Deficit Reduction Super Committee Fighting the Battle of New Orleans

I realize it’s not a perfect analogy,
but, due to poor communications,
the battle of New Orleans was fought
well after the War of 1812 had ended.

Likewise, the Congressional super committee is fighting the battle for deficit reduction
long after the vaporization of the primary reason driving that move towards deficit.

The main difference is the stakes are much higher this time,
with the real cost of the lost output from the excessive, ongoing,
global output gap far exceeding
all the real losses of all the wars in history combined.

The headline reason for deficit reduction was
the rhetoric about the immediate danger of the US
suddenly becoming the next Greece,
with the US govt being cut off from credit,
interest rates spiking,
and visions of the US Treasury Secretary
on his knees, hat in hand,
begging the IMF for funding and mercy.

And the looming flash point was the threat of a US downgrade if
a credible deficit reduction package wasn’t passed before the Aug 2 deadline,
when the Congressionally self-imposed US borrowing authority was to expire.

After a prolonged Congressional process that was
even uglier than the healthcare process,
with already dismal Congression approval ratings moving even lower,
the debt ceiling was extended with a measure that contained some deficit reduction,
and also set up the current super committee to ensure further deficit reduction.

Soon after, however, Standard and Poor’s decided it all wasn’t enough,
and the dreaded downgrade was announced.

And then the unexpected happened.
Rather than spike up as widely feared,
market forces drove US Treasury interest rates down, substantially.

What was happening? Where had the mainstream gone wrong?
Former Fed Chairman Greenspan and celebrity investor Warren Buffet
both immediately had the answer.
S&P was wrong.
The US is not Greece.
The US govt prints its own money, while Greece does not.
The US always has the ability to pay any amount of dollars,
that markets can’t take away.

And everyone agreed.

And the driving force behind deficit reduction was suddenly not there,
and the rhetoric of becoming the next Greece vanished from the national TV screens.

And, unfortunately, just like the news that the War of 1812 had ended
didn’t get to New Orleans in time to prevent thousands from
losing their lives in that bloody battle that would otherwise not have been fought,

the news that the US isn’t Greece apparently hasn’t gotten through
to the Congressional members of the super committee
now fighting the current battle over deficit reduction.

What was learned after the downgrade was that
there is no such thing as a solvency problem for the US govt.
Short term or long term.

True, excessive deficit spending may indeed someday cause unwelcome inflation,
but the US government is never in any danger of not being able
to make any payment (in dollars) that it wants to.

And yes, the discussion could be shifted to a discussion
as to whether current long term deficits forecasts
translate into unwelcome inflation in the future
that may demand action today.

However no specific research has been done along those lines.
And, in fact, inflation forecasts,
which all assume our current fiscal trajectory,
don’t show any signs of an inflation problem.
Nor are the long term US Treasury inflation indexed bonds flashing any inflation warnings.
In fact, the Fed and most other forecasters remain more concerned over the risk of deflation.
And Japan, with a debt to GDP ratio about triple that of the US,
has been fighting its battle against deflation for nearly two decades.

So, clearly, shooting from the hip on this issue,
by suddenly declaring long term deficits
must be immediately addressed
with cuts to Social Security,
and with tax hikes,
to prevent a looming inflation problem,
(now that the prior errant reason, that the US could be the next Greece, has been dismissed)
could only be considered
highly irresponsible behavior
on the part of the super committee.

An informed Congress might recognize
the reason for the urgent action to reduce the federal deficit
and the reason for the super committee
is no longer there.
And, therefore, in informed Congress might suspend the super committee,
and regroup and reconsider before taking action.

It is widely agreed the current problem is a massive lack of aggregate demand.
It is widely agreed that a combination of tax cuts and/or spending increases
will restore sales, output and employment.

But instead of a compromise where the Republicans get some of their tax cuts
and the Democrats some of their spending increases, and the economy booms,
both sides are instead going the other way and pushing proposals to reduce aggregate demand,
even though they no longer have good reason to do so.

The battle of New Orleans was fought after the reason for fighting it had ended,
And, likewise, long after the reason for deficit reduction vaporized,
this battle continues to be fought
with both parties continuing acting counter agenda.

(feel free to distribute)

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182 Responses to Deficit Reduction Super Committee Fighting the Battle of New Orleans

  1. Mario says:

    I love the smell of Freedom in the morning…ahhh…

    thank you Occupy Wall Street. Thank you.

    http://www.youtube.com/watch?v=mIuuzK4XyDA

    Reply

    Djp Reply:

    @Mario,

    Really… really.

    A bunch of english majors who couldn’t find jobs, running around with their iphones, lecturing us on the evils of capitalism and the bliss offered by socialism is your idea of Freedom?

    http://www.nationalreview.com/corner/279264/occupy-wall-street-explained-andrew-stiles

    http://marketplace.publicradio.org/

    http://www.publicradio.org/tools/media_player/popup.php?name=marketplace/pm/2011/10/06/marketplace_podcast_20111006_64
    Go to: 22:50

    NationalReview and NPR… take your pick.

    ———————————————-
    I’ll never forget the wisdom of a garbage man. He didn’t view work as something that should fulfill him, but rather as a means to an end — a way to earn money to buy stuff he wanted, and a secure job with known hours that gave him lots of free time in the afternoon. I don’t think there are many garbage men protesting.

    Reply

    Matt Franko Reply:

    @Djp, “I don’t think there are many garbage men” LOL! That’s because Allied Waste (Pete Peterson’s Blackstone) got the govts to “privatize” these what were once upon a time services that fell under govt public works and now they brought in illegal aliens to do the work!

    I visited Busch Gardens Williamsburg a few months ago (now owned by the Peterson people after BUD got bought out by foreigners) and they had non English speaking young ASIANS! imported (I guess maybe under their free will) in to work the carnival games and most janitorial jobs… I guess black youth unemployment in the Tidewater area of Virginia down there is like 0-2% so they have to ship human beings halfway around the earth to say “sree ball five dolla” all day… please spare me! Resp,

    Reply

    Mario Reply:

    @Djp,

    your argument is attempting (rather poorly I might add) to set up a rabbit hole that I’m not going to go down into with you. You’re attempting to associate the occupy wall street protests and assemblies (peaceful at that) with zany, irrational, and impractical socialist movements. Well you can do what you want, and I’ll leave the facts to be read by those who care to.

    I’m not advocating socialism thank you very much btw either. I don’t know why or where you are getting that.

    In fact if you really wanted to look at things, the status quo is more socialist (perhaps more mercantilist but really it’s 6 of 1…) than most would like to admit. But again that’s something I’ll just leave the facts on the table for those to access on their own.

    Good luck to ya mate!

    Reply

    Djp Reply:

    @Mario,

    I retract. I was too hasty.

    It looks like it’s really about fashion!
    http://www.nytimes.com/slideshow/2011/10/06/fashion/20111006PROTEST.html

    Still, not exactly something I would equate with freedom — yes, I believe you should be free to wear what you want.

    :)

    Djp Reply:

    @Mario,

    Wait maybe I have to revise that…
    Turns out is is about socialism — or at least socialists are trying to weave themselves in:

    http://www.nationalreview.com/corner/279104/parody-and-beyond-jonah-goldberg
    Speech by:
    http://en.wikipedia.org/wiki/Frances_Fox_Piven
    Who is a prominent member of:
    http://en.wikipedia.org/wiki/Democratic_Socialists_of_America

    ——————-
    The Life of Brian clip in the nationalreview link is very fitting.

    WARREN MOSLER Reply:

    yes, but unfortunately without mmt all sides are promoting counter productive agendas

    Reply

  2. JCD says:

    Tom,

    Thanks for putting a number on it. I think your post precisely proves my point — the objection to excessive savings is meaningless without putting a number on it.

    As to your statement, about millions vs tens of millions, can you clarify a few things?

    Do you object to wealth above ten million, or holdings of NFA? Does it change by family size? Are trusts okay? Does it matter if the beneficiary is someone other that your self or your family? Does it matter how it’s held (eg Bonds vs cash vs claims on FDIC insured banks vs Nolan Ryan rookie cards).

    What is the punishment regime you’re proposing. Moderate inflation? Or something else (eg torture by being forced to listen to The Friday Song on you tube)?

    Here’s my point — it’s really easy to say you are opposed to excessive savings. I guess I am opposed to it if it’s *excessive* too. It’s a bit more difficult to put a number on it. But if you’re going to wade into the realm of public policy, you’re going to need to get specific and think about the details.

    Reply

    JCD Reply:

    @JCD,

    The thing I like least about this site is the goofy mechanics in the comment section.

    The above post belongs as a reply to a comment Tom Hickey made under number 11. on 5 OCT at 11:06 AM. I re-posted it there.

    Sorry, I put it in the wrong place. I apologize for any confusion.

    Reply

    Gary Reply:

    @JCD,

    it would be a good idea to provide a forum, next to blog.
    So blog comments would be for commenting Warren’s post, and the rest of discussions could go to forum…

    Reply

    Tom Hickey Reply:

    @Gary,

    Just needs a better way to track topics and comments. The other problem is with ourselves as commenters. Too often we just continue a thread when the topic has shifted, instead of starting a new topic.

    Tom Hickey Reply:

    @JCD,

    Second that on the goofy comment section.

    JCD, I think that the amount of excessive saving is somewhat of an individual matter, however it is difficult to fit economic policy to individual matters. In most field, borderline conditions introduce ambiguity, so the safe way to go with the dealing with the obvious instead of trying to micro-manage.

    Comes back to what we were just saying about economic rents. The issues are quite similar.

    What Sergei is asserting, to which I agree, is that concentration disrupts circular flow in the real economy and also creates financial claims on resources in excess of resource availability. In addition, there is the political issue of power associated with concentration.

    So I would be for addressing the issues rather than being concerned about the margins. It’s not the margin that it is problematic here but the core.

    Reply

    JCD Reply:

    @Tom Hickey,

    I’m not as sure what Sergei is asserting. I *am* sure that what Sergei said is:

    I am very much against people *not spending all their income*. Or lets put it another way: whatever income you receive, it has to be spent.

    And then he talked about punishment (somewhere up there). I think that’s a foolish idea. I also think that if MMT is to be taken seriously we need to question our ideas to make sure they are not foolish. If we don’t others will.

    I think it’s fine to espouse moderate inflation. I do. (what’s moderate? – enough to keep unemployment below 6% with regularity). But I think if someone says something silly like:

    I am very much against people *not spending all their income*. Or lets put it another way: whatever income you receive, it has to be spent.

    we need to push back and say — Really?

    Or instead, we could have a comments section like zero hedge, and I could chime in with comments like “+1″ or “xxx yeah”.

    When I say something you feel is silly, please push back on it when it pertains to MMT.

    Reply

    Sergei Reply:

    @JCD,

    If you do not need something you do not buy it. Simple, isn’t it?

    If you do not need *more* income then do not sell more of your time/effort to get it. If you do nevertheless sell it but do not use it, then it is wasted. Simple, isn’t it?

    You say it is silly. I say that any economic waste shall be discouraged.

    JCD Reply:

    @JCD,

    Well no, it’s not so simple.

    If I work and make more income that I will consume, you say it should be wasted. (Do I have that right?)

    How so? Shall I be forced to burn the dollars I received in trade for my labor? Will the government get them in the form of taxes? Will my employer be prohibited from paying me above what I consume?

    Adam (ak) Reply:

    @JCD,

    If you have earned more than you want to spend it is up to you what you do with your money but please do not expect that if you hoard financial assets these assets should multiply on their own. I don’t see anything evil in the government providing saving vehicles in the form of TIPS that is securities indexed for inflation. But earning anything above the inflation rate is unfair as it leads to redistributing income from the poor to the rich. That’s why I agree that the natural rate of interests is zero.

    Personally I think that if someone wants to take the risk and make an attempt multiply his/her savings, they should be invested in productive activities by buying shares or bonds issued by the firms.

    But feeding them back to the private banks is exactly what enables the growth of the credit bubbles.

    JCD Reply:

    @JCD,

    Adam;

    I don’t have a problem with a low interest rate (Zirp?) policy on Treasuries coupled with moderate inflation.

    I think Sergei is silly when he says no one is allowed to *excessively* save excess income.

    One of the charms of this web site is that Warren proposes real world policy changes, and gets them into the public arena (eg full wage tax holiday, ELR, Mosler bonds). The comment section of this should be an adjunct to this process. We should bang out what works and what doesn’t.

    Saying things like “People should not be allowed to save excessively” (not a quote) doesn’t really move the ball forward. There’s no reasonable policy proposal here and neither Sergei nor Tom nor anyone else has tried to back it up with a reasonable policy prescription.

    I get what Sergei’s trying to do, but I think he hasn’t thought it through.

    I thin a better policy choice (and one I suspect you could live with) would be moderate inflation (defined above), driven by running structural deficits, coupled with a Fed ZIRP. Then (on some other site) we could have a good old fashioned food fight about whether to run the deficits through more spending or less taxing.

    You down with that?

    Tom Hickey Reply:

    @JCD,

    “There’s no reasonable policy proposal here and neither Sergei nor Tom nor anyone else has tried to back it up with a reasonable policy prescription.”

    I have proposed, for example, taxing land rent and addressing financial rent iaw Warren’s proposals for reforming the financial sector. I would also be more aggressive in attacking give-aways to special interests that increase monopoly power, like ending the anti-trust exemption for the insurance industry. There have been many such policy proposals offered on this site and other MMT sites for dealing with such issues, within which “excessive saving” falls, for instance. It’s not like this is the first time this has come up. There has been a lot said about it already.

    Mario Reply:

    @JCD,

    I thin a better policy choice (and one I suspect you could live with) would be moderate inflation (defined above), driven by running structural deficits, coupled with a Fed ZIRP. Then (on some other site) we could have a good old fashioned food fight about whether to run the deficits through more spending or less taxing.

    sounds great to me and I agree with you completely. I’ll be saving my money regardless of what anyone says MMT or otherwise. And if you don’t then I think that’s stupid. All sustainably rich people save money. Period. I like a combo of solid tax cuts and logically necessary and important social and national spending programs myself.

