The economics of euro zone trade differentials and fiscal transfers

Trade differentials have been blamed for the euro crisis, implying that that if trade had some how been balanced there wouldn’t have been the kind of liquidity crisis we’ve been witnessing.

While I do recognize the trade differentials, it remains my deduction that the source of the ongoing liquidity crisis is the absence of the ECB (the only entity not revenue constrained) in critical functions, including bank deposit insurance and member nation deficit spending. And I continue to assert that the euro zone liquidity crisis is ultimately obviated only by the ECB ‘writing the check’, as has recently indeed been the case, however reluctantly.

Trade issues within the euro zone, however, will remain a point of economic and political stress even with a full resolution of the liquidity issues, which leads to discussions of fiscal transfers.

Fiscal transfers can take two forms. One is direct payments to individuals, such as unemployment compensation. Another is the placement of enterprises in a region.

The US does both. For example, it funds unemployment compensation and also spends to directly support all federal agencies, including contracting private sector agents for goods and services to provision the federal govt and its agencies.

And here’s where mainstream economics has left out a critical understanding. In real terms, the allocation of the production of goods and services to a region is a real cost to that region.

This is because that region has to supply its labor to the production of output that is directed to the public sector for the mutual benefit of all the regions.

Note that this is not the case with the likes of unemployment compensation, where the payment is made without any ‘real output’ transmitted to the public sector.

For the euro zone, this means that if Germany, for example, located a military production facility in Greece, where Germany got the benefit of the output, in ‘real terms’ Greece would be ‘paying’ for Germany’s military.

This type of thing could work to readily ‘balance’ euro zone trade, at the real expenses of the ‘deficit’ nations.

Which is exactly what happens in the US, for example, when a military procurement expenditure is located in a region of high unemployment.

And yes, I fully appreciate the obstacles to this actually happening, including deficit myths that prevent full employment and politics that need no further discussion, so thanks in advance for not telling me about them!

But the point remains- the trade differentials in the euro zone are not in the least an insurmountable problem, at least not in theory…

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105 Responses to The economics of euro zone trade differentials and fiscal transfers

  1. Neil Wilson says:

    “The systemic risk of BIG is that ‘everyone’ goes for it, noting that it could all come apart long before that point.”

    Yes that is a systemic risk, but it’s also a systemic risk with JG. And I would suggest in either case it is an edge case – because there are more than enough incentives to profit servicing those on the scheme.

    And the response is the same in either case which is to wind up the compulsion to produce, or as you point out to wind back on the public provision noting that there is insufficient surplus to support it.

    I happen to think BiG is untenable politically never mind economically because of the level of resentment it engenders. We already have huge resentment over ‘dole-ites’ that can be used to eliminate the provision completely.

    So it strikes me that the counter-cyclical system needs to have a level of compulsion in it that is appropriate to the productive ability of the currency area it is operating in. A low productive area will need a JG with a more intensive work regime than one where robots glide around sorting everything out.

    Reply

    WARREN MOSLER Reply:

    what’s the systemic risk of jg?

    Reply

    Neil Wilson Reply:

    @WARREN MOSLER,

    Same as BiG. That everyone goes for it and that it comes apart.

    Reply

    Unforgiven Reply:

    @Neil Wilson,

    Seems we’d have other worries if a majority of workers suddenly found a min. wage job attractive?

    Neil Wilson Reply:

    @Neil Wilson,

    “Seems we’d have other worries if a majority of workers suddenly found a min. wage job attractive?”

    Same as we would if everybody found a ‘minimum income’ provision attractive.

    That’s the point.

    WARREN MOSLER Reply:

    if everyone found a minimum wage job more attractive than a higher wage job output would remain the same and prices/taxes would be lower.

    Unforgiven Reply:

    @Neil Wilson,

    So we’re tossing likelihood out the window here and saying if participation goes above X percent (for whatever reason) the outcome will be the same?

    WARREN MOSLER Reply:

    makes no sense as you have to go to work to earn the jg wage and it pays less than private sector wages (as a point of logic)

  2. Gary says:

    “And here’s where mainstream economics has left out a critical understanding. In real terms, the allocation of the production of goods and services to a region is a real cost to that region.”

    I think this is just brilliant!
    In old times it was a common sense that quartering an army in a foreign land is a cost to that foreign land.
    In contemporary times – the thinking of money as a sort of separate life form – made all this obfuscated. Now poor countries would beg for military bases as long as some money came with them.

