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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Debt ceiling comments update

Posted by WARREN MOSLER on July 21st, 2011

I see three ‘dug in’ groups:

There are those pledged never to cut Social Security benefits or eligibility. I personally heard Senator Blumethal pledge this while running for office. And Barney Frank was on saying much he same thing.

There are those pledged to never increase taxes.

There are those who believe it’s in the best interest of out economy to ‘cut off it’s credit card’ and, like a drug addict, go ‘cold turkey’ to a balanced budget. They believe that govt is the problem, and that getting govt ‘out of the way’ it will make room for the private sector to flourish. In other words this third group believes they are doing right by America by voting against any increase in the debt ceiling.

This makes getting any bill to the President to sign highly problematic.

And in this case, doing nothing is the worst case scenario.

66 Responses to “Debt ceiling comments update”

  1. Neil Wilson Says:

    Is it the worse case? Perhaps people need to see the devastation first hand rather than through the filter of eight years of history.

    At least then we’ll have the empirical data to bury classical economics for a few generations.

    My guts say this won’t get resolved the easy way.

    Reply

    ApeMan1976 Reply:

    @Neil Wilson, never trust people to draw the right lessons, especially when the costs are so great.

    The good news is, I don’t think this analysis tells us much. The first two groups can be satisfied with the simplest (and at this point most likely) solution – simply raising the debt ceiling via McConnell/Reid.

    The question is whether McConnell/Reid can get whipped through. I think it can, but it’s close. The good news is, the more Democratic votes it needs, the less it should contain in spending cuts.

    There’s still some hope McConnell/Reid could pass in a “clean” form. If it does it will be one of the all-time great examples of falling bass-ackward into the correct policy.

    Reply

  2. Dan Furlano Says:

    Just a suggestion. David Frum runs a forum for disenchanted republicans. It would be great if some of the posters here joining in the conversation. I have seen one person but I think you guys can really have an impact.

    His latest article talks about government spending being better than no spending:

    http://www.frumforum.com/government-spending-better-than-no-spending

    Reply

    Jason Reply:

    @Dan Furlano, I’m looking for a link to Democrats that support tax cuts, but gee, can’t seem to find one….

    Reply

    djp Reply:

    @Jason,
    Hear hear!

    It goes both ways. If you buy the ideas of MMT then you should be supportive of the idea that what is needed is some combination of reduced taxes and increased gov spending — but, that MMT doesn’t offer an answer as to what blend is ‘correct’. It’s apolitical — even if the various groups discussing it are not. And, if you really believe that the fundamental problem is that people do not understand the mechanics of fiat currency, then you should not present MMT as having a political bent (e.g. suggesting it means gov spending is the right answer, and that, yeah maybe tax cuts arent’ horrendous but really taxes shouldn’t be cut because we need a really progressive tax system, blah, blah…).

    If you really want to the message out, separating politics from MMT would go a long way.

    Reply

    Unforgiven Reply:

    @djp,

    Excellent point. Water flows around the rocks.

    Andrew Reply:

    @djp,

    The theory is that if we cut taxes, we put more money in the system which should boost demand. However, if the tax cuts we make don’t end up leading to increased demand, that argument falls flat. It’s hard to see how tax cuts for the most wealthy are really going to have much of an impact on demand, as those individuals are already in a position to purchase anything they desire.

    I _think_ that this is why Warren is in favor of further reductions/eliminate of the payroll tax. I don’t think that this is being proposed — we’re talking about reducing Social Security benefits, which should have the opposite effect.

    Raising taxes on the rich makes them less rich, which helps to increase the relative wealth of everyone else. You would think those who worry about hyperinflation because of money creation would be OK with taxing the wealthy (unless they happen to be wealthy :)

    WARREN MOSLER Reply:

    agreed

    zanon Reply:

    @djp,

    if rich have low marginal propensity to spend, then taxing them is not a good way to reduce inflation

    Dan Furlano Reply:

    @djp,

    It was just a suggestion to share knowledge.

    beowulf Reply:

    @Dan Furlano,

    Yeah, David Frum has his head screwed on straight (he’s been calling for a payroll tax holiday since at least last year).