    Tom Hickey Reply:

    @JCD,

    As far as MMT (functional finance) is concerned, this comes down to fiscal policy, which includes tax policy. I have said that I prefer not to see productive contribution taxed but rather non-productive gains and especially activity that is potentially damaging, along the policy lines that MIchael Hudson has proposed. I have also suggested reforms that would eliminate corruption and privilege. I also agree with Dylan Ratigan that first and foremost, there is a need for a constitutional amendment to get the money out of politics, and I would add, locking the revolving door for good.

    Sergei Reply:

    @JCD,

    JCD, you are mixing up micro and macro and then you call it silly.

    Neil Wilson Reply:

    @JCD,

    The thought experiment is whether hoarding is desirable overall.

    In the perfect world people would be able to consume to the level they need to free in the knowledge that their income is sufficient to do that and nobody else suffers because of it – either now or in the future (or in the past if technology gets that far).

    You don’t need to save if you know your future needs, and the future needs of those you care about, will be catered for.

    So we’re then back to how far are we away from the Star Trek world, and politically how close to it can we get.

    Step back a bit and look at why people hoard.

    Djp Reply:

    @JCD,

    @Neil,

    Your hoarding might be my saving, grasshopper.

    If you don’t know how long the winter will last, you don’t know how much you need to save.

    I’ve often suspected that one of the reasons for many disagreements about personal economics is rooted in a lack of familiarity with random processes, and with understanding risk. Those who are risk averse will naturally desire greater savings, after all you can’t “know your future needs”, at best you can know the distribution of your future needs — and I take issue, in a similar vein to JCD, at the use of the word “needs” rather than “desires” (who gets to define those needs? I think you would be very unhappy if I were allowed to define yours) — and you’re fooling yourself if you think you can really accurately nail down the distribution.

    I KNOW why people save. They save because of risk aversion, and because they don’t want to live a life constrained by someone else’s definition of their needs. If later in life they choose to spend $5M for another 6 months of life, well, that’s fine by me.

    @ Sergei, Tom, et al.

    Also, I really don’t see how most of this discussion could possibly be about *excessive* NFA savings versus *excessive* wealth and/or consumption. So all of those opposed to this excessive accumulation of NFA are perfectly fine with people amassing enormous wealth as long as it isn’t in the form of NFA? Or land (because Tom wants to tax that enough to make it an unattractive store of wealth)? So what is it ok to accumulate? Gold?

    Finally, I think I completely agree with Warren’s responses that it’s great if people decide to save in NFA and never spend the savings.

    Sergei’s comment seems completely opposed to the idea that output is good:
    “If you do not need *more* income then do not sell more of your time/effort to get it. If you do nevertheless sell it but do not use it, then it is wasted. Simple, isn’t it?”

    I really don’t understand this, it sounds to me as though you think that people should stop producing at some arbitrary point. Whereas I think most everyone on this board agrees that the problem today is that through bad policy decisions we are losing massive amounts of output. Clearly one could easily make the argument that the output isn’t *needed* since people don’t seem to be dying in the streets through a lack of fulfillment of theirs *needs*. I am absolutely on the side that would say the loss of output is a huge net loss for the aggregation of individuals on this planet (I don’t want to get zinged for using the word *society*).

    Tom Hickey Reply:

    @JCD,

    “Whereas I think most everyone on this board agrees that the problem today is that through bad policy decisions we are losing massive amounts of output.”

    According to MMT we are in the state we are because non-government is saving much more than the deficit is offsetting.

    Of course, it is more complicated than that in that there is a reason that non-government is saving more independent of a random increase in saving desire. This is the wind down of a long financial cycle culminating in Ponzi finance. First, the gatekeepers permitted it and now they are doing very little about addressing it. As a result, another round, likely more serious, is building.

    WARREN MOSLER Reply:

    whatever the reason, first thing is to count bodies in the unemployment line and make the appropriate fiscal adjustment

    Djp Reply:

    @JCD,

    @Tom,

    Whoa. Perhaps I am misreading this, but it sounds like it is turning MMT inside-out.
    “””
    According to MMT we are in the state we are because non-government is saving much more than the deficit is offsetting.
    “””
    To me the msg in the above quote is that people should stop saving so much — which seems to be what much of this thread has been about. Maybe I’m reading too much into the arrangement of the words and clauses. I have not heard before on this board that the solution would ever involve getting people to save less, just that gov should be running an appropriately large deficit (and then the big question, addressed many times here, is whether it is better to increase the deficit by lowering taxes or increasing spending).

    It’s difficult to separate out savings and savings in NFA from all discussions. Individuals care much more about the former, and when asset values plummet and they have lost “savings” probably the easiest way for them to increase their “savings” is to increase the amount of their “savings in NFAs”. I think that’s in line with your second paragraph.

    Matt Franko Reply:

    @JCD, Folks, let’s not be too hard on ourselves and forget about these zombies
    and their irrational, insatiable USD savings desires. Resp,

    Tom Hickey Reply:

    @JCD,

    Addressing the first paragraph by larger deficits without addressing the second on Ponzi finance would be less than half a solution, and one that would just have to repeated on a much larger scale before long. There are several problems with the saving. The first is that a lot of it comes from ill-gotten gains. Secondly, a good deal also results from deleveraging due to the collapse of a bubble that never should have been blown in the first place, and which would not have without the behavior that contributed to the ill-gotten gains, i.e., the big rip-off.

    Neil Wilson Reply:

    DJP,

    There are two ways to deal with the issue. You either accommodate net financial saving – which requires a high and continuous government deficit over most of time

    Or you confiscate it – which eliminates the government deficit completely.

    So it’s down to what you want – a high government deficit or no net financial savings.

    Remember that no net financial savings is not no savings, just that you can only save what somebody today wants to borrow (which would require a matched maturity system).

    Sergei Reply:

    @JCD,

    djp saving is output lost in the next period unless someone takes more debt. you have to explain how you want to deal with debt and its consequences *before* you say lets save. Warren says let it be government who takes more debt. i do not like itfor many reasons and would prefer other solutions. what is your solution?

    JCD Reply:

    @JCD,

    Mine is deficit spending.

    I’d rather let people be free to save as they wish, than to confiscate their savings.

    What’s yours?

    ESM Reply:

    @JCD,

    “Mine is deficit spending.”

    Of course. I would have thought that MMT-ers could at least agree on that. I think any other preference is rooted in a desire to redistribute wealth rather than consumption, which in turn is rooted in some unconstructive human emotions (you can see these on display in the OWS protests).

    Gary Reply:

    “Mine is deficit spending.”

    let’s imagine that government decides to implement Job Guarantee (Employment of last resort) and deficit spends enough to accomplish that.

    Let’s also say that FICA taxes are eliminated.

    That would address unemployment, and economy would start growing faster.
    Foreclosures would be less, house prices would rise a bit faster.

    Would this prevent next real estate bubble? Would it prevent student loan debts? Would it prevent health-care bankruptcies?

    what would life be for people living on the JG wage? $10 per hour is more than minimal wage in US. So that is $1600 per month. Can you support family on that? Can you raise and educate the kids?

    “Deficit spending” is not clear enough answer. What will it be spent on? Would it be spent to provide social security and health care? Day care? Or would it be spent to fund war and bail out banks?

    JCD Reply:

    @JCD,

    Gary,

    We’re *not* trying to solve all the world’s ills here. We’re just trying to figure out MMT. Sergei’s complaint is that when people save (to excess!) or hoard, they create demand leakage.

    I agree.

    He seems to imply that he wants to solve the problem by banning *excess* saving. I think that’s troublesome.

    I think the problem is best solved by government running a policy of moderate inflation to discourage such saving, and deficit spending to replace the lost demand.

    Full stop.

    I’m not trying to solve the problem of insufficient distribution of wealth or income. Nor am I concerned with human rights in Burma in this discussion.

    How would you solve the issue of excessive savings causing demand leakage?

    -Jim

    Tom Hickey Reply:

    @JCD,

    “which in turn is rooted in some unconstructive human emotions (you can see these on display in the OWS protests).”

    Right, when the issues are not dealt with, social push back is the outcome, and most of the time that push back is largely emotional, which means that less than rational consequences may emerge. It’s not like this is anything new or unexpected. There’s plenty of historical precedent for what’s happening around the world now and it is potentially destabilizing. Meanwhile, TPTB continue to fiddle.

    Tom Hickey Reply:

    @JCD,

    “I’m not trying to solve the problem of insufficient distribution of wealth or income.”

    I think that at this point in time, the US and Europe are both facing a distribution problem that needs to be addressed by economic policy. MMT is not just the sectoral balance approach and functional finance with a JG tacked on. It includes Minsky’s analysis of financial instability. This is one of the foremost underlying issues that needs to be dealt with ASAP.

    WARREN MOSLER Reply:

    best i can tell the take away from minsky is that the private sector is necessarily pro cyclical.
    goes without saying, seems

    JCD Reply:

    @JCD,

    Tom,

    This is where we part ways. I believe that if MMT is perceived as straying into the ideological, it is doomed.

    It’s not just that I disagree with your ideological view of the world (I’m confident I do). It’s that I believe that attaching issues like income distribution to MMT sets MMT back. Significantly.

    Warren to his credit has done a great job of presenting MMT as non ideological. I think if we wish to advance it, we should take his lead.

    By the way, nothing in here should be perceived as my attacking your view. I’m confident I disagree, but that’s okay. You’ve got your opinions, and I have mine.

    -Jim

    Gary Reply:

    @JCD,

    “I think the problem is best solved by government running a policy of moderate inflation to discourage such saving, and deficit spending to replace the lost demand.”

    I think both would be needed. Deficit spending would be difficult to vary from year to year politically – unless something like Job Guarantee would be implemented.
    But even if JG was implemented – increased spending means – that people cannot find better jobs that JB – which means economy is stalling.
    I think having public healthcare and guaranteed livable social security would discourage savings. Some inflation too.
    Yes – less savings means larger taxes – or less spending. It could mean less spending on JG program – because people have better jobs.

    Tom Hickey Reply:

    @JCD,

    Jim, on one hand, MMT as a theory exposes various policy options. Choice among policy options is based on preferences that are value-laden, and values are ideological norms. On the other hand, there are aspects of MMT as theory that are theoretical. Minsky’s analysis of financial instability is fundamental to monetary economics and is central to the way most MMT economists approach issues. That is not ideological.

    Minsky’s analysis indicates that financial instability is inevitable. The question then is how to reduce the incidence of financial instability and its impact. There are different options for achieving this, and the choice among these options may be, at least in part, ideologically based. But some choice is indicated, since the present institutional arrangements are extremely instable.

    JCD Reply:

    @JCD,

    Tom,

    I’m not going to pretend to understand your last post. I don’t doubt that you believe it or that Minsky wrote it. I won’t even try to contest with you that it’s not true or wrong.

    Neither will I try to convince you that the ultimate goal of public policy should be to advance the liberties of the individual.

    Ultimately it doesn’t really matter much.

    However, I strongly believe that if MMT is to move forward, it can’t be associated with either the left or the right.

    If it’s accepted that MMT means policies geared towards redistributing wealth, or policies geared cutting top marginal tax rates, or policies geared towards raising government spending, than MMT is going to have a hard time getting traction.

    There’s already a popular school of economic thought that says we should spend our way out of the recession, and that the goal of that spending should be geared towards redistributing wealth. Why does the world need another one?

    There’s already a school of thought that says the only thing that matters is reducing taxes. We don’t need another one of those either.

    What there isn’t is a policy that says that government deficits are too *low*, not too high. But there are two ways to increase the deficit. MMT can succeed if it can be pitched to left and right alike.

    If we leave it to you and Minsky to pitch it, I’m afraid we’ll get nowhere.

    WARREN MOSLER Reply:

    i pretty much agree. but it’s easy for me as I just say what i think

    Mario Reply:

    @JCD,

    However, I strongly believe that if MMT is to move forward, it can’t be associated with either the left or the right.

    It seems to me that has been part of the problem with MMT getting legs….everybody is sooo polarized these days they don’t want to hear MMT. This is b/c MMT blends perfectly both sides of the aisle and essentially “solves” so many of the HUGE anxieties people have. They literally get sooo freaked out at the possibility of how good and easy it could be that they over-complicate it, spin it out of context, and then vomit all over it to make sure it can’t be so. LOL In time I’m sure. Personally I think it’s the time to buckle up and hunker down while at the same time continuing to push the MMT lines and as the Dead say, “just keep on truckin’!”

    Occupy Wall Street is basically all about what Minsky talked about with ponzi-schemes and functional finance so I don’t agree with you at all that Minskian ideas (which are accurate) wouldn’t spread in this society. In fact it’s one thing that actually unites the “99%,” the tea baggers, the RP’s, the MMT-ers, the Austrians, the hippies, the middle-class worker, the struggling white collar student, etc. A big enemy makes many friends (welcome to Mario’s chinese proverb corner). LOL

    Sergei Reply:

    @JCD,

    “Neither will I try to convince you that the ultimate goal of public policy should be to advance the liberties of the individual.”

    pouch… unbelievable contradiction. this is THE root of all your problems. you seem not to realize that it is a trade-off and every society has to decide on the borderline

    Tom Hickey Reply:

    @JCD,

    Jim, have you seen Warren’s proposals under PROPOSALS in the menu bar above? Do you think that they are unrelated to MMT? Warren’s financial reform proposals directly address the issues that Minsky wrote about, for example. Additionally, Randy Wray was a PhD student of Minsky. MMT is definitely in the Minsky tradition as much as it is in the tradition of Godley and Lerner.

  3. Tom Hickey says:

    Warren: “so what’s wrong with,
    for a given size govt and given savings behavior
    adjusting taxes for full employment, etc?”

