for the six blocks leading to the Capitol building carrying signs, shouting and cheering and cajoling. Then there are stages and friendly competing demos on all sides of the building (yesterday’s total estimate of people was 50,000-70,000, the smallest one yet)! A big semi truck has been sent by James Hoffa of the Teamsters and is parked like a don’t-even-think-of-effing-with-us Sherman tank on the street in front of the Capitol. There is a long line — separate from these other demonstrations — of 4,000 people, waiting their turn to get through the only open door to the Capitol so they can join the occupation inside.

    beowulf Reply:

    Jamie Galbraith, keeping it real at a Senate Finance Committee hearing on tax reform…
    …as a general rule fixed assets — notably land — should be taxed more heavily than income. The tax on property is a good tax, provided it is designed to fall as heavily as possible on economic rents… Payroll taxes and profits taxes do interfere directly with current business decisions. Taxes effectively aimed at economic rent, including land rent and mineral rents, and at “absentee landlords” as Veblen called them, do not.
An important question is how best to treat the “quasi-rents” due to new technology and thus the incentives for innovation. These are presently held as long-term capital gains and they tend to escape tax to a very large degree… A sensible approach is to tax unrealized capital gains after a certain amount of time has elapsed — perhaps at fates [rates?] that rise with time…
    http://www.tfdnews.com/news/2011/03/08/84878-james-k-galbraith-testimony-sensible-tax-reform.htm

  24. beowulf Says:

    From what I can tell, I think Marx is more of a Mixed-Market Capitalist, Democratic, Libertarian than anything else.

    Just as its a little known fact that Marx was baptized a Lutheran, he’s also on the record as a supporter of the Republican party.
    Sir:
    We congratulate the American people upon your re-election by a large majority. If resistance to the Slave Power was the reserved watchword of your first election, the triumphant war cry of your re-election is Death to Slavery.

    http://www.marxists.org/archive/marx/iwma/documents/1864/lincoln-letter.htm

    Reply

    Mario Reply:

    very interesting indeed!!! How’s that for irony eh!?!? It’s laughable how freaking ironic it all is with Marx versus the perceptions of Marx!! Only in America eh!?!? haha!!!

    And yes that Lincoln quote is a very nice touch to Marx’s conclusions on Labor…very nice indeed. Thanks for sharing. ;)

    Reply

    Peter D Reply:

    The Republican Party of Lincoln would have been denounced as something like Communists by the Repugs of today. Beowulf, you yourself said that Nixon a New-Dealer, as left as Kusinich on many issues. The center moved terribly to the right.

    Reply

  25. Mario Says:

    Beowulf…did you happen to notice that speech by Lincoln where he talks about Labor which you quoted from…was actually given in Wisconsin of all places!??!!? haha!!!

    Reply

  26. Kristjan Says:

    It doesn’t have to be fiat currency right?
    The same goes when government is spending gold coins. If public sector employees are collectively negotiating their salaries they are negotiating their real taxation.

    Reply

  27. MMT Defines Moral Battle Lines – Smart Taxes Network Says:

    [...] Mike Norman has announced his aspiration that his will be the pre-eminent blog on MMT issues.  Great – makes my task easier. Here below is a short piece that sets out the stakes. Mosler vs. Friedman: Defining Moral Battle Lines Warren Mosler made and interesting comment on his blog the other day. He was responding to an inquiry related to taxation and wrote (in comments of this thread): [...]

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