    Reply

    Gary Reply:

    however, if the poor country in question is able to use the money to acquire needed resources in excess of those used to support the foreign army (for example; although it could be supporting foreign production) – then the biggest sucker is that country which sold the resources.

    So it all comes down to whether the country that is allocating production to foreign countries has currency that foreign countries accept.

    In case of Germany and Greece that does not matter. Although, since Germany is not currency issuer – the money it would pay – also cost real resources to acquire.

    Reply

    WARREN MOSLER Reply:

    right, real terms of trade and all that

    Reply

    WARREN MOSLER Reply:

    thanks, glad someone picked up on it!

    Reply

  3. Gary says:

    “Go back to the room full of people with the man at the only exit with a gun who works for me.
    I say it takes 5 of my cards to get your self past my man and out of the room.
    Now my cards have value. People will work for them, buy them, etc.

    But if I say anyone who doesn’t have to work can get 5 free cards, what is their value?
    How much work can I get in exchange for my cards?”

    But BIG (Basic Income Guarantee?) does not remove taxes. It would function like an automatic stabilizer. It merely guarantees income to those that do not have it. If it is set at equivalent of fixed $8 per hour (= $1280 per month) – it will merely function as a stimulus. If it is not indexed and adjusted – it would probably soon be devalued by inflation. If it was indexed and adjusted – it would have a potential to accelerate inflation.

    The Jog Guarantee – it is functioned in parallel – would have to be a bit higher.

    Reply

    WARREN MOSLER Reply:

    Yes, if it’s not a living wage the systemic risk isn’t there.

    Reply

  4. Thomas Bergbusch says:

    I appreciate what Warren Mosler is saying about the stimulative capacity of regional procurement policies. I also see that he is trying to suggest solutions in a context of dysfunctional European federal institutions (and resistance by the Euro-Banksters to more rational options). But it is sad to see him argue almost against the habitual tenor of his thought, which generally focuses on equal treatment across the board (e.g. per capita payments to EURO member countries) and on preventing a race to the bottom among US states through revenue-sharing (unless I have mis-read him).

    The US example suggests that such an approach, while theoretically consistent, is deeply subject to moral hazard and clientelism. From military expenditures, to agricultural subsidies, to prisons, this kind of expenditure exists because of the lack of equalization policies in the US. That is why all politics is local in the US (and all politics in Canada, with equalization, is provincial). What in effect is the outcome of such an option is pork-barrel politics — this being right in the Merkel-Helmut Kohl tradition, of course. Yet, what one would be setting in stone, in the EURO zone, is permanent dependence on the control of particular industries (in the US it is the prison system), and would also likely entrench a kind of North-South centre-periphery imperialist order within the EURO zone. Who knows, perhaps this is better than the financial imperialism that French and Germany have in recent years used to suborn the leadership of the peripheral countries? But there is a great political price to being just a branch plant economy. And it is very difficult to escape such dependency. Perhaps MMT-ers would do better to evolve a consistent MMT approach to equalization policy?

    Reply

    Thomas Bergbusch Reply:

    @Thomas Bergbusch,

    UMM, I clearly vastly overstated my point here, and did not give Warren his due — his post was much more nuanced than my comment suggests (and is a about a theoretical possibility, not advocating such a policy direction).

    Reply

    WARREN MOSLER Reply:

    appreciated!

    Reply

    Thomas Bergbusch Reply:

    @WARREN MOSLER, My mouth/poster’s voice once again faster than my brain! Next time I’ll drink a glass of water, and think twice before I speak/post.

    WARREN MOSLER Reply:

    thanks for writing this and saving me the trouble of doing it myself!

    my main point was that the trade thing isn’t the root cause of the current euro financial crisis

    and that ‘balance’ can be pursued that in real terms benefits the net exporters/Germany mainly,
    who’ve been paying the real price (exports are a real cost),
    and the real costs born by those who have been benefiting in real terms, the net importers.

    Not that i don’t realize they’ve got all that all confused, and Greeks will see Greeks working to support the public infrastructure as a benefit, etc. etc. etc.

    Reply

  5. roger erickson says:

    @SaveAmerica,
    One of Wiener’s famous equations was the “Wiener Equation” describing birefringence behavior of light traveling through 2 closely-spaced refracting layers.