    Involves recognition that FICA is a (regressive) tax. That’s a big step. At present, most people think FICA is not a tax but an insurance premium. FICA stand for Federal Insurance Contributions Act. This confusion is at the basis of the claim that only the rich pay taxes. In this view, FICA is not really a tax and should not be considered in tax reduction.

    Reply

    beowulf Reply:

    @Tom Hickey,
    In retrospect, Congress should have just gone ahead and called it the “Title VIII tax”.

    Social Security payroll taxes are collected under authority of the Federal Insurance Contributions Act (FICA). The payroll taxes are sometimes even called “FICA taxes.” In the original 1935 law the benefit provisions were in Title II of the Act and the taxing provisions were in a separate title, Title VIII. As part of the 1939 Amendments, the Title VIII taxing provisions were taken out of the Social Security Act and placed in the Internal Revenue Code. Since it wouldn’t make any sense to call this new section of the Internal Revenue Code “Title VIII,” it was renamed the “Federal Insurance Contributions Act.” So FICA is nothing more than the tax provisions of the Social Security Act, as they appear in the Internal Revenue Code.
    http://www.ssa.gov/history/hfaq.html

    Reply

    WARREN MOSLER Reply:

    i meant what’s wrong with that response to savings desires, rather than trying to get people not to save and all that

    Reply

    Sergei Reply:

    @WARREN MOSLER,

    What is the economic purpose of excessive savings? It is a screaming indicator that the system is unbalanced.

    Besides savings is a latent demand which potentially is (hyper-)inflationary. Look at post-SU countries where savings were forced onto the population to free up industrial capacity but once the system collapsed everything went into hyper-inflationary spiral. Lots of things could trigger it but why do you want to play with such risks?

    Reply

    ESM Reply:

    @Sergei,

    “What is the economic purpose of excessive savings?”

    Peace of mind, which is a form of happiness. If large numbers on a deposit slip from a bank make people happy, why do you want to take that away from them?

    Sergei Reply:

    @ESM,

    ESM, lol! I know people who professionally take care of such things as peace of mind. Maybe it is better for someone with *excessive* savings to check with those people? Most fobias can be handled.

    Peace of mind is a dangerous argument. Somehow “saving” is assumed to be innocent but torturing not. Well, I say that excessive saving is equivalent to torturing in economic, physical and psychological senses.

    JCD Reply:

    @Sergei,

    Sergei;

    Peace of mind is a dangerous argument.

    I disagree, but counter with “no economic purpose” is a very dangerous argument. I leave it to the reader to imagine their own examples, but if needs be, I can elaborate.

    I say that excessive saving is equivalent to torturing in economic, physical and psychological senses

    Really? This seems like some pretty poor reasoning. I’m not sure you’ve thought this through.

    Saving is an act of free will by an individual (or group of them) intended to provide for and insure the future against want and need. Saving and providing for the future is a basic human need. It is extolled as a virtue in every society on earth.

    Torture involves the intentional use of force and cruelty by one individual (or group) against another with the intent to harm and for the purpose of extracting pleasure or gain. It is condemned by every society on earth.

    You really think those are the same thing in any way?

    If so, do you think we should punish those who save excessively? Or should those who torture not be punished?

    I’m beginning to wonder if you are serious, or just being inflammatory for effect

    Sergei Reply:

    @JCD,

    *EXCESSIVE* (and I really highlight this word as you intentionally seem to ignore it) is a RESIDUAL or, speaking in other words, it is a WASTE of any regular economic activity.

    It is ironic that you mention society now, don’t you think so? Anyway, individual saving IS an act of economic torture of the *society*. The fact that it is impersonal does not change the essence. So yes, I would punish saving but I would still give people an individual right to save in certain reasonable volume and thus ensure against future *individual* need they might have. As for the rest I would let excessive savings to be eaten by inflation. It is a much less coercive way of redistribution than taxation. In the end not spending is an act of free will, isn’t it? Austrians should love inflation but for some strange reason they hate it. Though taxation would be a much faster way to achieve the same result of redistribution.

    And please do not forget that we are talking about monetary savings. Bringing up virtues of every society can skew the reader to misleading examples :)

    Tom Hickey Reply:

    @Sergei,

    Not surprisingly, I agree with Sergei, if when he says “excessive” he means really, really excessive — way beyond what is reasonable for “peace of mind.” People don’t need hundreds of millions or billions to guarantee peace of mind. If someone needs tens of millions, then they have a problem and should see a mental health professional. Millions, well, maybe only some form of neurosis rather than psychosis.

    JCD Reply:

    @Sergei,

    I’m not ignoring excessive, I just don’t know how to define it. Can you help me? How many dollars am I allowed to save? You? Warren Buffet? The central bank of China?

    Are you opposed to excessive consumption? Are you opposed to excessive affection? Excessive security? Excessive Wealth? Excessive fun? Excessive drinking? Excessive liberty? I guess I am too, after all they are all excessive.

    Do you see the point? Labeling something as excessive, and then saying you are opposed to it isn’t saying much at all. Until you define what excessive is, we don’t know very much. Your idea of excessive, and my idea may not align too well.

    Next question — If we save too much under your policy, what is the penalty? Inflation? Any other punishment in the works for excessive savings? If not, what are we talking about? I have no problem with a regime of mild inflation? We started with:

    I am very much against people *not spending all their income*. Or lets put it another way: whatever income you receive, it has to be spent.

    Are we ending with the following (and I am *not* quoting you here)?

    I am in favor of a regime of moderate inflation

    I don’t know what Austrians think about inflation, nor do I much care. I’m not Austrian, and I haven’t been there since 1985. What does that have to do with this discussion (I know what Austrians are — please stop assuming you know what I am)?

    I still think you don’t understand my point about society above. OK. Let’s move on. I see no irony in my using the term. I’ll continue to use it when the need fits.

    JCD Reply:

    @Sergei,

    Tom,

    Thanks for putting a number on it. I think your post precisely proves my point — the objection to excessive savings is meaningless without putting a number on it.

    As to your statement, about millions vs tens of millions, can you clarify a few things?

    Do you object to wealth above ten million, or holdings of NFA? Does it change by family size? Are trusts okay? Does it matter if the beneficiary is someone other that your self or your family? Does it matter how it’s held (eg Bonds vs cash vs claims on FDIC insured banks vs Nolan Ryan rookie cards).

    What is the punishment regime you’re proposing. Moderate inflation? Or something else (eg torture by being forced to listen to The Friday Song on you tube)?

    Here’s my point — it’s really easy to say you are opposed to excessive savings. I guess I am opposed to it if it’s *excessive* too. It’s a bit more difficult to put a number on it. But if you’re going to wade into the realm of public policy, you’re going to need to get specific and think about the details.

    Sergei Reply:

    @JCD,

    Somehow people accept that excessive smoking is harmful and limit it. Is it associated with the number of cigars per day? Of course not. Somehow people accept that excessive drinking is also harmful and limit it. Is it associated with the number of liters per evening? Of course not. Do you see the point?

    You are going the neoliberal way and try to attach a scientifically proven number on everything. It is a dead end as we all can see. Whether your definition of excessive matches mine or not is irrelevant. They do not have to match. It is enough for us to agree that *excessive* is harmful and then come up with a solution that limits it. It can be inflation, it can be lower taxes as per Warren, it can even be higher taxes as per some other :) The institutional solution to the excessive saving problem is secondary and everybody is entitled to an opinion about the best one.

    Tom Hickey Reply:

    @JCD,

    Are you opposed to excessive consumption?

    When it adversely affects others negatively. E.g., Empires have traditionally aggregated resources to themselves even though this meant suppression of other peoples and many others starving.

    Are you opposed to excessive affection?

    Incest, child molestation?

    Excessive security?

    “Those who would give up Essential Liberty to purchase a little Temporary Safety, deserve neither Liberty nor Safety.” — B. Franklin

    Excessive Wealth?

    Parable of Lazarus and Dives — Luke 16:19-31

    Excessive fun?

    BDSM

    Excessive drinking?

    DUI, binge drinking (I live in a Big Ten town. This is an issue in which the authorities have seen fit to intervene.)

    Excessive liberty?

    License, freedom v. ressponsibility

    See Aristotle on the “golden mean,” Nichomachean Ethics, Book II. Societies have seen fit to intervene with laws when people depart too far from the (cultural) mean.

    JCD Reply:

    @Sergei,

    This starting to feel silly:

    Whether your definition of excessive matches mine or not is irrelevant. They do not have to match. It is enough for us to agree that *excessive* is harmful and then come up with a solution that limits it.

    If I think driving over 65 mph is excessive on a given road (but under is ok) ,and you think anything over 25 is excessive, I’m not much interested in a limit at 35. How do you feel about a limit at 75?

    You are going the neoliberal way

    Another term I don’t know, or care to know.

    JCD Reply:

    @Sergei,

    Tom,

    My questions about “excessive” were rhetorical. Of course I’m opposed to “excessive” anything. Isn’t everyone? What things are you in favor of when they are excessive?

    Tom Hickey Reply:

    @Sergei,

    That’s the point I was attempting to make with the examples above. Societies decide what is excessive and this is revealed in the boundaries they draw in law, regulation, policy, convention, and custom. There is no absolute criterion and where one draws the line is an indication of one’s political compass in terms of libertarian and authoritarian, liberal or “left” and conservative “right.” My score on the political compass test shows that I am a libertarian of the left, for instance. That’s based on where I draw the line wrt the questions they ask.

    WARREN MOSLER Reply:

    real savings is real investment.

    not spending nominal income is called nominal savings, and it’s a demand leakage/reduction in aggregate demand.

    so the economic purpose of encouraging nominal savings would be to reduce aggregate demand, for example

  4. Mario says:

    great article written Warren. One of your best if I do say so myself. Great to see it on Huffpo too.

    Reply

  5. Walter says:

    Warren,
    Do you expect a scenario that this ‘useless’ battle is going to kind of repeat the situation as we saw end of July with the debt ceiling?
    Looks for the moment all eyes are on Greece. Several german hotshots openly saying they wait for the troika to say that Greece is insolvent and take legal steps for that in second half of October.
    Looks to me mkts have learned something after debt ceiling battle and US downgrade.
    Do you expect that this supercommittee battle will bring the focus back on the US, potential unwillingness to pay and lead to some USD weakness?

    Reply

    WARREN MOSLER Reply:

    lots of possibilities, and hard for me to say what’s the most likely.

    right not the super committee is seriously divided with no sign of ‘compromise’

    not sure what that leads to

    i don’t even know what to hope for except maybe short term fiscal relaxation and then hope the long term changes get sorted out for the best later.

    Reply

  6. beowulf says:

    “Real value was created, and even if “society” (by which Elizabeth Warren really means the “government”) gets a cut of the profits of exactly 0%, “real” society still benefited from that entrepreneur getting off his butt and actually building something.”

    ESM, Georgists like Michael Hudson would agree with you. Taxes on land should be used to replace taxes on property improvements, sales and corporate or personal income (obviously this is most efficiously done at the state level because the federal govt taxes neither real property nor retail sales). The case for taxing rentiers (and untaxing workers and business owners) was best made, naturally enough, by Winston Churchill.
    Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains — and all the while the landlord sits still. Every one of those improvements is effected by the labor and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced…No matter where you look or what examples you select, you will see every form of enterprise, every step in material progress, is only undertaken after the land monopolist has skimmed the cream for himself.
    http://www.progress.org/banneker/chur.html

    There’s a proposed California tax reform iniative that goes into great detail on what a land value tax would entail, it’d replace all state/local taxes except for a tax on income over $150k. One can’t help but think that last part would be unnecessary but for California’s gold-plated public pensions and oversized bureaucracy.
    http://www.prospercalifornia.com/

    Reply

    Djp Reply:

    @beowulf,

    Looking at the CA proposal you posted, these two things seem to make it quite dangerous:
    http://www.prospercalifornia.com/the-case-for-tax-reform/
    “Land Tax. We estimate the tax on land would generate revenues of $130 billion to $160 billion annually. Our estimate is subject to considerable uncertainty, however, due to the difficulty in estimating the current fair market value of land.”

    http://www.prospercalifornia.com/summary-of-initiatives-provisions/
    “(c) Tax rate to be 75% of rental value.”

    I know you may not be in favor of the CA proposal, but do you think that these excerpts would give you pause about a real implementation?

    Doesn’t this mean that if the land valuation is off by 33% then all of a sudden the tax is actually 100% of the rental value? Real value is 1, but the gov estimates it at 1.33, and thus the tax (75% of 1.33) ends up being 1.

    I don’t think I would be in favor of any proposal that would so easily tax 100% of any economic value – because of the difficulty in estimating that value. Consumption taxes seem much safer, since there the market is actually setting the price of the good. Here, it seems as though the gov has to come in and set a price for something that isn’t even available for sale or purchase (the value of the land were it to have no structures or improvements on it).
    ————————————————————
    Separately, there was discussion in the threads above about politicians profiting from influence (or access) on where public enhancements would be made. I agree this is a problem (though, unlike Tom I wouldn’t have chosen Rick Perry as my exemplar, I’d pick a politician that had accumulated far more wealth while just being a politician). Wouldn’t it also be an enormous problem if there were a tax on land anywhere close to what is being proposed in that CA initiative? Who sets the valuation and how often? What’s to prevent a politician from raising the tax, buying the land, and then lowering the tax? There are enough political shennanigans with current property taxes (Archie Manning comes to mind http://www.nola.com/speced/dubiousvalue/index.ssf?/speced/dubiousvalue/dv_040504.html ), which I think are much lower than what is being suggested in the CA proposal.

    Reply

    Tom Hickey Reply:

    @Djp,

    “(though, unlike Tom I wouldn’t have chosen Rick Perry as my exemplar, I’d pick a politician that had accumulated far more wealth while just being a politician)”

    I picked Rick Perry for the simple reason that he is getting called on this big time. It’s certainly true that many politicians likely make him look like a piker, but the facts are readily at hand on Perry since the focus is now on him.