    Reply

    Ed Rombach Reply:

    @beowulf,

    Beowulf – Wasn’t the $1 Trillion platinum coin your idea? Check out Randall Wray making the case for it with Nouriel Roubini’s EconoMonitor on the Reuters Insider platform. http://reut.rs/ntgqqn

    Reply

    anon Reply:

    @Ed Rombach,

    The others chimed in with concerns that the coin equated to monetization of debt and printing money, and the need for long term fiscal austerity. Surprising that Wray’s head didn’t explode by the end of the interview. He attempted a rescue at the end, but didn’t convince.

    Ed Rombach Reply:

    @Ed Rombach,

    Anon, maybe I should do a video on it?

    anon Reply:

    @Ed Rombach,

    Sure.

    The real challenge is not so much convincing others that the coin is a legal way to deal with it – but that the associated reserves are not inflationary, and that in that sense there’s nothing to fear from the coin solution. However, the idea that there is no immediate reserve effect should not be emphasized – the reserve release from the TGA is just a matter of time.

    Also, for those who attempt to discredit the coin solution as “wacky”, it should be compared to a debt ceiling constraint that is foolish from a procedural perspective.

    Note that all participants in Wray’s group were essentially right that the coin is in effect a type of QE.

    Call it platinum QE!

    Aren’t there credit cards and such with that type of marketing allure?

    anon Reply:

    @Ed Rombach,

    That said, I do think there may be a legal wrinkle in terms of the direct dealing of Treasury as principal with the Fed – something I’ve already noted – but I’ll let others deal with that.

    Apart from that wrinkle, my only concern is that from an economic standpoint the argument be emphasized first and foremost that reserves are not inflationary – that is the most important argument of all, coin or no coin, and I’ll leave that up to MMT’ers to make it. As I’ve also said before, I don’t think they’ve spent nearly enough time on that aspect in their overarching message about how the monetary system works. They will disagree with me, but note that it’s the first thing Roubini et all jumped on in the interview – not the mechanism of the coin per se.

    anon Reply:

    @Ed Rombach,

    on the other hand, I guess the idea is to use the initial tranche of platinum to buy back the Fed’s holding of treasuries, so there won’t be additional reserves on that part

    but the idea of larger tranches beyond that has been floated, which would be incremental QE

    and Wray did refer to it as QE in any event

    Ed Rombach Reply:

    @Ed Rombach,

    Anon – Yes….using the coins to wave a magic wand over the QE Tsy holdings at the Fed to make them go away makes perfect sense. However, if I were long silver and/or gold and I heard that the Treasury and the Fed were cooking up a plan to mint a $1 Trillion platinum coin it would motivate me stay long and never sell. How would bonds react? Perhaps more important….How would credit rating agencies react? Would they declare a default? Check out this hilarious and educational article: http://balkin.blogspot.com/2011/07/obamas-top-secret-plan-to-solve-debt.html

    anon Reply:

    @Ed Rombach,

    “You lost two trillion dollars in the sofa cushions?”

    :)

    Ramanan Reply:

    Anon,

    Is the “proposal” to buy back the private sector’s holding of Treasuries or the Fed’s ?

    Not sure why it is structured as the Treasury buying back etc. Ideas ?

    PS: Did you check my comment/reply @ #26 in the prev post ?

    Reply

    anon Reply:

    @Ramanan,

    Saw your # 26, Ramanan.

    Still trying to wrap my head around it :)

    I thought the following was quite a good overview of several platinum strategies, in phases of increasing scope:

    http://mikenormaneconomics.blogspot.com/2011/07/definitive-solution-to-debt-crisis.html

    see under “First”

    Ramanan Reply:

    Anon,

    Will check. My reference point was this actually http://neweconomicperspectives.blogspot.com/2011/07/qe3-treasury-stylego-around-not-over.html

    Commented there as well. The whole thing started at Marshall’s Longest BTW! .. which is what I commented in the above link.

    (About the other discussion .. one way to think about it is … London most likely runs a current account surplus with the rest of UK (excluding the govt)… plus London most likely pays more taxes than the UK government’s expenditures on London… and so on .. )

    anon Reply:

    @Ramanan,

    you were ahead of your time!

    :)

    Ramanan Reply:

    Anon,

    I find the discussion about the “elimination of the federal debt” a bit funny. It seems that the emotion involved there is that its the only way to educate people is by eliminating the word debt from the government’s accounts.