    A research engineer I knew in college built his entire career around researching birefringence.
    He had this cartoon taped to his bookshelf. http://www.barsotti.com/fbelly1.html

    Orthodox economics is analogous. Maybe dual layers of BS can also quickly be filtered & ignored by referring to Wiener’s Equation. There are many spurious calculations in orthodox economics, but most are irrelevant to group outcomes. There’s no paradigm like an agile paradigm.

    Reply

  6. roger erickson says:

    @ SaveAmerica

    “Even measured by Wiener’s standards Cybernetics is a badly organised work — a collection of misprints, wrong mathematical statements, mistaken formulas, splendid but unrelated ideas, and logical absurdities. It is sad that this work earned Wiener the greater part of his public renown, but this is an afterthought. At that time mathematical readers were more fascinated by the richness of its ideas than by its shortcomings.”
    Hans Freudenthal

    ps: it is Wiener, not Weiner;

    for many biologists, Cybernetics makes far too many theoretical assumptions, and ignores all the operational degrees of freedom;

    main lesson from biology is that all complex systems are incredibly densely engineered, with more degrees of freedom than we’re comfortable trying to acknowledge

    basically, our offspring can can fairly quickly adapt to anything that comes along – by getting rid of their parents & ancestors; get over it

    the really smart cultures accommodate more change, and faster adaptive rates;
    via multi-generational support for group agility;
    the ratio of Luddites/innovators fluctuates with hard/good times, rather like predator/prey ratios, but not always exactly the way you’d think

    Reply

    Save America Reply:

    faster adaptive rates,

    futureshock is hurting many, I met brilliant people at IBM, so engulfed in thier small niche area of research, without cross-disciplines, making discoveries that had no impact, couldn’t see the application of thier knowledge across other fields. Took people looking at thier work decades later seeing how research project a connected to b to do anything usefull for the rest of us 7 billion. And that was stuff the company would let other researchers see, often time would shelve and hide work, even from its own researchers, much less the general public. Divisions within the company would constantly re-invent the wheel, because they wouldn’t share with each other, god at the waste and lack of efficiency I witnessed.

    What is the use of all this knowledge and research if we can’t put it to practical use because it is so esoteric to most people or is purposefully obscured to keep certain systems and social structures intact? Jamie Dimon is making that case now about derivates at the TBTF banks, maybe only 500 people in the world truly understand the complexity and risk of the most complex derivatives. We can’t adapt fast enough I guess.

    Right here warren has the internet and many people funneling his memes to the masses, but they are not being absorbed, more proof in the pudding, most 7 billion humans just don’t have what it takes I guess to adapt, create, you say boredom is consuming them, but I know a lot of people happy to watch american idol reruns for the rest of thier lives :(

    You have several people coming here to this blog telling warren its too hard and confusing to learn his ideas, they must be made simpler, what else can he do, he says he has dumbed them down as much as he can. You reach a poiint of dimishing returns, 7 billion borg just can’t all adapt and change at anything near the rate of probably the “elite” here, folks like you roger, not like me.

    Reply

  7. dan says:

    Roger Erickson:

    “This fact about any “networked” population was summed up well by Walter Shewhart, back in the 1920s.
    “In any complex system, the highest cost, by far, is always the cost-of-coordination.”

    I tried to find the source to the above reference but could not. Can you please direct me the the document? I can use this reference for something else I am working on.

    TIA

    Dan

    Reply

    roger erickson Reply:

    @dan,

    I found it buried in one of Deming’s books. Couldn’t find it online just now either.

    You can find 2 or 3 of Shewhart’s statistics & philosphy of science books in university libraries. I found ‘em at George Mason University, for example.

    Might be easiest to look up his books (1920s-1950s).

    ps: It’s a general axiom in systems theory, so you should be able to find a similar quote from Bertrand Russell and/or Ludwig von Bertalanffy, e.g., General System Theory (1968).

    Reply

    Save America Reply:

    @roger erickson, Roger I would also like to find the original reference, I can’t find anything online – only references to you repeating this quote all over the internet. Google Scholar brings up deming, but a quick glance doesn’t show anything about the original, agg frustrating that even with the POWER of google and the internet we can’t source such a great meme!

    Reply

    roger erickson Reply:

    @Save America,

    Goes to show you how much human knowledge still lingers, not yet digitized & put on some web page somewhere.

  8. steve m says:

    @ warren

    what do you think of Argentina’s new Central Banker using the CB as a development bank of sort.

    http://www.foreignpolicy.com/articles/2012/07/03/the_shots_heard_round_the_world?page=0,0

    From my meager understanding of history all current economically develop countries took a similar line.

