Comments on: Proposal update, including the JG The Site of Economist Warren Mosler Wed, 12 Nov 2014 13:38:49 +0000 hourly 1 By: stone Fri, 20 Jan 2012 11:45:22 +0000 I can see that a price anchor is a good thing and needs to be something that the government is a price setter for. I’m worried that the JG wouldn’t work because it wouldn’t be viewed as credible that the government would stick to the anchor. I think there is a potential “better than gold” price anchor a bit like the JG but credible. If the USD (or GBP our Yen or whatever) was redefined as 1/1400th of a starting low rank soldier’s pay then perhaps that could be such a credible price anchor. It could be extended such that there was a fixed ratio between that pay and the pay of a five star general (perhaps 5x as much?) and the president and any federal employee they decided to peg (perhaps all).

As you say, the crucial difference between governmentl employees and say private sector car mechanics is that the government has total power over how much to pay their own employees and also it is the government that creates the USD (in “net financial assets sense”). If the peg were made to private sector car mechanics then disaster would ensue because the private sector car mechanics would constantly be changing their pay so as to keep ahead of the government in a cat and mouse spiral. The government its self pays the government employees so no such event can occur.

The reason to choose military pay (rather than the president’s pay or JG pay or whatever). Is because military pay is such a large amount that it can not be messed around with and also the military are not going to be messed around with. Everyone relies on them being on our side. That would give international credibility to the idea that the government would not devalue the USD and just let the military suffer. That wouldn’t be the case with JG pay. That would make the currency a very trusted and sort after reserve currency even in a (near) zero interest rate environment as I guess we are heading towards.

By: Adam (ak) Fri, 13 Jan 2012 20:13:43 +0000 @John O’Connell,

Your analysis would be correct provided that full capacity utilisation and employment existed in the whole industry. When did it last happen? Probably in 1944 or 1945. After the war the economy was running close to the full capacity in the majority of Western countries but this was not exactly the same as full utilisation. Certainly this is not the case during a recession. The supply-side analysis is therefore not applicable to our current situation.

Of course there have been cases of skill shortages limiting production in individual industries.


If full capacity utilisation is not in place the sales of the industry are determined by the demand (“what the market will give them”) and increasing real wages of the workers will increase their purchasing power and should increase the sales. Squeezing workers more will not increase the absolute value of aggregate profits but may increase ROE for individual corporations. The trick currently employed in the West is to outsource the production overseas where the labour is cheap, shift productive capacities there but still extract some profits down the redistribution chain and obviously rely on the purchasing power of the Western customers.

Good luck in the long run and let’s start learning these 5000 letters.

By: John O'Connell Thu, 12 Jan 2012 15:31:09 +0000 @Ralph Musgrave,

But the employers as a group, no matter if there are two or a large proportion, are going to have the sales that the market will give them, at whatever price they end up charging. Or they’re going to sell as much as they can produce, if the demand is inelastic.

This is true for the group WHETHER OR NOT they trade employees and raise wages. Since the skills are scarce, no new employees are brought into existence by this bidding war, so production is not increased. I agree that companies in this situation should do well because they have the ability to raise prices, but if they also raise wages they will not do as well as they would have done — AS A GROUP — if they had not bid up wages by “poaching” each others’ employees.

Of course, if A can steal net employees from B, then A can increase production at B’s expense, and make more profits, even if they raise wages in the process. So, at a micro level it makes sense to try to steal a competitor’s employee. But A’s unit production gains are matched by B’s unit production losses, so at a macro level total production is unchanged. Total profits are lower, because wages (and taxes) are higher.

By: WARREN MOSLER Thu, 12 Jan 2012 12:00:36 +0000 right, and that would be defined as a relative value shift

By: Adam (ak) Thu, 12 Jan 2012 09:38:04 +0000 @Ralph Musgrave,

What you wrote in the first paragraph is very relevant as you have essentially restated Michal Kalecki’s profit equation:


(In a closed economy with zero consumer credit growth and zero government deficit profits of capitalists equal the sum of investment and consumption of capitalists)

Increasing the profit rate will not increase the absolute profits of capitalists. Since workers consumption will eventually decrease, investment financed by credit will not be required to grow new productive capacities. So increasing the rate of profits may actually decrease these profits in absolute terms.