    Reply

    Clonal Antibody Reply:

    @Djp,

    If we look at the Pennsylvania experience, Pittsburgh in particular, the land was almost always undervalued probably for the arguments you raised. From Land value tax in the United States

    Pittsburgh used the two-rate system from 1913 to 2001[16] when a countywide property reassessment led to a drastic increase in assessed land values during 2001 after years of underassessment, and the system was abandoned in favor of the traditional single-rate property tax. The tax on land in Pittsburgh was about 5.77 times the tax on improvements. Notwithstanding the change in 2001, the Pittsburgh Improvement District still employs a pure land value taxation as a surcharge on the regular property tax.

    Also from the Henry George Institute – What Happens When Communities DON’T Collect the Rent?

    Henry George’s thesis is that the public collection of the rent of land leads to vigorous, sustainable prosperity — all the benefits of “association in equality”. We can find evidence for its validity in the negative as well as the positive. What about those communities that fail to collect the rent of land, leaving it in private hands? Do they become worse off?

    In our last section we noted with pride the good effects achieved by many Pennsylvania cities by increasing property tax rates on land and lowering them on buildings. That was the good news — the bad news, though, is that for many years the political trend in the United States has been great antipathy toward the property tax, and many regional “tax revolts” have aimed at getting it reduced. The most famous of these was California’s Proposition 13, which was enacted by referendum in 1978. Tax rates were capped at 1% of property assessments as of 1978, until properties were sold. The result was a huge increase in California’s land prices, and a decline in every other index of economic health. Here’s more on what happened in California.

    Also from the School of Cooperative Individualism Pittsburgh’s Tax Reform Movement

    Few are aware that Pittsburgh was the site of the first tax revolt in the United States. Still fewer realize that Pittsburgh today has a unique property, tax system — a tax system which saves money for homeowners, workers, and active businesses, but penalizes those who hoard land and keep it out of use. How this system came about is the subject of our first report on the Pittsburgh Tax Reform Movement.

    Reply

    Tom Hickey Reply:

    @beowulf,

    Regarding the Churchill quote, there are individual, networked subgroup, institutional, systemic (societal) and cultural issues. Failing to categorize them properly leads to a category errors like the fallacy of composition. This is a typical error into which methodological individualists fall.

    Daniel Little’s Understanding Society blog deals with across the board thinking about subjects like methodology. High recommended.

    Reply

    WARREN MOSLER Reply:

    keeps coming back to the ideas in soft currency economics?

    Reply

    beowulf Reply:

    @WARREN MOSLER,
    If you haven’t already, you really should pick up a copy of Ron Suskind’s Confidence Men, the best inside baseball Washington book since, well, Suskind’s Paul O’Neill book.
    http://www.amazon.com/Confidence-Men-Washington-Education-President/dp/0061429252

    Oh, you will certainly grit your teeth but some of details Susskind comes up with are astonishing. This anecdote from March ’09 (after less than two months at Tsy) may be the best Tim Geithner story ever:
    He told them he’d just heard from his mother. “She said, ‘Tim, remember the summer you worked at that bar and the owner said you weren’t exactly the best bartender? Well, maybe this is like that, and this job just isn’t for you.'” He shook his head. “My own mother!”

    Reply

    Djp Reply:

    @beowulf,

    That’s hilarious.

  7. GLH says:

    Tom Hickey:
    I take from your example that Wall Street is the bookie and its fees are the vid,so how much of the gain in a portfolio is from economic rent? For example, are dividends economic rent, or maybe profits from speculation?

    Reply

    Tom Hickey Reply:

    @GLH,

    Dividends would only be economic rent to the degree they are due to monopoly rent. Profits from speculation beyond what is needed to create liquidity in a market also constitute economic rent. This does not affect small players, whose activity is minuscule. It’s the big players with access that are the beneficiaries of most economic rent. They are the ones that shape institutional arrangements to their advantage.

    As Warren has said, much recent “financial innovation” was non-productive. Moreover, fraudulent operations were criminal — and they were endemic, as Bill Black has established. Gains from this were therefore unearned and constitute economic rent

    Think of economic rent as a rake off.

    Reply

    JCD Reply:

    @Tom Hickey,

    And as you say above, monopoly rent almost always comes from abuse of privilege and access — other wise it’s not durable in a competitive market.

    Reply

    Tom Hickey Reply:

    @JCD,

    Right. In capitalistic system, there is the danger of concentrated wealth and power unduly influencing the political process. The worst case, operative in the US at present, is state capture.

    MamMoTh Reply:

    @Tom Hickey,
    In capitalistic system, there is the danger of concentrated wealth and power unduly influencing the political process.

    That happens in any system. But under a liberal system you can complain about it without without fearing for your life.

    Tom Hickey Reply:

    @MamMoTh,

    In highly-developed capitalistic systems a silent coup is the danger. In other systems, the danger is a military coup.

  8. Much of the Tea/Republican philosophy is based on power and control, and not wanting the federal government to have “too much.”

    For money to exist, it must be created. Whatever creates it has some power over those who do not create it. So to complain about the power of money creators is to complain about the existence of money.

    There is a slight difference between federal money creation and federal control. Eliminating FICA is not control, except in the most convoluted sense. Giving dollars to the states to spend, is far less control, than buying goods and services and giving those to the states.

    Reply

    Tom Hickey Reply:

    @Rodger Malcolm Mitchell,

    Rodger, the basic issue around money creation is who is going to create it, the government or the banks. TPTB want to reduce the role of government in money creation as much as possible so that they don’t infringe on money creation the private sector, which delivers interest to the ownership class. And they demand that to the degree that the government creates money, it only do so by issuing interest-bearing securities that provide a public subsidy that goes chiefly to the ownership class.

    Reply

    Rodger Malcolm Mitchell Reply:

    @Tom Hickey, Tom, either the government creates money by spending or the private sector creates it by borrowing.

    Federal spending has far less risk for the economy. The last (current?) recession was caused by the private sector, not the federal government, being over extended and unable to service its debt.

    Ironically, the old-line economists want the banks to lend more (i.e. private sector borrow more), but want the government to spend less, which makes no economic sense at all.

    I discuss this at: http://rodgermmitchell.wordpress.com/2010/06/14/is-federal-money-better-than-other-money/

    Reply

    kkken530 Reply:

    @Rodger Malcolm Mitchell,

    rather than give the money to the states to spend,why not give the money to the individual citizen..

    Reply

  9. MamMoTh says:

    In the meantime, say goodbye to the Tevatron

    http://www.bbc.co.uk/news/science-environment-15079119

    Reply

    PG Reply:

    @MamMoTh, Never mind, China will build one. They launched Tiangong-1 yesterday.

    Reply

  10. Paul Mineiro says:

    There are many powerful people who feel government spending is at best inefficient and at worse corrupting and corrosive to society, so they look for any excuse to shrink the government. Meanwhile the ordinary voter believes that money that is borrowed must be paid back, since they have only ever experienced being a currency user. Together this leads to silliness like a deficit super-committee in the midst of a global economic downturn.

    Ironically this confluence of incorrect analysis is bullish for USD, since the resulting incorrect decision is to make money scarce. What I’d really like to be long is the buckaroo: now there’s a well-run currency!

    Reply

    Gary Reply:

    @Paul Mineiro,

    I think it is human psychology: when you have something that gives you privilege over others – you will protect it. So the rich and powerful really value their privilege – which in the West is expressed in money.
    That is why the biggest fear is inflation and that is why giving government money to the poor seems so disturbing to the rich and powerful.

    So the idea that the state can spend as much as it wants should be kept away from broad public. Public should be constantly scared with inflation, hyperinflation, should be turned against the “lazy” poor and other distractions: abortion, gays, immigrants. Anything to protect the privilege. It is all very human.

    Reply

    Tom Hickey Reply:

    @Gary,

    It comes down to the “vig,” that is, claims on resources that can be extracted through economic rent — land rent, monopoly rent, and financial rent. Interestingly in this regard, ancient and medieval approaches to economics were chiefly concerned with matters related to this, like usury and just price. That concern is now considered “quaint.”

    Reply

    JCD Reply:

    @Tom Hickey,

    Please help me out. A man works and earns money wages. He trades the excess of his money wages for real property. He then trades the use of his newly acquired real property to another man for rent in the form of money. He’s so good at this he decides to stop working and enjoy the benefits of his prior labor.

    This is a problem?

    If so, what do you object to?

    The man saving excess wages? Trading those wages for real property? The man deciding not to work, even though he could? The existence of property rights in land? Or am I missing something and the objection is about how the man aquired the property in the first place?

    My line of inquiry is sincere. You regularly deride ‘rentiers’ here. Please forgive my ignorance, but I do not understand the issue or the objection.

    Gary Reply:

    @JCD,

    if I understand Henry George right (have not completed the book yet) – the objection is to the idea that somebody can claim monopoly rights to the land. Henry George classified all natural resources under land. I think now it should probably include other resources of national importance – communication etc.

    When land is privatized – some people are left landless and then become basically slaves to the ones that have land. For all people need access to natural resources to survive.

    So the idea was to still let the land be private – but tax away all gains resulting from monopolizing the land, and from improvements that society created on that land. Thus improvements that person did to his property – should be his, but increases to land value because of society’s improvements to the surroundings should belong to society.

    I may be missing something, but that is my understanding…

    JCD Reply:

    @Tom Hickey,

    Gary,

    Thanks for the reply. I’m not sure this answers the underlying issue. If your understanding is correct, Tom wouldn’t object to my hypothetical man investing his surplus wages into improvements someone else made in the land and earning rents on that.

    It would seem that he would object to rents being earned on certain kinds of assets, or perhaps by certain kinds of individuals, or even for certain motives. But Is their a blanket objection to the idea of someone collecting any kind of rent? If not, how does one define a ‘rentier’?

    Tom Hickey Reply:

    @JCD,

    It’s about a privileged class using their privilege to extract unearned wealth from the economy. If it were as simple as the example you give, then there might be something in your hypothetical. I am not talking about hypotheticals or models, but the actual state of advanced capitalistic economies in which a privileged class has emerged based on institutional influence. The objective is put established institutions between the people and the commons, the worker and the fruits of labor, and people and their money, in order to extract a rake off from these institutional relationships that is not commensurate with contribution.

    This is a free rider problem. There are always people that attempt to get a free ride through various means, be it crime, influence, or boondoggling. The folks at the top have used their influence in the media to focus public attention on the putative free rider problem at the bottom and in a related government “waste, fraud, and abuse,” thereby deflecting attention from the free rider problem at the top.

    The current protest on Wall Street is directly related to the free rider problem at the top.

    JCD Reply:

    @Tom Hickey,

    So what defines privilege? Who defines privilege?

    If I earn my money honestly, and trade it for assets that I rent, am I a rentier?

    What is the prescribed policy solution to this problem?

    Should we assume that all rich are privileged?

    Gary Reply:

    @Tom Hickey,

    @JCD

    I don’t think the issue is “renting” as such. The issue is taking over access to something and then restricting access of others to that essential resource or service, and then profiting from that.

    Wealth is ok, as long as it is not used to turn others into factual slaves by monopolizing essential resources and services.

    We are on this site – because the access to money is being restricted by money rentiers. In essence wealthy interests through propaganda are scaring the states into reducing their control of their own money.

    Tom Hickey Reply:

    @Tom Hickey,

    The distinction between earned income and rent is basically between productive contribution and non-productive extraction. Generally this can occur on a large scale only through institutional arrangements. The people that gain inordinately from institutional arrangements are the “privileged.” Moreover, a double-standard also applies to them legally, so that they are essentially isolated from criminal prosecution and often even from civil liability.

    JCD Reply:

    @Tom Hickey,

    Gary sez:

    I don’t think the issue is “renting” as such. The issue is taking over access to something and then restricting access of others to that essential resource or service, and then profiting from that.

    Gary I’m not trying to be snarky, but that’s the definition of property. My house is an essential resource. It provides housing to my family. I restrict access to that service to my family. I can do that because I paid for the house. I profit from that because I don’t have to rent a house or sleep in a tent.

    Are you opposed to me owning my house? Are you opposed to me restricting other people from using my house?

    I still don’t think this is an adequate explanation of ‘rentier’. Of course people want to own assets and use them for their sole benefit.

    I could make a word, say ‘wagier’ and define those who refuse to use their labor to benefit anyone save themselves as wagiers. Then I could broadly condemn wagiers as being unwilling to use their labor to better the rest of us. Why is that any different than rentiers? Why is earning income from property less legitimate than earning it from labor?

    I repeat that I’m not trying to be snarky. I’m just trying to discover what it is that defines a rentier in your minds.

    As for why I’m at this site, it’s to gain insight into how the economy works. I don’t share the same world view as other folks here, but the nice thing about MMT is that shouldn’t matter.

    Matt Franko Reply:

    @JCD, I dont think it would be a problem if you truly used your own savings to exchange for the rental property (ie 100% down).

    Problems seem to arise when our public/private partnerships (banks) are allowed to grant leveraged loans to entities to acquire the “investment” property without conservative underwriting. Then speculation comes in, NINJA loans, etc… till it all goes bust, and then the people who made a lot of $$ from commissions off the loan originations keep the balances they made off the deals with impunity, the banks become zombies and no one else can get a loan for a house to actually live in…. a real mess.

    If people had to truly put 100% down for investment property (like you’re talking about), I dont think the term rentier would have as much negativity associated with it, because rents would probably be more reasonable wrt incomes…. but the way they have been running things, it leads to a lot of “finger pointing” in times like these… Resp,

    Tom Hickey Reply:

    @Tom Hickey,

    The issue is really about access, for which institutions are the gatekeepers. I am not aiming my criticism against the small potatoes here, but against the upper quintile and more specifically against the upper 1% that dominates real and financial wealth in the US. Those lacking access to the upper echelons of the key institutions are shut out of the game. That’s just about everybody but the ruling elite, and they aim to keep it that way.