    Reply

    WARREN MOSLER Reply:

    it works operationally

    Reply

  9. Daniel says:

    This is why I was so attracted to MMT. Something which I think needs highlighting more is how MMT acknowledges that the cost of things is in labour, resources etc not actually money. Money is a way of keeping score, a tool used to allocate real resources.
    The mainstream have forgotten this or call it socialism or something and spend all their time playing with money and increasingly disconnecting it from the real economy of people and things.

    Reply

    WARREN MOSLER Reply:

    glad you noticed, thanks!!

    Reply

    roger erickson Reply:

    @Daniel,

    Exactly, yet currency is not used to assign value to everything we do. There’s a wide & flexible spectrum of things we do NOT put a price on – or certainly not all the time, with the same rigor. Spouses, kids, citizenship, OWS, various “causes”? etc, etc …

    Once big outcomes are visible, most little scores & alternative outcomes are written off as inconsequential. If you don’t see the big option, you’re effectively writing it off & resigning your fate to the little, inconsequential options. It’s the margin we pay for living here & now, with given insights.

    Markets & cultures do a near endless list of things small & large, and we don’t even always keep score. The only thing that matters long term is the measly rate of exploring our biggest options.

    Just don’t stop doing # f(polynomial-of-Life[i])! :)
    [at least for the next 5 minutes!]

    Reply

    Save America Reply:

    @roger erickson, Roger, there are some economists talking about “tradable citizenship” they say you should be able to trade, buy, or sell your citizenship, that it is preposterous to not be able to own your citizenship and trade it on a market. Why do people not want to “own” their citizenship like they do thier house or IBM shares?

    http://www.cuca.org.uk/2008/10/19/radically-reforming-welfare-part-2-tradable-citizenship/

    http://mqurice.blogspot.com/2010/04/tradable-citizenship.html

    Citizens should own the state and its assets, rather than the state own the humans like chattels. As with any legal property, the owners should be able to sell their property for what the market will bear.

    2000 years ago, the Roman state crucified somebody who thought it an excellent idea to enjoy life on an individual, self-deterministic, free-will basis of voluntary consent among freely interacting people around the world. The state in the form of the Roman Empire did not take kindly to that sort of idea. The empire saw people as chattel property to be disposed of by the state as the powers that be saw fit, be it as slaves, lion fodder, serfs, artisans, minor functionaries, major functionaries, up to the emperor, with the power flowing from the top.

    Many Jews were captured and taken as slaves to Rome. Christians, another form of Jew at the time, did not fare well either.

    The harsh biological reality of the red in tooth and claw competitive, territorial, genocidal, tribal, alpha male, hunter-gatherer, found-wealth, biological world of mammalian social hierarchy, with the biggest, most powerful tribes winning more territory and females, was just how things were.

    As many aspects of life have changed, the whole basis of such life has been reduced to near-irrelevance though gangs and criminals continue such atavistic impulses among modern citizenry and even some states continue to operate in the old way with places like Rwanda being hideous examples of raw tribal power.

    But we still foolishly persist with the idea of citizens as state chattels.

    We can own shares in huge collectively owned companies, we can own land and buildings in fee simple, selling them as we like and moving on. But we can’t own the most valuable asset which is our share in the state and its properties.

    If we move to another country, we lose all of our property despite generations of ancestors having worked lifetimes to produce an inheritance for their descendants. A fresh off the boat refugee from a Hell-hole inherits the lot on stepping ashore, being given a vote equal to those who produced the wealth over generations.

    The current incentives are all wrong. The current system means people struggle to get near the levers of power to self-deal in tax revenue and property, and to reward people who reward them with votes. While the democratic system does avoid the worst of the megalomaniac Saddam style of government, it still leaves the political system subject to the self-dealing abuse of power.

    Reply

    roger erickson Reply:

    @Save America,

    You’ve listed multiple, minor, incentives .. while skipping the big one, the one people still keep coming to the USA for.
    The big incentive is that the return-on-coordination is the only thing that outruns the cost-of-coordination.

    Everything else is written off if you can get accepted here .. and then contribute to coordination.

    It’s a multi-level selection process. Immigrants able to contribute to public coordination provide more dynamic value than born-citizens who can’t boost coordination.

    The USA lives & dies on it’s ability to be a “coordi” nation.