    The whole thing idea of not granting the government direct credit is to have fiscal restraint and politicians will put new laws if a coin of $30T is minted.

    For the short term, while the $1T/2T coin is useful .. there are other provisions … the President has the power to issue Treasury securities which do not come under the debt ceiling!

    djp Reply:

    @Dan Furlano,
    No worries.
    Not any commentary on your post. I was just seconding what I thought to be Jason’s frustration – or sarcastic comment.

    It just seems (and is somewhat confirmed by the responses) that there’s a 90/10 split on increased gov spending vs reducing taxes, with an exception for payroll tax cuts. I just think that that split is counter to trying to convince the maximum number of people about the fundamental issue of how a fiat currency works. It’s too easy for others to dismiss MMT as just some sort of roundabout argument to justify more gov spending, and that’s counter to trying to spread the word about MMT.

    —-
    For Andrew: if your argument is that cutting taxes on the rich won’t increase aggregate demand, then that must be because the rich would just save all of their tax decrease. But if that’s true then the gov could also just give every ‘rich’ person an extra $1B and nothing would change — after all, they are just going to stow it away in their mattress. Does this mean you would be ok with lowering the taxes on income over $1M to 0? After all, they’re just going to save all the rest.

    I am actually quite in favor of a payroll tax, but I am also in favor of a minimum tax rate at the lower end (something high enough that even after all of the crazy distorting credits each individual earning income would still have a net liability on their 1040EZ). Much as the ELR program is preferable to unemployment benefits, I think participation in paying taxes is useful for every citizen as well.

    Btw, just from the tax tables, individuals making an inflation adjusted $1M in today’s dollars back in the 30′s paid LESS (far less) in taxes than they do today, even though there were 79% top brackets back then. How could that be? That top bracket was only on income over $5M (in 1936 dollars), which inflation adjusted is about $80M!! (PLEA: If anyone has a good tax calculator that might actually know the code from the 30′s (not just the tables) I would love to see it — I found calculators from some researchers that could go back to the 60′s or 50′s, but nothing that could go back to the 30′s).

    Lastly, reducing taxes doesn’t just mean reducing taxes on the rich, unless only the rich are paying taxes. Hopefully, we would both agree that even with a progressive tax system (we may not agree on how progressive it should be), it’s probably a bad idea to have only the ‘rich’ paying taxes. From which it would follow that lowering taxes would affect all taxpayers, not just the rich. Which would bring us back to discussing tax cuts versus increased gov spending as a political/social/philosophical discussion rather than as something that can be derived from MMT. MMT does not answer the question as to whether you should cut taxes or increase gov spending, even though we both suspect they are not equivalent. But to argue that cutting taxes (on the rich) won’t change aggregate demand is also to argue that cutting taxes would essentially have no effect (at least as far as MMT is concerned) – so I’ll be happy to take my $1B tax credit, payable only to those with incomes over $X, since I’m just going to save it anyway, which doesn’t really affect anything ;)

    Reply

  3. selise Says:

    And now the budget’s balanced
    Retrenchment is the hero
    On either side is entered
    A solitary Zero

    – Lorie Tarshis

    quoted in Political Influence on the Textbook Keynesian Revolution: God, Man, and Laurie Tarshis at Yale By David Colander and Harry Landreth

    Reply

  4. sw Says:

    Is it time to revisit whether the debt limit is constitutional (aside from being bad policy and out of paradigm)? There is a strong case that it is not, from the 14th Amendment:

    “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

    It seems Obama and the Treasury fear the Confidence Fairy and are reluctant to go that route.

    Reply

    Chris Reply:

    @sw, This in fact has recently advanced, and by a credible individual:
    “Lifting the debt ceiling “is necessary to pay for appropriations already made; you can’t say, ‘Well, we won the last election and we didn’t vote for some of that stuff, so we’re going to throw the whole country’s credit into arrears.”
    http://www.nationalmemo.com/article/exclusive-former-president-bill-clinton-says-he-would-use-constitutional-option-raise-debt?om_rid=CbDERS&om_mid=_BOJXexB8caNsqM

    Reply

    Art Reply:

    @Chris and Sw,

    This has been anticipated by certain factions within the GOP (I think Pat Toomey was the first), hence their response that the govt will not default on its financial obligations. The clear implication is that that (1) they are willing to see the USG default on many other types of obligations and (2) they want to stop federal debt from rising any further. Unfortunately, those are legitimate actions that don’t run afoul of the 14th in my view. Where they’d end up policy-wise once they’ve sufficiently hampered the USG’s ability to service existing debt is anyone’s guess! QE XII, anyone??