    JCD Reply:

    @Tom Hickey,

    So then we can replace ‘rentiers’ with ‘rich people’ or ‘those with access’?

    As I understand it the issue isn’t with how someone earns their income, it’s about how much wealth they have, and how much access they have.

    Do I have it right now?

    Gary Reply:

    @JCD,

    as I understand it:

    it is not about a house. It is about land. Yes, you owning the land restricts others from using it. However, it makes a difference if your land is in the middle of nowhere versus it being in the middle of the city. That is why the idea is to tax away the value that is given to your land through no improvement of your own (you did not build the city).

    Tom Hickey Reply:

    @JCD,

    Yes, it is basically about access. That is what constitutes “privilege.” There are various paths to access — birth as class determinant, wealth, power, and celebrity (aka fame, fortune and power) being the principle ones. There is a divide between no access and access, and there are many levels of access. It is very difficult to cross those levels in societies in which upward mobility is limited by institutional gatekeepers. In feudal times, the access was in measured in terms of one’s position in the court. Only court insiders knew the hierarchy and only the monarch not only knew but could change the pecking order at will. This kind of hierarchy has been replaced with different institutional arrangements, but the outlines are still there.

    In feudal time, access and proximity determined land distribution, which was fundamental in an agricultural society, With the rise of capitalism and industry things began to shift. Take, for example, the rise of the corporation. Corporations were and are still chartered by the state. Initially, these charters were accorded only to those not only with access but also proximity, just like land. Those who received these charters received with it a monopoly on rent gained from ownership in excess of productive contribution. This has been refined over time, but it still exists in other forms. That is to say, institutional arrangement have changed over time, but institutions still exist.

    JCD Reply:

    @Tom Hickey,

    Tom,

    Thanks for the better understanding. Now when I see rentier written, I’ll understand you mean those with access.

    Gary,

    I see your intent. You wish to remove the positive externalities that B, C and D have put upon A’s land through their efforts, and not his.

    Does it not also make sense for B, C, and D to reward A for the positive externalities that A has created for them by developing A’s land? Is this issue of economic rent not a two way street?

    Tom Hickey Reply:

    @JCD,

    The way that the thinking on land rent runs is that people with access give first dibs on cheap land that they know is going to be valuable due to public improvements and that they will gain way beyond their contribution, which is often “fixed” to begin with, again through access. This is what privatizing the commons has typically been about, and most great wealth was gained from this in the past, according to economic historians like Michael Hudson.

    How did Rick Perry become a multimillionaire while serving in public office practically his whole adult life? Primarily through sweet land deals, apparently. This is how access works.

    Under the concept of taxing land rent, only land is taxed and not improvements added by the owners. This prevents profiting from privatizing the commons by holding large tracts of raw land or obtaining mineral rights below value through access and rewarding cronies having proximity. On the way, the financial sector takes a rake off, too. This is a big way in which corruption works. For example, it is really huge as China privatizes.

    See, for example, Michael Hudson, The Theory of Rent Needs a Theory of History [Reprinted from Land & Liberty, Winter 1997].

    Gary Reply:

    @JCD,

    let’s say you buy land in the middle of nowhere, then build a house. If you will sell it – the added value will basically be of your house. If B, C and D moves next to you and builds their houses – the value of your land will not increase much.
    The value of your land will increase substantially when the road will be built, when the rails will be build, when hospital will be built, when schools will be built, and most importantly – when more people will move around you etc.
    So it is always the infrastructure and society that increases value of your land.
    Let’s say that you are extremely wealthy and that you built the school, the road etc. Still the value will increase substantially only if society will live around you. If there will be a slum and violence will reign around you – the land will not be worth much – and its worth will based on potential that society can be created around you.

    Gary Reply:

    @JCD,

    2.

    so it is really society that creates the value for your land. And so the idea is to tax that additional value and give it back to society.
    If that is not done – then as society evolves and builds around your property – the value of your property will keep increasing, the value of the land around you will keep increasing, making live expensive for people who live there, and thus taking increasing portion of their income to pay for rent. So eventually every improvement in technology, education etc. will reflect itself by further increasing value of land – thus not benefiting society, but benefiting land owner.

    So what makes land special – is because it is limited. If its price increases – more land will NOT be produced.
    So the same idea extends to other areas where access can be limited (either because that resource is limited, or through artificial limitations) – and profit reaped from that exclusive access at the expense of society.

    JCD Reply:

    @Tom Hickey,

    Gary,

    I think you’re missing my point. My point is this — There is no ‘society’. There are only individuals, namely, A, B, C, and D. I agree that B, C, and D created positive externalities for A when they improved property near A’s property. But A did the same for B, C, and D when A improved his own property. Why isn’t this a wash?

    As I understand your construct, A,B,C and D would now all owe wealth to ‘society’ to compensate for the land rent that they’re earning due to the fact that they all improved their land. And who exactly would determine what to do with this wealth? In a democratic society, A, B, C and D would.

    I think you’re missing two important issues. First there is no society. There are only individuals. No one can owe society anything. They can only owe it to individuals.

    Second, if you;re going to tax someone for the positive externalities he enjoys due to other individuals behavior (eg improvements of neighboring property), then it’s only fair and reasonable to benefit individuals in some way when they improve their property and thereby benefit their neighbors. Otherwise, you have the state claiming wealth from individuals with no obligation to distribute the wealth according to what created the benefit. Now the state can do what it wishes with the wealth (which may very well be to use it to benefit those with access to how the state decides).

    Tom Hickey Reply:

    @JCD,

    “There is no ’society’.”

    This is where I get off. That is a purely ideological statement. I can see there’s no sense continuing the argument. Let’s just agree to disagree about key fundamentals and save ourselves some time.

    JCD Reply:

    @Tom Hickey,

    It’s not ideological in the least. It’s a simple observation that society is merely a composition of individuals, and not an entity in and of itself. For the purpose of this argument I am merely saying that in a world of four individuals, if A owes something to society, ultimately that benefit must accrue to A, B, C and/or D in some. There is no one else.

    You are of course welcome to get off at any time if you do not like where the discussion is going. But I reject the notion that this has anything to do with ‘ideology’.

    ESM Reply:

    @Tom Hickey,

    @JCD:

    Very good point. This is I perhaps the most fundamental thing that people like Elizabeth Warren don’t understand. She talks about entrepreneurs who make a lot of money as if they were spongeing off society and therefore owe society something as compensation. But on net, the people who worked for that entrepreneur, who were suppliers for that entrepreneur, and who were customers of that entrepreneur, benefited from that entrepreneur’s hard work. This is not a zero-sum game. Real value was created, and even if “society” (by which Elizabeth Warren really means the “government”) gets a cut of the profits of exactly 0%, “real” society still benefited from that entrepreneur getting off his butt and actually building something.

    I am not necessarily advocating a 0% income tax rate, or even a 0% capital gains tax rate, but I think it could be justified from a moral standpoint (and certainly from the standpoint of economic efficiency). In any case, “society” isn’t even haggling about whether income should be taxed, or whether there should be progressive taxation (meaning higher rates for higher income). It is arguing about whether the tax rate should be 35% or much higher.

    To me, a rentier isn’t just somebody who benefited from “society” undeservedly (whatever that means). It is somebody who actively seeks to change the rules of the game in his favor after the fact (i.e. after the bets have been placed). For the most part, this can only be accomplished through political influence.

    Gary Reply:

    @JCD,

    there is a society. And society is more than just a collection of individuals. There are rules that society lives by that lets society survive as a whole. Those rules limit the rights of individuals. If there was no society and there were only individuals – those rules would not exist. There would be no point to them.
    A,B,C and D are not enough to create a society. You cannot reproduce the society’s model with that. There is no point to tax anything if that is all you have. There is no point for money, no point for laws (besides the “it’s mine!” and “get off my lawn!”), no point for education (besides how to maintain your self-subsistence farm and make a spear).

    In fact – the discussion becomes childish if we assume that there is no society. I guess by saying that there is no society you really mean that society is brainwashed to believe that individual is all that matters in society. But that only benefits individuals who do not want to limit themselves when behaving anti-socially.

    No individual would survive long without society. For people are social beings.

    JCD Reply:

    @Tom Hickey,

    Gary,

    I apologize for not being more clear in my communications. At the risk of belaboring the point I’ll try again.

    First, of course their are more than 4 individuals in any community. There are in many cases millions. But this does not change the fact that at the end of the day they are all individuals. Any thing that benefits society as a whole only does so because it benefits those individuals. Society is not an entity distinct and separate from the individuals, it is just the group of individuals together. This is what I mean by ‘there is no society’.

    As an aside, I am surprised that this is a controversial point. I think this is analogous to saying that something cannot help the forest with out having helped the individual trees. The forest is merely a collection of trees. Or the flock is merely the collection of geese. To help the flock, one must by definition help some of the geese.

    Of course any community has its rules and norms by which it lives. I don’t contest that point. Nor am I saying that I (or anyone) would be better off alone. My point is simply that if a person helps ‘society’, than that is identical to saying that he has helped a group of individuals in aggregate. Another way of thinking about this is that there is no way for someone to help society without helping at least some of the individuals in that society, and all of the help going to individuals. If the help hasn’t gone to individuals, than where did it go?

    An example. When one litters, he can be said to have harmed society. What does that really mean? To me it means that countless individuals have lost something by having there environment degraded. They have to look at a dirtier, messier world, and they are worse off for it. Each of us loses a little when careless people litter. I can’t say that society lost, and I as an individual am unharmed. I’m part of society! Society is a pass through entity.

    Draco Reply:

    @JCD,

    I wish to introduce a new term: the whinier.

    A whinier is someone who, when confronted with irrefutable logic in the domain of economics that leads to a conclusion he doesn’t like (typically that individualism and property rights are moral and rational and make the world a better place) begins flailing wildly and invoking terms like institutional privilege, access, social class, and the travails of history generally to explain why, even though the argument might seem clear cut, there are actually hidden forces and variables that would, if we could only understand them all, lead to the opposite conclusion (i.e. that individualism and property rights are bad, and lead to bad outcomes for society as a whole).

    Whiniers are often observed to spend an inordinate amount of time around universities, and very often have advanced degrees in the social sciences.

    ESM Reply:

    @Tom Hickey,

    @Draco:

    “I wish to introduce a new term: the whinier.”

    LOL. Let me know where to send the royalty checks, because I’ll be using that term frequently on this blog. I’ll add that whiniers are prone to feign offense and “get off” or to proceed to attack strawmen viciously when confronted with a “novel” (for them at least) idea like society comprises individual human beings rather than the grandiose ideas of greedy, condescending, and sanctimonious politicians.

    Gary Reply:

    @JCD,

    I will say it again: society is more than just a collection of individuals. Yes, society is made out of individuals, but sometimes for society to survive – individuals have to sacrifice something. So it is not always that helping society means helping each individual.
    That is irrefutable. I don’t think you will argue that prisons are needed. In fact most of those using phrase “whinier” most likely defend death penalty. So if society is just a collection of individuals – why such things are needed? You punish individual because he hurt another individual? But why? Well, because that hurts the society. You don’t want others to follow the example. Justice as such only makes sense when you have society. Religion only makes sense in society. Collection of individuals does not explain that. Even rights of individuals only makes sense when you have society. Otherwise who is to judge what you can do and cannot do?
    To me it is obvious that society is something distinct from collection of individuals. Yes – society consists of people, but bunch of people are not enough to make a society.

    You say that to help society you have to help individuals. What if your help to society was to convince them to go to war with some other society that is about to attack them them? Let’s say what Churchill did. How does that help individuals? By sending them to die? Or by saving them from possible later death that would affect more individuals? Difficult call. But there Churchill was concerned about society, and not individuals. Maybe to live under German rule would have been better for them? Who knows.

    Individualism actually conflicts with society. Individual freedom is limited by society’s rules. Property rights also has limitations that society places on them. For a reason. It is childish to assume that individual freedoms and property rights would lead to greater happiness for all.

    Regarding littering. You cannot explain that through individualism. What if some individuals really value their freedom to litter. What if some enjoy garbage? In fact there are some who do. Who will judge that? Only society can.

    Gary Reply:

    @JCD,
    @Draco
    @ESM

    I would like to read some explanations of abortions, gay marriage, and illegal immigration issues throught the view of individual freedoms…

    Usually those louding individual freedoms still oppose abortions, oppose gay marriage, hate illegal immigrants and defend death penalty.

    For me those views can only be explained if we recognize that society is more than a bunch of individuals, and that society can place limits (for whatever reason – stupid or sensible) on individual freedoms – and does.

    JCD Reply:

    @Tom Hickey,

    Gary,

    Slow down fella. Scroll back up the browser and check out how this thread started. I am just looking for a clear definition of rentier. I’m not trying to change your ideology, and you don’t need to change mine. Keep in mind this is a site about MMT. I’m trying to understand economics.

    Tom Hickey is regularly referring to rentier. The post that drew my comment had him calling rental income vig and deriding it. I honestly don’t see the issue the same way you guys apparently do. So I asked for a definition of rentier, and a reason for why it’s a problem.

    Tom dissembled and came back with something about privilege and access. He couldn’t clearly define which kinds of rental income are good and which kinds are bad. You started talking about land versus improvements and externalities. But none of it makes any sense to me, because you haven’t clearly defined your terms or your position. As a result neither of you could tell me what was wrong with my first simple example. And if nothing’s wrong with that why is their any thing wrong with making rental income? And if there’s nothing wrong with making with rental income per se, than what is all the hubub about?

    Still, it seems you and Tom just don’t like some people making income from rent of their assets. OK, fine. Your entitled to that view. But it’s not a view that’s based upon facts as I see it, it’s based upon emotion.

    Tom uses the term ‘rentier’ as an opprobrium, as if some one should be ashamed to wear a t shirt that read ‘rentier’ in public. To me it feels like the word ‘yuppie’ in the sense that one man’s yuppie, is another’s hard working professional. You guys can’t define it.