In a feudal system where monetary rate of profits is theoretically infinite (serfs are not paid, they have to scavenge and are allocated time to look after themselves after working for the landlords) absolute profits may not be high after all. Feudal Poland in the 18th century was doing far worse than Prussia or Western European countries where modern capitalism was germinating.

Obviously the conditions imposed by Kalecki may not be satisfied if either export surplus, customer credit growth (including loans taken by workers) or government deficit spending create external source of funding. However relying on customer credit growth is unsustainable.

Regarding the second paragraph I think that JG may provide a kind of anchor for maintaining wage stability – as long as minimum wage is kept constant and individual firms can sack workers when their profits decrease as a result of increased pressure on the wage rate. JG workers can act as a buffer not much worse than unemployed ones. The key to achieve that is that there is no competition between ELR and the private businesses for labour, little substitution of goods/services produced by the private sector and that private sector jobs are more attractive than JG jobs.

I agree that the argument that the value of the currency is determined by the ELR wage in general may be incorrect or imprecise because it relies on a kind-of general equilibrium. We can imagine the government still paying $8/h to unskilled workers while a wage/price spiral develops in the sectors running close to full capacity. Not all labour and not all the products are perfect substitutes.

By: Ralph Musgrave Thu, 12 Jan 2012 08:29:22 +0000 John O’Connell,

Your claim that the profits of employer A & B decline when they bid up the price of labour ignores the fact that when a large proportion of employers are doing this, those employers face excess demand, and are bumping up their prices, and doing very nicely profit-wise.

The level of employment at which employers start bumping up their prices is the level at which a decent supply of quality labour is no longer available from the ranks of the unemployed: the level at which bidding up the price of labour kicks in in earnest.


I’ve no objection to the idea that JG raises employment for a given level of inflation. It’s the “price anchor” idea as set out in “Full Employment and Price Stability” I’m objecting to. This includes claims like “The value of the currency is the ELR wage, since that is what the government, the monopoly supplier of its money, has decided it will pay.” And: “The proposed ELR program recognizes that the government is a monopoly supplier of its currency. Price is set through the ELR wage, which defines the purchasing power of the currency.”

That’s attributing inflation control powers to JG / ELR which it just doesn’t posess.

By: Gary Wed, 11 Jan 2012 20:31:11 +0000 @WARREN MOSLER,

OK, makes sense. Better to adjust taxes, than government size (JG is separate).

By: Neil Wilson Wed, 11 Jan 2012 18:22:13 +0000 @Ralph Musgrave,

If I can tear you all away from the inflation barrier for a moment I’d like to point out that there is a journey to get there.

Firstly you don’t know where it is.
Secondly you don’t know when it will strike.
Thirdly jittery policy makers will likely move to kill demand when wage inflation starts to show through – rather than checking that all the unemployed that can be are engaged first.

That’s where JG helps – on the run up to the inflation barrier. It keeps wage inflation stable for longer reducing the chance that the policy response to demand will happen too soon.

By: WARREN MOSLER Wed, 11 Jan 2012 16:49:06 +0000 right, demand can be high enough to cause the jg pool to get too low to be an effective price anchor.

what i’m saying is it’s a better price anchor then unemployment, a different point entirely.

and you have to define ‘inflation’ of course to say you ‘have it’
I’d describe what you are describing as a relative value shift, but it’s all semantics.

And Cullen’s position on JG has been evolving and I’d guess at this point in time he’s pretty close to where I’m at functionally, while
he thinks politically his approach has a higher chance of success than mine. And I can’t disagree with that, of course, as only time will tell.

By: WARREN MOSLER Wed, 11 Jan 2012 16:41:27 +0000 agreed