    To some extent, I can sympathize with their view of the over-burdened taxpayer. As Warren often points out, we’re paying too much for the govt we have. But of course they get the monetary dynamics all wrong, ie, taxpayers are financing govt expenditures, so they end up doing (far) more harm overall than good.

    Reply

  5. Chris Says:

    @djp, It isn’t apolitical, because it is juxtaposed with the austrian arguments, which is integral to the politics of both the tea party and most of the rest of the GOP. So, MMT may intend to be apolitical, but …

    Reply

    beowulf Reply:

    @Chris,
    Only since Obama took office (and I suspect GOP pollsters found that a large group of Americans confuse the words “Keynesian” with “Kenyan”).

    There have always been Republican Keynesians– from VT Sen. Ralph Flanders in the 40s to Nixon CEA chairs Paul MacCracken and Herb Stein to Reagan CEA chair Marty Feldstein to George W. Bush’s CHEA chair Greg Mankiw.

    No serious economist doubts that Keynes is to their field what Darwin is to biology. The genuine economic debates tend to revolve around “what Keynes really meant”; thus the disputes between Old Keynesians vs New Keynesians vs Post Keynesians with perhaps two or three other Keynesians groups I’m neglecting.

    Austrians are so far out in right field, they really are a lot like the creationists (and the politics certainly mesh well)– the world began 6,000 years ago and, presumably, had a gold-based monetary system up and running within weeks. :o)

    Reply

    Art Reply:

    @beowulf,

    “No serious economist doubts that Keynes is to their field what Darwin is to biology. The genuine economic debates tend to revolve around “what Keynes really meant”; thus the disputes between Old Keynesians vs New Keynesians vs Post Keynesians…”

    Too bad the latter aren’t invited to more debates. :(

    Reply

    Tom Hickey Reply:

    @beowulf,

    “Austrians are so far out in right field, they really are a lot like the creationists (and the politics certainly mesh well)– the world began 6,000 years ago and, presumably, had a gold-based monetary system up and running within weeks.”

    I think it was coconuts first. But they were too inconvenient so they quickly switched to gold. It’s controversial whether this came from on high, or they just figured it out, and there are disputing theoconomical camps :)

    Reply

    Art Reply:

    @Chris,

    Warren was involved with the Tea Party movement early on.

    MMT only takes on a political dimension when you move beyond technical fiscal and monetary operations, eg, debating tax cuts vs spending hikes, or the desirability of an employer of last resort policy.

    Mainstream economists on the left and the right tend to agree on the technical aspects of macro theory, including the ones that are dead wrong (eg, loanable funds, intertemporal govt budget constraints). Let’s get those taken care of before we start splitting up into political camps.

    Reply

    djp Reply:

    @Art,
    Absolutely!

    I still go back and forth on what any sort of ELR should really look like.

    Maybe it would be best if it was just used to do things like this:
    http://www.thesun.co.uk/sol/homepage/news/3703941/Billionaire-sheikh-carves-out-his-name-in-desert-in-capital-letters-visible-from-space.html

    Arguably that would still be better than unemployment compensation.

    Reply

    Ralph Musgrave Reply:

    @Chris,
    The fact that Austrians are semi-political and that MMT is often juxtaposed against Austrianism does not mean MMT has to be political as well. Austrians tend to advocate small government. They shouldn’t: they should keep politics separate from economics. But given that they do advocate small government, MMTers don’t need to advocate big or small government as well. I basically support MMT, and have written plenty of material in support of it (and some critical stuff as well) but I always take care to keep politics out of it.

    Reply

    ApeMan1976 Reply:

    @Ralph Musgrave, As a general rule, the less you can be like the goldbugs the better. Despite all their triumphalism they’ve been the same fringe hacks pretty much my entire life.

    Reply

    djp Reply:

    @ApeMan1976,

    Or you could suggest that the ELR hire people to dig up gold :)

    ESM Reply:

    @Chris,

    @Beowulf:

    I think your characterizations are very unfair. Economics is inherently political, and for the same reason, inherently unscientific. Keynes had some good insights, but he also wrote and believed a lot of stuff which had no basis in logic or empirical evidence.