    If you can define it, let me know, because I sincerely am curious. In the meantime you should probably stop guessing at or trying to change my world view. You clearly have no idea what I think, and this is not where I go for enlightenment on the great social issues of our time. Let’s stick to MMT here, ok?

    WARREN MOSLER Reply:

    in the broad sense rentiers live incomes from investments such as stock, bonds, properties, etc. and not from current employment/current production of real output.

    so a further question might be with regards to what might be called the right to ‘retire’ and cease producing
    real output, and only consume, regardless of past performance.

    Gary Reply:

    @JCD,

    :)

    I guess Tom was smarter when he decided to leave after “no society” bit. I stuck around until “whinier” and “slow down fella”…

    I can say the same – scroll up a bit. I wrote up quite a bit explaining what my understanding of rentier issue is.

    You can also get Henry George’s book “Progress and Poverty”. There is one edition with modern editing that is easy to read (http://www.amazon.com/Progress-Poverty-modern-Henry-George/dp/0911312986/ref=sr_1_2?ie=UTF8&qid=1317569169&sr=8-2). Or check Michael Hudson’s writings on the subject – he uses the ideas in the modern banking context. They will explain better than me.

    I will sum up my understanding again:
    The idea concentrates on what it calls “unearned income”. It is income that is acquired by acquiring access to some resource, restricting access to it and then profiting from restricted access. Be it land, or some other natural resource, or money. The proposed solution is to tax that unearned income.

    So you A, B, C, D example would work if they were all in the inland and A would claim ownership of all island – or actually claiming ownership to parts with resources necessary to survival would be enough. So B, C, D would pay to A whatever he asks just to get access to that (let’s say it is drinking water).
    Or closer to home example – let’s say that A sells land with water to B, C, D but asks for so much, that B, C, D are forced to go into debt for 30 years (their productive life).

    Tom Hickey Reply:

    @JCD,

    “Tom dissembled and came back with something about privilege and access. He couldn’t clearly define which kinds of rental income are good and which kinds are bad.”

    That is a misrepresentation in that economic rent is a different concept from ordinary rental. “Economic rent” is a technical term in economics. I referred you to Michael Hudson, who is an expert in it.

    JCD Reply:

    @Tom Hickey,

    Tom,

    I’m familiar with the term Economic Rent. This conversation would have been a lot smoother if you had used it before now.

    So I take it then that your position is that a Rentier is a person who earns Economic Rents from an asset?

    And you broadly oppose rent seeking behavior?

    Is it linked to access? Privilege? If sow how? Can one get the first without the others?

    For instance, let’s say I do some research and conclude that there is likely to be oil under some land you own. You currently employ the land for farming, and charge a non-economic rent for the use of it. I decide to buy it from you at a price that reflects it’s use as farmland, not for its potentially valuable mineral rights. After purchasing the land and its mineral rights from you I discover an enormous amount of oil under the land that is easily accessed. I can now charge a huge premium for the oil that is extracted above and beyond the cost to extract it, thereby earning economic rents. I didn’t use any access or privilege to do this. Are you opposed to this?

    If so, which is it you oppose, earning economic rents, or using access and privilege to earn them? Or is it both, and why?

    Gary,

    Do you think that income that is earned by forgoing the use and enjoyment of a fairly and legitimately owned asset ‘unearned’? Does that include interest on money? Rent on Land?

    And should the fact that it is ‘unearned’ mean anything different from earned income?

    Warren,

    Do you think there is anything wrong in earning one’s livelihood from investments? Is rentier a term of opprobrium? Would you be proud to wear a Rentier t-shirt to a economists convention (since I’m guessing you are one)?

    To all,

    I’m still at a loss as to what it means that some one is a rentier. If I am one should I be taxed at a higher rate? Embarrassed? Forced to work? Is there something wrong to aspiring to live one’s life free of toil and allowing your fairly gotten property to work for you?

    And finally, I *am* sincerely trying to get to the bottom of this issue. I am certain that our philosophies of life do not agree, but frankly I don’t care. I don’t come here for that.

    Gary, if the comment “slow down Fella
    ” hurts your feelings, I suggest you get thicker skin. I’m not the one who thought that Gay marriage, abortion or illegal immigration belonged in this debate. That was you. Tom, if you disagree with my assessment that you dissembled in this discussion, I am sorry. I sincerely feel you hadn’t addressed my question to that point. That being said in this debate you have attacked my positions as being ideological, and dismissed me. I am resisting name calling and grandstanding.

    Apologies please for the rambling response. I have a lot to do around the house today and have little time for this …

    WARREN MOSLER Reply:

    the idea is that rentiers are consumers who aren’t contributing to output, and if they instead were gainfully employed producing real output the nation would presumably be that much ‘richer’ as measured by useful output.

    however, with labor a real cost, the question then becomes that of the cost of supplying your labor and having more to consume vs taking the day off, etc.

    So there is no actual ‘answer’

    just policy options that are political choices

    Sergei Reply:

    @Tom Hickey,

    JCD, I personally think that the problem is not so much with people receiving unproductive income (though I am still somewhat against it) as I am very much against people *not spending all their income*. Or lets put it another way: whatever income you receive, it has to be spent. Otherwise government has to step in and I am not super-big fan of it though I am not an Austrian fan either. So not-spent-income has to be taxed. Inflation used to be THE tool which ensured such outcome. However with inflation targeting central banks, this mechanism is dead which has lead to enormous accumulation of wealth and rent which flows from it.

    WARREN MOSLER Reply:

    i like people not spending their income
    means for the same size govt all of our taxes can be lower!

    ;)

    JCD Reply:

    @Tom Hickey,

    Warren,

    Thanks for the response. I’ll quote all of it because this goofy blog comment section won’t let me respond to you directly:

    the idea is that rentiers are consumers who aren’t contributing to output, and if they instead were gainfully employed producing real output the nation would presumably be that much ‘richer’ as measured by useful output.

    however, with labor a real cost, the question then becomes that of the cost of supplying your labor and having more to consume vs taking the day off, etc.

    So there is no actual ‘answer’

    just policy options that are political choices

    Does this fall into the “what have you done for me lately” category? I value my leisure, and am encouraged to work harder by the notion that today’s work will generate tomorrow’s leisure. If that were never possible, I probably wouldn’t have worked as hard in the past.

    And what time frame would someone use for this kind of calculation. An annual period is obviously tricky. There are all sorts of examples where high marginal tax rates encourage someone to work for part of the year, and then stop. Would it be reasonable to say to folks you can only consume today what you produced today? This hour?

    Out of curiosity, does this concern for underemployed resources extend to things beyond labor? There are idle cars and houses and bicycles and corn fields and toys and clothes and …

    Should we consider taking them from who owns them so they might be better employed and productive? Should we consider changing the tax code to encourage folks to do the same?

    What is the end goal of public policy? To maximize production? Maximize perceived utility? Minimize inequality? Minimize envy? Maximize liberty?

    I see this site as helping folks gain a better insight into the normative as well as positive workings of a non-convertible fiat currency. I’m not sure what this label rentier means, or why it helps achieve the site’s goal. That being said, I think I aspire to being a rentier. The idea of a life of leisure living on the backs of my assets seems attractive to me. If I have to work hard to get there, is that so bad? Presumably I will have done something good for society to be so blessed. Or then again, I could just win the lottery …

    WARREN MOSLER Reply:

    all good questions and considerations.

    just as an example, my permanent 0 rate proposal (see 0 is the natural rate of interest)
    means reduced nominal income for rentiers of all sorts.

    and I don’t support ‘savings incentives’ such as tax advantaged savings incentives like pension funds, etc.

    but you can still save all you want for retirement.

    JCD Reply:

    @Tom Hickey,

    Sergei sez:

    I am very much against people *not spending all their income*

    Really? What about setting aside assets for a rainy day? Retirement? Smoothing income over the years if you have a volatile income stream (think NFL players)?

    It’s a very natural human thing to want to save. What’s so bad about that? Is it too much to ask a nation of 300 million to find a few experts to manage the currency in such a way as to allow for that?

    Have you thought about what kind of state apparatus it would take to prevent people from saving? It feels monstrous to me.

    Please help me out here …

    Gary Reply:

    @JCD,

    “I’m still at a loss as to what it means that some one is a rentier. If I am one should I be taxed at a higher rate? Embarrassed? Forced to work? Is there something wrong to aspiring to live one’s life free of toil and allowing your fairly gotten property to work for you?”

    I think you miss the point. The question is not whether it is admirable to aspire to “live one’s life free of toil”. Sure, go ahead.
    The issue – as I see it – is simply: what to tax?
    If we know that something has to be taxed – and we do – then is it better for society to tax those who work, those who buy, or those who have? If we want to encourage productivity vs idleness, and if we want to encourage trade vs hoarding – we pick “those who have”.
    Then we have to determine – who have what? Money? Buildings? Land? Natural resources? It makes sense to start from those things who would not decrease productivity and trade if taxed. That is – land. So there you have it. It also makes sense to tax natural resources – although that would increase prices – but natural resources are finite.
    That would be a good start, IMO.

    You can still acquire a lot of land and then charge rent for it. But you would pay taxes for possession of land. Does not seem fair to you? Is current taxation fairer?

    JCD Reply:

    @Tom Hickey,

    Gary,

    Really? This whole conversation comes down to what to tax for you? And the one thing you want to tax is ownership of land? If so, I apologize for having troubled you.

    Fine by me, but I don’t think it’s going to achieve a whole lot. And you may not like what change does occur. In your choices for what to tax, you ignore the existing choice — those who earn (which is distinct and different from those who work). Income taxes are very progressive, and also are good automatic stabilizers. Property taxes are neither. Rich people can avoid owning land pretty easily. Also, if the tax is too high, it won’t be paid and the land will find its way onto county rolls (state ownership).

    Still, scrolling back up to the top of this thread, I don’t think this was the cause of the objection. You and Tom and Paul were decrying privilege and the desire to earn rents by those who have it. I’m not sure replacing income and wage taxes with real property (land only!) taxes will satisfy you, but if that’s the extent of your objection (property taxes on land are too low), ok.

    Sergei Reply:

    @Tom Hickey,

    JCD: Really? What about setting aside assets for a rainy day? Retirement?

    We are not talking about people saving for the rainy day here. Please do not change the topic or take this topic to extremes. Nobody here expects any idea to be expressed just in one sentence maximum one line long, correct?

    JCD Reply:

    @Tom Hickey,

    Sergei,

    I took your comment at face value (as a matter of naivete it would seem). With all sincerity, I apologize for that.

    Please assist me then, what is it that you meant when you said:

    I am very much against people *not spending all their income*. Or lets put it another way: whatever income you receive, it has to be spent.

    If some people can save, who? How much? If others are not allowed to, who is that? Are there criterion for deciding? Who establishes, and/or modifies the criteria? Are you concerned with saving NFA solely, or does hoarding other forms of wealth (e.g. Gold, baseball cards) concern you.

    Are you concerned that this saving will be a drain on productivity, and must be made up from dis-saving elsewhere? Will this come from the government sector? From the private sector? The foreign sector?

    Do you have any ideas how you would enforce your rules? Does it trouble you that some folks might find these rules burdensome, intrusive and an infringement on their liberty? Are you relying upon a high degree of compliance to maintain this financial regime?

    Gary Reply:

    @JCD,

    “Really? This whole conversation comes down to what to tax for you? And the one thing you want to tax is ownership of land? If so, I apologize for having troubled you.”

    The rentier part of conversation I think eventually leads to taxes. Land is the classic example – and that should come first. But there is no reason to stop there.
    It does make sense to tax unproductive, speculative sectors first.
    Of course, I see that you object to that – as your aspirations are to become (or continue being) a rentier – but it is obvious that taxing productive endeavours and trade is worse.

    Anyway, I don’t see the change happening.

    The public does not view economy in terms of “earned” or “unearned” income. There is some instinctive recognision of injustice – and that will intensify, I think. But specific rentier behavious are not identified. So you are definitely safe in pursuing your rentier dream. The most that will be done – is maybe some the most blatant banking practices will be restricted (if that).

    Tom Hickey Reply:

    @Tom Hickey,

    I don’t see what I would call minor rentierism as a significant problem. The desire to achieve financial independence is a productive incentive and should be encouraged. The problem is with major rentierism, which is not concerned with achieving financial independence but rather accumulating claims on resources far beyond reasonable need and aggregating power in order to gain advantage.

    This thread began with my remark about the “vig,” or rake off, i.e., wealth extraction due to systematic extraction of economic rent in the form of land rent, monopoly rent and financial rent through the economic power of large institutions, such as Michael Hudson describes.

    I think we have to distinguish between the small investor, so to speak, who simply wants more freedom in life and those sitting at the top of the heap who wish to aggregate as much of the pie to the top as possible. What is especially detrimental is when this is done through tipping the playing field institutionally. My emphasis is on institutional and systemic issues that introduce distortion.

    Those who object to labor increasing its bargaining power through unionization should recall that labor did not start this conflict. It arose in reaction to attempts to reduce the bargaining power of labor and tilt the playing field toward capital. One distortion calls forth is complementary opposite. This is the historical dialect. One can view this in terms of a system seeking to restore equilibrium.

    JCD Reply:

    @Tom Hickey,

    Tom,

    Once again, I think I have to point out here that although you use the term rentier, it’s not earning income from rents per se that you object to. It’s the use of privilege and access to secure such income that you object to. I am curious then why you persist in using an inaccurate term. Why not call it what it is?

    I mean I even did the hard work and coined the term pvivilegeur for you! :)

    Look above at your last post. I will restate it using the new terms, and I think it will make more sense to you and everyone else:

    I don’t see rentierism as a significant problem. The desire to achieve financial independence is a productive incentive and should be encouraged. The problem is with privilegeurism, which is not concerned with achieving financial independence but rather accumulating claims on resources far beyond reasonable need and aggregating power in order to gain advantage.

    Doesn’t this make more sense?