    Save America Reply:

    @Save America, To further the idea of why markets in citizenship perhaps better than command and control:

    http://www.cuca.org.uk/2008/10/19/radically-reforming-welfare-part-2-tradable-citizenship/

    Tim Harford explains the idea of tradable citizenship in his article “When it comes to foreign workers, some ideas aren’t so crazy” (Financial Times, 27th September 2008).

    Shortly after the Soviet Union collapsed, a Russian bureaucrat travelled to the west to seek advice on how the market system functioned. He asked the economist Paul Seabright to explain who was in charge of the supply of bread to London. He was astonished by the answer: “Nobody.”

    Fifteen years later, I had thought that almost everyone had abandoned the notion that a committee could plan its way through the unimaginable complexities of an advanced economy. I was wrong.

    Earlier this month, the Migration Advisory Committee presented a list of professions that would qualify migrants for entry, broadly on the grounds of UK skills shortages. They include geologists of all stripes, veterinary surgeons (but not other veterinarians), chefs (but only those paid £8.10 an hour), sheep shearers with a British Wool Marketing Board bronze medal (or equivalent) and ballet dancers (but not choreographers, nor other dancers).

    At least the old Russian bureaucrat would have had an answer to the question, “Who is in charge of the supply of sheep shearers to the UK?” It is the Migration Advisory Committee.

    Cory Doctorow explains the problem:

    “Jacqui Smith, the British Home Secretary, had unilaterally (and on 24 hours’ notice) changed the rules for Highly Skilled Migrants to require a university degree, sending hundreds of long-term, productive residents of the UK away (my immigration lawyers had a client who employed over 100 Britons, had fathered two British children, and was nonetheless forced to leave the country, leaving the 100 jobless).

    If we’re going to limit immigration, the best way to do it would be to create a market for immigration, as Tim Harford explains:

    Here’s a crazy alternative: the government could restrict immigration simply by auctioning the right to work in the UK. Permits would have various durations (a month, a year, in perpetuity). Citizens would get a free lifetime permit; non-EU residents would have to pay, or persuade their employers to pay. The price of the permits would depend on their scarcity, a decision that might just be within the competence of the state.

    As well as allowing employers and migrants to decide for themselves whether they would get enough out of the match to justify the price of admission, the auction system would raise money to help pay for the public services migrants are so often blamed for clogging up.

    It would have other advantages, too. Migration hawks would have a constructive way of expressing their xenophobia: they could buy permits and “retire” them, thus demonstrating that they really did value the absence of foreigners more than others valued what the foreigners had to offer. Citizens who wanted to leave could sell their permits on the way out.

    I prefer a slightly different system: we make citizenship and the right to work the same thing. That would do away with tourists or spouses needing visas. More significantly, citizenship would then gain a person not only the right to work in the UK, but also also a Basic Income as described in “Radically reforming welfare, part 1″.

    The government would not sell short-term permits. Rather, it would grant all current citizens a life permit. There would then be two ways to aquire citizenship:
    1.Be born here (actually this would be more complicated to prevent an incentive to come to Britain just to have a baby and gain your child an income for life).
    2.Buy it from a current citizen.

    The population could therefore be kept below a maximum, but who precisely made up that population would be left to the market.

    Now, I’ve said that if we remove artificial incentives to immigrate, so the only incentive to immigrate is the opportunity to build a better life for yourself, then we could have open borders and immigration would probably not be a problem.

    So why am I advocating a limit on immigration at all?

    America was founded as a libertarian society, to which people could come to make a better life for themselves, through their own efforts. At first, its population was composed of immigrants. It was a dynamic population: anyone with enough initiative to immigrate, without expecting any help, was someone with the initiative to create wealth. This helps to explain why America has created more wealth than any other country on Earth.

    But over the years, its population has become a population merely descended from immigrants, and its population has become coddled by welfare, albeit much less than people in Europe (Charles Murray’s idea that that it “‘drains’ the life out of people – particularly the spiritual life and sense of meaning”).