    Austrians are not like creationists. They bring with them a political philosophy which is that in the long run, government cannot be trusted to manage a currency. This is not a belief which (like creationism) is designed to avoid inconvenient conclusions following logically from scientific evidence.

    MMT, on the other hand (and IMHO), is finance rather than economics. The people that oppose it I suspect are either wallowing in a mistaken paradigm or genuinely worried about what would happen if the proverbial cat was out of the bag. I worry about it too.

    I mean what would happen if we followed MMT prescriptions, and we found out that aggregate savings desire fluctuated materially on a very short time scale. Is it feasible to adjust fiscal policy on the same time scale to avoid veering back and forth between inflation and deflation? It is likely possible to build in automatic stabilizers that really work, but is it actually going to happen politically? I worry about that kind of stuff, and I suspect there are people at the highest levels of government who understand MMT and worry about it too.

    Reply

    Neil Wilson Reply:

    @ESM,

    If you can vary an interest rate via delegated powers to a target, then you can vary a land value tax (etc) via delegated powers in the same way.

    The difference is that the government isn’t paying somebody a subsidy in the form of interest with a tax.

    Reply

    beowulf Reply:

    @Neil Wilson,

    Correct, and if the rate adjustments are made according to a formula (e.g tax rate moving inversely to unemployment rate) set by Congress or Parliament, the legislators aren’t really delegating anything.

    Unforgiven Reply:

    @Neil Wilson, Would people manage expenditures differently if they knew how the economy actually worked and what taxes/interest were used for? Might they avoid “chasing too few goods with too much money” if they knew they’d get nailed by inflation AND taxes?

    Tom Hickey Reply:

    Mises: “Like other members of the Austrian School, von Mises rejected the standard scientific approach of relying upon empirical observation in the study of economics, and instead, favored the use of logical analysis, a logic which is influenced by Immanuel Kant’s analytic–synthetic distinction. Von Mises writes that the empirical methods used in the natural sciences cannot be applied to the social sciences because the principle of induction does not apply.”

    Logic is a set of tautologies, purely a priori, that is analytic in Kent’a sense. ON the other hand, descriptive proposition are either true or false as is the case. Determining what is the case is a posteriori and synthetic. The Kantian question is whether there are synthetic a priori propositions, that is principles relating to what is the case that are purely logical and not at all empirical. The answer of science is a resounding NO.

    Mises has constructed a philosophical ideology based on speculation not facts by his own admission. Austrian “economics” is a religion and its proponents are either prophets or theologians.

    beowulf Reply:

    @ESM,
    This is not a belief which (like creationism) is designed to avoid inconvenient conclusions following logically from scientific evidence.

    Like other members of the Austrian School, von Mises rejected the standard scientific approach of relying upon empirical observation in the study of economics, and instead, favored the use of logical analysis, a logic which is influenced by Immanuel Kant’s analytic–synthetic distinction. Von Mises writes that the empirical methods used in the natural sciences cannot be applied to the social sciences because the principle of induction does not apply.
    http://en.wikipedia.org/wiki/Praxeology

    Reply

    ESM Reply:

    @beowulf,

    Not sure what your point is? The following seems eminently reasonable to me.

    “Praxeology is the study of human action. Praxeology rejects the empirical methods of the natural sciences, because the observation of how humans act in simple situations cannot predict how they will act in complex situations.”

    It’s why economics is not really a science. It is extremely difficult to design meaningful experiments.

    djp Reply:

    @ESM,

    Well said, MMT is finance not economics.

    Certainly the basic idea that gov debt = private NFA is apolitical.

    Whether there should be and ELR and what form it would take is highly political. At one extreme the ELR replaces all private jobs. At another (there are not necessarily only 2 extremes, no said everything is 1 dimensional) it hires people to dig for gold with trowels. What it should really be (or even if it is needed) is highly political.

    Reply

    Tom Hickey Reply:

    @djp,

    I don’t think that this is the position that any MMT economists have put forward. MMT is a macroeconomic theory that is founded on an operational description of the monetary system, the sectoral balance approach, stock-flow consistent modeling, and functional finance. It is not just an operational description.