    Tom Hickey Reply:

    @JCD,

    The fact is that we don’t get to define our own terms in economics unless we coin new ones. Lots of problems arise when we start attaching different meaning to terms already in general use. There is also the problem of technical use, which can be confusing to people not familiar with the technical use. This is true of the term “rent” as it is used technically by economists and its ordinary in everyday language.

    But we can qualify existing terms to specify how we are using them in context. That is what I have tried to do.

    Sergei Reply:

    @JCD,

    JCD: If some people can save, who? How much? If others are not allowed to, who is that? Are there criterion for deciding? Who establishes, and/or modifies the criteria

    I am not against saving as such but against *excessive* saving. What is excessive depends on many things including institutional structure of the economy. So in some countries, like Japan, 200% of GDP might be justified but in others even 50% might be too much. To large extent it is is a political question as obviously the institutional structure is.

    But taking an arbitrary x% of GDP (in current metrics being public debt) the simple solution is simple :): every citizen gets a free savings account at the CB where he/she can save upto the nominal limit of per capita nominal GDP and it will be fully indexed to consumer inflation. Everything above that limit is subject to private sector bla-bla-bla but it also implies that FDIC is gone. Surely government stops issuing any bonds and monetary policy, if there is still a need for it, is implemented via bank tax rather than IOR.

    JCD Reply:

    @Tom Hickey,

    Sergei,

    Would you restrict cash holdings? Would corporations be allowed to hold dollar balances? Foreign CB’s?

    Would you allow private label currency to circulate side by side?

    -Jim

    Sergei Reply:

    @JCD,

    Cash is fine. Inflation is THE redistribution mechanism. It is the most fair one btw.

    JCD Reply:

    @Tom Hickey,

    So why do you need to restrict savings at the CB account. Discourage them with inflation …

    -Jim

    WARREN MOSLER Reply:

    so what’s wrong with,
    for a given size govt and given savings behavior
    adjusting taxes for full employment, etc?

    Adam (ak) Reply:

    JCD,

    Let me wade into this discussion as I am back in town.

    The proper definition of rent is an income from usury that is from lending someone X and expecting X+Y to be repaid. Marx would say that this is M-M+ circle. It is not true that there is no such thing as a society, only the individuals. If this was true what are all these people with the rifles, tanks, missiles and nukes doing? Is the President who is authorised to annihilate the world with nukes merely a random individual like anybody else or is it his position within (or at the top) of the superstructure what allows him to be the master of all the living organisms on Earth? Only when we realise that there are multiple human societies and these societies are organised in states, corporations, trade unions, churches, families etc. we can start analysing the phenomena I am talking about, including the moral (again, morality is a social phenomenon) issues related to debt, usury and rental profits.

    Jesus and Mohammed both grappled with the issue of usury. Islam explicitly bans usury but allows for shared investment to employ idle monetary resources to get profits. Maybe this is a solution? The system seems to be very stable.

    Debt is one of the most predominant themes in the history of modern human civilisation. Again I can only recommend reading the following book to get an an overview of the issue from the anthropological point of view: http://www.amazon.com/Debt-First-5-000-Years/dp/1933633867

    To say that “there is no issue” and “we are all individuals A, B and C” that it’s perfectly OK to organise things in such a way that I either have to rent a house or borrow money from a bank to have a place to live (as saving $200k in Australia is not easy) is the pinnacle of intellectual self-delusion. Should I live in a caravan? No issue with that, we are all individuals. But if I don’t want, I HAVE to borrow. I am force-fed with debt. Then I have to work for a wage and accept certain contractual agreements. It is not that I am seeking exclusive property rights for myself. I do not care about the property rights. I have lived more than 50% of my life already so I am asking what benefit will I have from all the property rights when I die? What I am looking for is merely getting rights to use some physical objects.

    I recently went on holidays to Northern Territory. You cannot buy a block of land with a building permit for less than $60k even near the defunct uranium mine! This is how the government and the real estate lobby have created the perfect mechanism for the exploitation of immigrants (like me) and the young people like my children. (OK there are places in Australia where one can buy a cheaper property but I would not find a job anywhere near).

    So there is a social issue of debt and charging interests (“rent”). This issue is again as in the ancient times the critical problem facing our society. The excess of the private debt has caused the current crisis in the US. The current battle of New Orleans is about saving the system where the sole issuer of the currency is the private banking system and all the currency is backed by the private debt. The monetary monopoly of the banking sector allows the class of parasites and leaches (“rentiers”) to constantly extract blood from both workers and entrepreneurs by running the M-M+ circle. Yes the true entrepreneurs (capitalist) who want to run M-C-C+-M+ circle also do suffer in the current model. But everyone is encouraged to play with M-M+ as we are forced to save for the retirement in the superannuation funds. So Marxist monetarists like Paul Keating (in Australia) or prof Balcerowicz (in Poland) managed to modify the class consciousness of every worker – now we are not only workers but also parasites and everyone has a skin in the game.

    That’s why MMT is so dangerous because it openly states that there is no objective monetary monopoly of the banking sector, there is no sovereignty of global rating agencies and the state can issue currency which is effectively not backed by debt (but merely constitutes the tokens of exchange) and that model may lead to better allocation of resources. There is no intergenerational debt issue and social security system will never run out of money.

    Please do not think that I am a communist. Because I lived in communism (“real socialism”) I hate every system which is based on the monopoly of power (and the monopolistic property rights) of a certain social group (be it the Communist Party or 1% of the richest individuals).

    The current system based on extracting usury from everyone will end up on the rubbish dump of the human history because it pushes workers into debt peonage and eats away the profits of the entrepreneurs. There are other economic systems possible on our planet, not to mention the amorphous system with elements of laissez-faire capitalism and market socialism present in China. When the era of cheap natural resources is over, the West will enter its second Dark Age – unless we reform the capitalist system so that fake financial capital created on demand by the banking system does not compete with the real productive capital. Widely-defined credit (it can be based on Islamic Finance) is needed to sustain the investment and production and to share entrepreneurial risk. It is not needed to fuel the overconsumption binge and push everyone (except the 1% of the richest) into the debt peonage. We either realise this or our Western culture will perish.

    PZ Reply:

    @Gary,

    My view is that capitalism is good servant, but bad master. People realized in the 19th century that if left alone, it produces socially unacceptable outcomes. That’s why Marx developed his theory of labor exploitation. Whether we define rentier-income as a result of labor exploitation is just matter of semantics. Obviously we need rentiers to make capitalism work, but capitalism should be molded to serve interests of majority. Modified capitalism should be used as a tool to provide good living standards to the people as a whole, rather that allow unrestrained capitalism to provide good living standards to the rentier class.

    And I recon any person whos income wastly exceeds wage earners income could be labeled rentier because they have acquired claims on production of real goods and services that ultimately other people have to make. It’s funny how wage earners intuitively understand that if they demand high wage raises cost of produced goods and services go up, there is no free lunch there. But those on high incomes seem to think that money grows on trees, that if they increase their multi-million dollar incomes that’s not taking anything away from anybody.

    Reply

    Gary Reply:

    @PZ,

    “high wage raises cost of produced goods and services go up”

    this is because wage earners actually spend most of their wages.

    While the rich “invest” – that is their money is used by specialized (financial) institutions to extract (unearned?) value from the rest of the economy.
    So the rich keep accumulating money at the rate that is much much faster than the wage earners – and thus the divide – and the privilege – keeps increasing.

    The more “free market” is the system – the more privilege is concentrated in money. So the more money the rich accumulate – the more privilege they accumulate. And the more they have – the more they will protect it. So market will keep getting “free-er”.

    Djp Reply:

    @PZ,

    “And I recon any person whos income wastly exceeds wage earners income could be labeled rentier because they have acquired claims on production of real goods and services that ultimately other people have to make.”

    I am enjoying trying to get to the bottom of the definition of “rentier”. But this seems a bit of a broad stroke, and probably not quite in line with others’ definitions.

    What income would qualify as “vastly exceeds”? And is it income or wealth that you are concerned with?

    This definition would mean that any successful entertainer is a rentier, and any successful inventor as well.
    JK Rowling — rentier
    Steve Jobs — rentier
    Elton John — rentier
    Noam Chomsky — rentier
    George Lucas — rentier
    Oprah — rentier
    Tom Brady — rentier
    james dyson — rentier
    gordon moore — rentier

    Tom Hickey Reply:

    @PZ,

    xThis definition would mean that any successful entertainer is a rentier, and any successful inventor as well.
    JK Rowling — rentier
    Steve Jobs — rentier
    Elton John — rentier
    Noam Chomsky — rentier
    George Lucas — rentier
    Oprah — rentier
    Tom Brady — rentier
    james dyson — rentier
    gordon moore — rentier

    Anyone receiving monopoly rent is a “rentier” according to the definition. The questions is whether most of these people would continue to perform in substantially the same ways for less remuneration. Examining other societies, the answer seems to be yes.

    This goes for a lot other people who are not as well remunerated but who receive substantially more relative to those of similar qualifications in most other places. For example, one of the problems in US health care is the compensation structure in the US versus in other health care systems. That’s one reason that health care is much more affordable in other systems. (Of course, that is not the only reason.)

    These are issues that most Americans are not well aware of for several reasons, the primary one being cultural where the Horatio Alger myth still applies. Secondly, most people are not aware of comparative economic systems, or even of their own. For example, polls show that most American think that the US is far more egalitarian than it actually is and that other countries compare much less favorably to the US than they actually do.

    JCD Reply:

    @PZ,

    Tom,

    How about the teachers in my local school district that are at the end of a very lengthy career, and are earning well above market rates, due to school district-union contracts?

    They feel like privilegeurs to me. (I like my term better) :)

    Tom Hickey Reply:

    @PZ,

    How many Oprahs or Steve Jobs do you have in your school district?

    Matt Franko Reply:

    @Tom H., I think Steve Job’s I-Phone is rent seeking….way too expensive! and they make you sign up to a so-called “plan”. Which is a multi-year, personally guaranteed SCREW DEAL for young people. I think this is an example of influence on the regulators who write regs to make sure it happens that way.

    For our European friends here: Is this how they do it in Europe? ie make people sign up for multi-year screw deals? Or do they buy the phone and then purchase pre-paid minutes on the carrier of their choice which allows true competition?

    Resp,

    Tom Hickey Reply:

    @PZ,

    Matt, most monthlies are rent-seeking schemes. It all started with mortgages. Other people in finance saw that just about everything could be monetized on a similar model. So autos became the new houses, and it was downhill from there. When credit cards replaced store credit, it really blossomed. Then most big companies started their own finance companies instead of letting the banks take it all. Consumer credit has been pretty much an American thing until fairly recently, though.

    Prior to the consumer credit revolution, the prevailing thought was that credit had to be for productive investment so that it could pay for itself. Residential RE is booked as investment rather than consumption. It was difficult for most people to get much consumer credit before the Seventies. The expansion of consumer credit is what really transformed the US economy, and it lasted until it became unsustainable. We are still working through it and several debt bombs are yet to explode, like student loans.

    ESM Reply:

    @PZ,

    @Matt/Tom/DJP:

    According to the definition of rentier that has been bandied about here (and which I believe has not been defined adequately at all), Apple is one of the rentierest companies in the world. Their profit margins are amazing, and much of their success is due to a powerful brand. And Steve Jobs has been paid billions in part because he was in the right place at the right time.

    However, those who complain loudest about rentiers always seem to be cool with Apple and Steve Jobs, and even cite such comfort with Apple’s profit margins and Steve Jobs’ billions as evidence that they are not really against capitalism.

    Of course, the real reason that whiniers don’t mind Steve Jobs making billions of dollars is that they really like their iPods, iPhones, and iPads. They don’t like ExxonMobil so much because the gasoline they put in their cars doesn’t really have the same “coolness” factor.

    WARREN MOSLER Reply:

    I see rentier incomes and monopoly profits as two different things but I do recognize the conceptual overlaps

    ESM Reply:

    @PZ,

    @JCD:

    “How about the teachers in my local school district that are at the end of a very lengthy career, and are earning well above market rates, due to school district-union contracts?”

    Right, JCD. The purest example of a rentier is a union. Here you have an organization, sanctioned and protected by the federal government, which is designed solely to prevent a willing employer from hiring a willing employee in a free labor market. It is absolutely mind-boggling that such a thing could even be legal, let alone be promoted and protected by the law.

    Matt Franko Reply:

    @ESM, Illness or not, I think he is “gettin’ out while the gettins’ good”… and these “plan” receivables may be the next class to implode (Tom, along with student loans)…to your point about price points on gasoline vs Apple stuff; it has been said that people dont mind paying up for what they WANT, but hate to pay anything for what they NEED…

    I’d really like to know how they do 3G/4G in Europe if any one over there can comment…

    Also agree the term ‘rentier’ hasnt been adequately defined here… here’s wiki:

    http://en.wikipedia.org/wiki/Economic_rent

    Resp,

    Tom Hickey Reply:

    @PZ,

    If you notice, I say that I am fine with Jobs’s billions to the degree that they do not accrue from monopoly rent. I haven’t entered into an analysis of this since it brings up several very touchy areas involving intellectual property and how this relates to extraordinary privilege and economic rent. Intellectual property is a huge thing and it is going to be increasingly to the fore in globalization. The emerging countries already find this very contentious. The open source movement was instituted to undermine this special privilege.

    WARREN MOSLER Reply:

    even better if he doesn’t spend them, so our taxes can be that much lower and we can consume for him

    Matt Franko Reply:

    @PZ, Tom re: “open source”; Jobs is making Gates look like a boy scout (look at what he did wrt Flash, mp3, etc..) and btw Winterspeak has been following a lot of the behind the scenes BS wrt patents that has been going on…

    I just got an Android OS LG Optimus from my broker for FREE and went with Virgin Mobile (a Eurocentric enterprise) for $25/mo prepaid no contract which includes 300 voice min/mo (I keep it short and sweet) and UNLIMITED 3g text/email/web/wifi. I know young people who are signing up for 125-150/mo FOR 3 F-ing YEARS (guaranteed!) for about the same service from Apple/Screw Wireless Co.