    As a macroeconomic theory, MMT is chiefly concerned with achieving full employment with price stability. The ELR is foundational to this. Moreover, the Minskyian aspect is central also in its approach to banking and finance. See Warren’s proposals for reforming banking and finance, for instance. MMT is a lot more comprehensive than might appear from reading some blog posts. One needs to read the professional literature and policy proposals.

    WARREN MOSLER Reply:

    MMT reveals policy options not otherwise recognized

    Tom Hickey Reply:

    @djp,

    Warren: “MMT reveals policy options not otherwise recognized”

    Elaborate this, mainstream economists, neoliberal and New Keyesian, believe that full employment and price stability are fundamentally antithetical based on monetarism. MMT shows how this is not the case using fiscal policy based on the sectoral balance approach and functional finance, and an ELR as a buffer stock of employed. This is a huge contribution, especially in light of the current predicament that the country now finds itself, where the US is facing intractable unemployment, with some economists talking about a “new normal” of perhaps 6% “structural” unemployment.

    While the ELR might seem normative and even political (left), it is justifiable in terms of economic efficiency based on foregone opportunity from an output gap and chronic unemployment and underemployment.

    djp Reply:

    @djp,

    Actually @Tom,

    Warren: “MMT reveals policy options not otherwise recognized”

    Agreed, policy options including not focusing on the debt ceiling, but rather on how we should be increasing GS-T (GS=govSpending, T=taxes). Instead people are arguing about which taxes to raise by how much, and how to cut gov spending while agreeing that the debt and deficit are clearly a problem and agreeing that 0 debt would be good.

    Tom,
    I don’t think the ELR per se is political. I think the details are. I think it’s reasonable to say Pete DuPont was essentially proposing some form of ELR.
    Thinking in terms of extremes, one could logically argue that we already have an ELR, it’s called welfare. The requirements of the job are quite low, and most people would agree that nothing really productive is accomplished by the workers. Close to some other extreme: what if the gov decided to set the ELR wage at $100/hr and employ these people at gov run fast food stores? It would be quite disruptive.
    The details of the program are highly political, and I think you can find some implementation that any political group would find acceptable and likewise for any group there exists implementations they would find abhorrent.
    I would also claim that if anyone believes it is obvious what the right implementation should be, then they are not capable of separating out options from political views.

    I do understand the arguments behind full employment and price stability and that, historically, there are many who believe a certainly level of unemployment is needed for price stability. MMT’s arguments, tied to the mechanics of a fiat currency are interesting. However, again, through politics, I could argue we have full employment and price stability by redefining who is employed (anyone on welfare is working for the gov, there’s just very little demanded from the job — though if you think it through, there are some demands). You (and I) would be unhappy with this definition because we see that real output is being lost and we would likely be able to come to some agreement on an option other than the current state, even though our preferred options would likely be quite different. If you want to get out of the current situation, seems like the best way to do it is to convince people to argue about the the right things, not about the debt. They won’t necessarily agree with you about what’s optimal, and MMT doesn’t fill in the details about what is optimal (what should the wage for ELR be?).

    Lastly, I even see some dangers in convincing people that the debt per se doesn’t matter. It’s too easy then for folks to lock-in on that one idea and argue that any level of debt is just fine. I do not think that MMT really has anything to say about what level of debt is right, nor do I think anyone knows. But, I do believe that anyone who thinks it’s just fine to have any level is missing something. Yes, a country with a fiat currency is never really forced to default, but it can always choose to default. And at some level of debt it may be preferable to choose to default, and what you collected in terms of imports or real output for racking up the debt, may not really be worth the payment in terms of a loss of real output resulting from a default. Or perhaps it is, and we should just default now – but I do not think most people believe this.

    Tom Hickey Reply:

    @djp,

    You are changing the subject. The issue was whether MMT is “nothing but” an operational description of the monetary system. It isn’t, and as Warren adds, it opens up policy options that are not on the table.

    Basically an ELR is regarded as left-wing, although there may be some on the right who might advocate it also. But in general, those who oppose government “intrusion” in the market place are not going to be in favor of and ELR, and right now that is a large and vocal swath on the right.

    What I am saying is that the ELR does not have to be seen politically, although it inevitably will be. It is justifiable economically based on efficiency, that is, getting optimal output from available resources. Using output gaps and unemployment as tools to target inflation is highly inefficient, and MMT shows it is unnecessary.

    WARREN MOSLER Reply:

    something like knowledge is power

    djp Reply:

    @Tom,

    I feel the differences are mostly in semantics.

    Resolved:
    We agree MMT, by looking at the mechanics of a fiat currency, reveals that arguments about debt a deficit are based on incorrect ideas about what the debt is.

    We agree that MMT proposes an ELR, and that ELR is intimately tied to MMT as a macroeconomic model.

    ELR can be seen as apolitical, which hopefully stresses that all of MMT can be seen as apolitical.

    Unresolved:
    I am not changing the subject. :)

    ELR is an invention of MMT. Well, I don’t know if I buy that. Pete DuPont suggested something similar, perhaps for different reasons. And if I redefine welfare as ELR where the job requirement is really low, then I can claim we already have an ELR. All I am saying here is that the details matter (and are highly political in nature).
    Also, in general, there are very few new things under the sun when it comes to finance and politics.

    Other:
    This started from a comment about how there appears to be bias in favor of increased gov spending over reducing taxes from many MMT corners – with the exception of FICA reductions. This suggests a bias in the presentation of what I think is the most important aspect of MMT, namely simply the clearing up about what a fiat currency really is, and the mechanics behind it. Maybe someone should coin a phrase for just that piece?

    Perhaps it disturbs me more than you that by entwining MMT with other biases it lessens the chance that people will start to realize what a fiat currency really is and will stop discussing how we’re mortgaging our grandchildren’s future (both sides do this, and I think we both find it depressing).

    I’m a little confused by your last paragraph as to whether you think the actual details of an ELR are political or not. I think they have to be, and I think I made a reasonable argument earlier as to why they are (e.g. what’s the right wage for the ELR, not to mention what would these people be DOING). If you mean it doesn’t have to be political in the abstract, then I think again we agree. If you meant the actual details aren’t political, well, then …

    WARREN MOSLER Reply:

    ELR is a viable option

    ESM Reply:

    @djp,

    Completely agree DJP. And I think that’s a brilliant insight that welfare constitutes a form of ELR (although perhaps it stretches the point a little too far — welfare is not available to people who aren’t poor, whereas an ELR presumably would be) and that an ELR can take many forms moving from far right to far left on the political spectrum.

    Tom is wrong in arguing that the idea of an ELR is necessarily an intrusion of government into the marketplace and therefore political. Warren specifically proposes pegging the ELR wage to a rate ($8/hour) which has the least possible impact on the private sector job market while still giving workers sufficient income to live. In fact, I think he proposes replacing the minimum wage with an ELR. I have no doubt that most right wing economists would go for that trade in a heartbeat.

    @Tom:

    You’re trying too hard to claim MMT as the property of the left wing. Not sure why you’re doing this except to try to justify your left wing worldview as somehow “correct.” Yeah, sure, most MMT academics appear to have a left-wing bias, but that does not mean that MMT inherently does. MMT follows logically from certain operational and empirical facts. I can assure you that if left-wingedness followed in the same way, I would be a left-winger, (which I am not).

    WARREN MOSLER Reply:

    the value of the currency is what, at the margin, you have to do to get it from the issuer
    with elr you have to at least sell your time to get it
    with BIG and welfare you get it for doing nothing, hence if it’s not sufficiently restricted and a living wage it can all turn hyperinflationary.

    what i say is the $8/hr job will ‘automatically be’ the min wage, obviating the need for min wage law and all the associated compliance costs.

    and it’s a transition job. the idea is to keep agg demand high enough so the elr pool is at a minimum. and that it serves as a better price anchor than unemployment.

    i have made identical presentations to tea party audiences and to jamie galbraith’s ‘progressive’ economist pals and have been well received by both.

    Tom Hickey Reply:

    @djp,

    djp, Anon,

    I am not claiming that the ELR is left- wing. I am claiming that a majority on the right would see anything like this in that light. Please refer to what I said above. If it was not clear there, I an making it clear here.

    I think that MMT’s comprehensive program should be presented as apolitically as possible, in economic terms and based on efficiency and effectiveness. However, both some of the means and some of the goals will, I hink, be seen by many if not most on the right as left-wing. That has been my experience in discussions elsewhere. I have also gotten strong resistance on the left, too, which sees MMT as promoting the funneling money to the top.