    Where is the government in this? Aiding and abetting.

    Resp,

    Neil Wilson Reply:

    Except of course, ESM, there is no such thing as a free labour market.

    In any free market situation you have to have the ability to say ‘no deal’

    Which is difficult when the alternative is starvation.

    Only an Employer of Last Resort scheme can make labour anything like a free market.

    kkken530 Reply:

    @PZ,
    @ ESM. the employer can hire anyone he wants,but then the hiree must join the union,otherwise he would get the results of the unions bargaining for free.
    @ neil wilson. An employer of last resorts or some other means of having a basic income,such as a negitive income tax,or a citizens dividend. As automation and computers do more and more of the work,the need for human labor will decrease. Unless we want to have some people digging holes for others to fill,we’ll need a means of providing basic income..

    ESM Reply:

    @PZ,

    @Kkken (I hope that’s a Fish Called Wanda reference and not something else):

    “@ ESM. the employer can hire anyone he wants,but then the hiree must join the union,otherwise he would get the results of the unions bargaining for free.”

    The union is still interfering in a free labor market transaction, and it should butt out. In many cases, a work force at a company is unionized after the fact, and workers are forced either to join the union or lose their jobs.

    And, not that it matters, but I don’t even see why it has to be the case that a non-union worker benefits from the union’s bargaining. The union work rules, wages, and benefits don’t have to apply to non-union workers. Have you ever heard of a company where everybody is paid exactly the same, or has exactly the same work hours?

    ESM Reply:

    @PZ,

    @Matt:

    “it has been said that people dont mind paying up for what they WANT, but hate to pay anything for what they NEED…”

    Understood, although I’ll point out that in an advanced economy like ours, there is literally no specific product provided by the private sector which is NEEDed. There are only products that people WANT. I suppose I need running water at the tap, but I can only get that from the water utility. I do need to eat too, but there is no one food that I have to get from a monopoly supplier. For example, if the corn flakes at Stop & Shop costs too much, I’ll buy the cheerios at Shaw’s instead. I need food to survive, but I don’t need corn flakes from Stop & Shop, specifically. Or gasoline from ExxonMobil.

    Sergei Reply:

    @PZ,

    Matt: “I’d really like to know how they do 3G/4G in Europe if any one over there can comment…”

    There are plans but they come with subsidized phones. And there is no difference if you bring your own phone, i.e. you do not get a cheaper plan. But you can do it of course. So it is better to get a subsidized phone and then sell it on ebay.

    At the same time in a country where I live you can get a pretty much unlimited calls, sms and internet for 20 or so euros a month. You can even get some intra-EU calls/sms and even some minutes of intra-EU roaming. Personally, I would not call it “rent” as I consider it almost outrageously cheap :) I have some friends in the mobile business who tell me that the competition consistently undercuts itself. However the problem with this is that the advertised speeds and reliability became somewhat sloppy recently. But then they also tell me that average per subscriber (fixed line) traffic is going upwards 50gb a day and I am not so much surprised. And I probably use only 200mb of that :)

    There are also offers which are technically plans but you can switch/cancel any time you want. I use one for my daughter’s phone and it includes 1k minutes, 1k sms, 1gb traffic for 9.90 euros a month.

    Tom Hickey Reply:

    @JCD,

    Ideally, economic rent — land rent, monopoly rent, and financial rent — would be taxed instead of productive contributions like income earned from productive contributions and productive investment. As I have said, I have no problem with Bill Gates or Steve Jobs, or their primary investors becoming billionaires through their productive contribution. (If monopoly gains were involved that is another story.) Excessive rent-seeing behavior can reduced in ways other than taxation, such as institutional reform. This is Michael Hudson’s position that I agree with and am repeating.

    It would not be necessary to eliminate all economic rents, however, just to discourage rent-seeking as a replacement for productive activity, as well as in using taxation in functional finance. The amount of net financial assets that would need to be withdrawn would be far less than the total of economic rent. The dimension of problem that is concerning is the systemic consequences. This disrupts innovation and productivity, results in concentration of income and wealth, and it also adversely affects effective demand, and acts against public purpose. These consequences are generally due to access and privilege, i.e, collusion between the upper echelon of the private sector and government. It is basically corruption, even though it may be made legal, again through access and privilege.

    Many economists that have looked at this conclude that taxing land rent is sufficient. Rent-seeking that is seriously reduces efficiency in commerce and finance can be eliminated through institutional changes such as he proposes. This, as I understand it, is a position with which Warren agrees. He can clarify if I have not understood him correctly.

    Distinguishing economic rent at the margins is difficult and unnecessary. The obvious cases of land profiteering, monopoly in commerce, and non-productive financial transactions are sufficient without having to get into the fine point of exact borders between productive and non-productive. Limited rent-seeking by individuals is not a big deal. Systemic rent-seeking that adversely affects the economy is. However, corruption in every guise, which usually involves access and proximity, must be addressed; otherwise, like weeds in a garden it has a way of growing and sapping the system.

    Reply

    JCD Reply:

    @Tom Hickey,

    Tom,

    Just found this reply down here. Thanks.

    Without a direct answer to my question, I’ll read between the lines. You seem to be more concerned with abuse of access and privilege, than with the earning of economic rents per se. I’ll assume that’s true, and continue.

    In the example I gave above about me buying your land where I thought there was oil, my motives are purely rent seeking. I wish to generate economic rent from producing oil at a marginal per barrel cost well below it’s market price. I think that the end result has a positive affect on society. More oil is produced than would have been without my efforts. I think society could be much better off with my finding that one oil field than any benefit I could have offered for the rest of my life as a plumber for instance. I find it hard to come up with a good reason to object to this, or to tax the behavior.

    If you object to the idea that I use my access to the government to buy a sweet heart lease of mineral rights on government land where everyone knows there’s oil, I agree. That’s abuse of access. To me the problem there is with the government as well as with the privileged lessee. corruption is about abuse of power, not just unsavory motives.

    If my reasoning is correct, than I think rentier is a poor term. Earning economic rents is not the issue, it’s unjust privileged rents that are.

    Perhaps the term should be privilegier? Or is it privilegeur?

    Tom Hickey Reply:

    @JCD,

    I don’t wee your example as rent-seeking, but entrepreneurship and innovation in that it involves putting capital at risk, or else pure luck in a purchase. No problem with that. Happens all the time. But what happens after that? The history of Texas is replete with this. Oil wealth led to access and proximity, and often outright corruption as well — quid pro quo.

    I have been attempting to emphasize that there are many issues involved in economic rent. I am most concerned with the systemic effect of economic rent, especially when it is amplified by what I would call corruption, even though it may not be illegal technically in a particular jurisdiction, or is not “noticed” if it is illegal, often due to the operation of influence.

    Other aspects of economic rent are undesirable to the degree that they introduce distortion and inefficiencies.

    In a perfectly competitive market in which the monetary authority successfully adjusts effective demand with full employment and price stability by compensating for changes in private saving desire, price and value are always synchronized and resources are distributed efficiently and effectively wrt market participants preferences. However, markets are not perfectly competitive and the monetary authority seldom makes the appropriate adjustments. Therefore, price and value can become distorted (bubbles form), market inefficiencies develop, and market participants preferences are not met.

    The solution for a capitalistic economy is to eliminate or reduce market inefficiencies where possible. Economic rent is one area that leads to inefficiency. Crime and corruption are also significant factors, especially when they become systemic.

    Obviously, it is not possible to eliminate all economic inefficiency so as to create a perfectly competitive marketplace in a complex modern economy without drastically changing the entire system, which is impractical. However, it is possible to eliminate or reduce the most significant cause of distortion through well-designed policy, legislation and regulation, oversight, and accountability.

    The place to start is with the obvious. As Bill Black has shown, economic rent was not involved in the financial crisis as much as crime — blatant fraud extending right to the top of major organization, which were then able to use assess and proximity to influence the top echelon of government in their favor. This is what the grass roots Tea Party objection to the bailouts, and now Occupy Wall Street, are largely about.

    The issue regarding economic rent I am pushing is systemic. There is a very long way to go before we need to consider the margin between productive and non-productive. We can start with the criminal and corrupt, and that will go a long way to resolving some of the major distortions.

    Then switching to taxing land rent and reforming commerce to reduce monopoly rent-seeking through anti-trust and reforming finance to reduce financial rent-seeking by limiting banking to intermediation woud round it out.

    I don’t see any small players being affected adversely. Most would be better off, since they would be getting a fairer shake with a more level playing field.

    JCD Reply:

    @Tom Hickey,

    After reeding umpteen of your posts on this topic, it doesn’t seem to me that you’re opposed to economic rent, or even rent-seeking. What you *are* opposed to is corruption. I’m not sure why you focus on economic rents at all. I join you in a full throated objection to corruption.

    Here though it seems our paths part ways. I would attempt to solve things by reducing the level of power and involvement of the state in our affairs. I feel that this would have the greatest likelihood of success. I suspect you don’t agree. Fine, to each his own.

    All of that being said I think it’s silly to continue to use the term rentier or focus on rent seeking. Your objection is to corruption, access and privilege. Have the courage of your convictions, and object to that.

    Tom Hickey Reply:

    @JCD,

    Political corruption is institutional. It is not illegal under present law in the US. So it is not just “corruption.” It is institutional arrangements that incentivize systemic rent-seeking as well as enable quasi-legal practices that are difficult to prosecute successfully.

    As you say, I am chiefly concerned with corruption and systemic rent-seeking, which are two sides of the same coin, because they are responsible for major distortions. I don’t see whittling government per se as helpful, because the institutions involved would remain. What is required is institutional change, and some of this likely will involve amending the constitution, as Dylan Ratigan has proposed, for instance.

    Gary Reply:

    @JCD,

    So what do those interests gain through restricting access to money by the states?
    They gain increasing power because they already have access to money.
    Also – they try to make sure that the money that they have retains its value – or increases it.

    So importance of private banks and financial institutions increases. They don’t mind that states provide the money to them (in fact they rely on that) – but they DO mind if money is provided for the needs of the rest of the public.

    Reply

    Neil Wilson Reply:

    ” it’s about how much wealth they have, and how much access they have.”

    I’d say its more about monopoly.

    A bad rent is one that relies upon monopoly power – you can prevent anybody else from competing with you.

    Capitalists crave monopolies and try to gain them wherever they can. A balanced society should be constantly striving to find monopolies and eliminate them because they are bad for consumers.

    You need to get the tension between the individual’s desire for monopoly and society’s desire that there should be no monopolies right to allow things to advance at the optimum speed.

    Reply

    Tom Hickey Reply:

    @Neil Wilson,

    Neil, as I am sure you realize, it is very difficult to obtain and maintain a monopoly position without access. The exceptions only prove the rule.

    Reply

    JCD Reply:

    @Tom Hickey,

    Tom and Neil;

    In all the hubbub, I missed this post down here. Tom, this is exactly my point. I’m glad to see we agree. The issue isn’t the earning of economic rents. It’s the use of privilege and access to get them and secure them that is so troublesome.

    Tom Hickey Reply:

    @JCD,

    Yes, that is the “vig,” or rake off, and sometime even shake down.

  11. JCD says:

    Is this in iambic pentameter?

    Reply

    ESM Reply:

    @JCD,

    To cut, or not to cut, that is the question:
    Whether ’tis nobler in the mind to suffer
    The slings and arrows of budget hypocrites
    Or to take arms against a sea of red ink,
    And by opposing bring diminished fortune?

    Reply

    Mario Reply:

    @ESM,

    love it!!!!

    Reply

    WARREN MOSLER Reply:

    thanks!

  12. JORGErl says:

    Why has no one at MMT done the “research” about the limits of spending and it’s impact on inflation…I know it’s any point past “full employment” and utilization and that current increased spending shows that a historic % increase STILL does not produce the feared outcome etc.

    I think a “study” would help clear that out and take the annoying “touche” reaction one get’s when discussing MMT.

    Reply

    Rodger Malcolm Mitchell Reply:

    @JORGErl, Well, there has been a bit of research: http://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation/

    Since that magical year 1971, there has been zero relationship between federal deficit spending and inflation.

    Reply

    Gary Reply:

    @Rodger Malcolm Mitchell,

    this is great! Thank you.

    Reply

    Clonal Antibody Reply:

    @Rodger Malcolm Mitchell,

    Just for reference here is a graph of inflation and deficit as a percentage of GDP

    Reply

    Gary Reply:

    @Clonal Antibody,

    Thanks.

    This does correlate!

    Rodger compared Federal Debt Held By private investors vs CPI
    This graph compares deficit as a percentage of GDP – and the deficit appears to lead CPI.
    Interesting.

    I did see other graph on Rodger’s site where he compares M3 vs CPI and that does not correlate.

    Don’t know what to make of it.

    Clonal Antibody Reply:

    @Clonal Antibody,

    Also, just for reference, the correlation coefficient between the two is 0.036 or a Rsq of 0.001 — In other words, no correlation at all.

    If you lag inflation by a year or two — assuming that if I run a deficit this year, inflation will show up next year or the year after, the correlation coefficient between the two is negative -0.15 for one year, and -0.23 for a two year lag and -0.16 for a three year lag.

    So running a higher deficit this year, will show some inflationary impacts in the future. But, it should be noted that inflation has been low, over the 65 years shown, other than the two spikes that were induced by the two oil crises (OPEC and Iran.) This is totally in line with MMT — inflation is not a concern, unless there are resource constraints. Resource constraint in each of the spikes was energy. Full employment does not appear to have been causative of inflation over the years depicted.

    The graphs can be see here

    Clonal Antibody Reply:

    @Clonal Antibody,

    The third inflation spike was that induced by the Korean War. That one likely was caused by the resource mobilization most likely oil for the war,leading to shortages.

  13. Jim Baird says:

    Yes, but here’s the takeaway for politicians: Andrew Jackson won the presidency because he “won” the battle of New Orleans…

    Reply

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