    The right by and large sees the ELR as just leaf-raking, and the left sees it converting welfare to workfare, forcing people to work for low wages to survive.

    WARREN MOSLER Reply:

    30 years ago, maybe. but it’s shifted. the right now like it as it’s people working while the left supports BIG (basic income guarantee) for non workers

    Tom Hickey Reply:

    @djp,

    Warren: “30 years ago, maybe. but it’s shifted. the right now like it as it’s people working while the left supports BIG (basic income guarantee) for non workers”

    As I said, I am reporting the pushback from left and right I have gotten on various blogs. Maybe your experience is different in different venues.

    I guess we need to poll this to craft a winning political narrrative. :)

    djp Reply:

    @Tom, ESM, Warren,

    ESM: Agreed it is a bit of a stretch to say welfare can be precisely mapped to an ELR with low requirements from the employee. Welfare is available to those who wish to work but can’t find a job, as well as those who just can’t or won’t work. ELR is supposed to be for everyone willing and able to work (even if they are already employed). So, there are some people that arguably be eligible for ELR that are not currently eligible for welfare, and likewise some on welfare that would not be eligible for ELR (there would still be some programs assisting those who cannot work – though, again, there are political arguments as to how much gov needs to be involved).

    Warren:
    Absolutely. I think in the abstract ELR is likely a very good idea — though I’m always cautious that there’s something I’ve missed regarding unintended consequences. I’m also not surprised that both progressives and tea party members would accept it as a better alternative than unemployment payments. The left often wants some extra form of job training programs, and the right sees it as people at least not getting a complete free ride and learning the value of work. And I completely agree that the ELR wage is a way to help directly put a value on the currency.

    Tom:
    I think we mostly agree. Though I suspect your experiences in discussing the topic with those on the left and right are different than mine. The biggest issue to me is that both sides seem to be arguing about the wrong things, and neither wants to slow down to discuss the mechanics.
    I’m not sure what you meant by, “The right by and large sees the ELR as just leaf-raking…” It could be interpreted as the right sees the appropriate job for ELR as raking leaves, but I don’t think that’s what you meant :)

    Tom Hickey Reply:

    @djp,

    “I’m not sure what you meant by, “The right by and large sees the ELR as just leaf-raking…”

    Non-productive make-work aka boondoggling. Making soft jobs for lazy people and calling it “work”

    Tom Hickey Reply:

    @Chris,

    There is no way for economics to be apolitical because both involve norm that are political and “moral.” As Michael Hudson as observed, there are economists that admit this are and own their norms, and there are the those that don’t, e.g., holding to some “natural law” argument like “the invisible hand.”

    I have run into this arguing with Austrians and presuming that it is pretty obvious that full employment along with price stability is apolitical and a goal that both economists and ordinary people can agree on as desirable. They look at me like I have two heads. It is just not something that they think is a priority that economic policy need be concerned with with. The role of government for them is preservation of liberty (individual sovereignty) and protection of private property so that everyone can pursue happiness (max u) as they see fit and let the chips fall where they may. When you begin with liberty define as individual sovereignty, this is where you get. Regard for the good of society is “socialism.”

    Reply

    djp Reply:

    @Chris,

    I suppose that’s why we are often reminded (even on this forum) that it was Dick Cheney who said, “… deficits don’t matter …”. It IS apolitical, unless you’re claiming Cheney is a closet Democrat.

    Also, I certainly agree with Beowulf’s first repsonse.

    Reply

  6. Dan w Says:

    gov’t isn’t the problem….bad gov’t is. our leaders are part of a system in which real regulation and oversight cannot exist because they benefit too much from banana-republicanism. the issue facing us is neither debt nor deficit…it is plutonymy and corruption. we CAN “print” our way out of this decession, but only if our political leaders make sure that those monies are not captured by the top 1% of wealthy citizens….folks who subsequently use these funds to further cement their political and social power.

    Reply

    PaulJ Reply:

    @Dan w,

    Great point

    Reply

  7. melvin goldstein Says:

    The economy is non-linear. Non-linear equates to chaos theory. Chaos is one of Physics Foibles – non-predictable. Butterflies may cause tornadoes!!! We are all experts!!!

    Reply

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