    UK citizenship under this scheme would be valuable for two reasons. It would guarantee an income paid by taxation, and it would give the holder the right to work in the UK. Someone living in the UK and not working would only be getting the first benefit: the guaranteed income. But someone who wanted to come to the UK and work would get both benefits. So citizenship would be more valuable to a would-be immigrant than to the current holder. If the guaranteed income was £5,000, and the market interest rate was 5%, a holder who wasn’t working would be willing to sell it for slightly more than about £100,000. They could move abroad to somewhere cheaper, and live in relative luxury for the rest of their life. They could invest that money and continue to receive an income for £5,000 for the rest of their life, but not paid for by the British state.

    roger erickson Reply:

    @SaveAmerica ,

    SA, selecting immigrants is only a tiny fraction of the selection process;

    selecting every variable in their arrival, regulation, development & utilization is the whole point;

    either practice multi-level selection, or don’t bother;

    people not steeped in layered, complex systems can’t see nested-selection for the nests – but only for lack of practice;

    Deming summed this as the requirement to develop “appreciation for a system.” His point: given a COMPLEX system, you have to ask why ~5 times, to see where the power in adaptive tuning options lies. The first one or two “whys” only lead you through noise. It’s too noisy a field to easily study, but the general consensus is that causality signal/noise ratios peak ~5 layers deep in every complex system. Your results may vary :)

    Just think of every problem as an onion. The germinal layer is usually ~5 layers deep.

    Deeper layers have already started converging to alignment. More superficial layers haven’t weeded out much randomness. The only place to START tuning is ~5 layers deep. Most tuning efforts elsewhere are wasted.

    ~5 layers deep in a complex system is where you usually get the biggest tuning effect for the least bucks

    Reply

  10. Allan says:

    Otherwise known as slave labor.

    Kind of like American firms moving production to the regions called China and India?

    So according to “Mosler Magic” China and India are “paying” for the pretty most everything in America! LOL.

    Although, in “reality terms” it has massively boosted the wealth of 1% of Americans while the standard of living for everyone else has been destroyed.

    Reply

    WARREN MOSLER Reply:

    that might be the case if china was sending us luxury items, but seems they are stocking walmart where the 99% shop

    Reply

    ESM Reply:

    @Allan,

    “… while the standard of living for everyone else has been destroyed.”

    So, when you say “destroyed,” do you really mean “boosted to levels far beyond what the 1% enjoyed 30 years ago?” Because if not, you’re not dealing in “reality terms.”

    Reply

    Save America Reply:

    @Allan, Allan, imports are a benefit. Let that chinese man slave labor for you while we all sit around on MMT blogs talking about econ stuff. Why should we go to space when china man going to do it for us?

    But Allan, I would like your thoughts on this:

    http://www.zerohedge.com/news/after-creating-dollar-exclusion-zones-asia-and-south-america-china-set-corner-africa-next

    Seems to me China got plans to stop working for team USA and giving us free stuff.

    Reply

    roger erickson Reply:

    @Save America,

    If we just go back to the practice of actually thinking, we never have to worry what any other population is doing?

    Reply

    Save America Reply:

    @roger erickson, Roger you have more credentials than I can even dream about, I sat around san diego comic con talking to many former nasa people, and they are all in agreement, we are effed.

    American youth just lose competiveness after high school, I said but we now have the internet, and FREE MIT courses online, and they said yah, but look right here at the comic con, all these smart people just want to dress up like some scifi character and watch entertainment all day or play warcraft world, don’t want to do anything really productive, they made me feel really ashamed, cause I sure want to just goof off and attend the con and watch space1999 than go do real work to make moonbases happen. I was at the stennis space center last month checking out the testing pads for our rockets, von braun and crew, really dedicated, workers, not goofoffs.

    regarding IDIC (infinite diversity infinite combinations) I like the way you think Erickson! I know some biology people working at Dannon trying to figure out the best way to put bacteria and combination of bacteria in our body to keep people healthy (probiotic research) They told me it was known 100 years ago that some guy that drank soured buttermilk didn’t get sick and die like many other people of the time regarding stomach infections, why it taking 100 years to get this knowledge and products out to the rest of us borg? That is too slow!

    Erickson say: In contrast, all complex systems are conglomerates built up as iterative layers, one on top of the last. Every known system is held together by infinite permutations of interdependencies that are each probability curves, not fixed interdependencies.

    GREAT! Now we know why so many fed models and others can never really describe reality, you are GENIUS erickson!

    Wiener helped design a target tracking system in a top secret manhattan project to be used for the war for automated anti aircraft guns, he compared logical discrete versus analog )continous( technologies and tried to convince Oppenheimer (if I remember correctly) and others to the various benefits and negatives of each, goes perfectly with what you are saying about discrete systems versus analog ones, he failed to convince the handlers of the manhattan project that his analog design was better than the discrete design of the other team. If you read the book the dark hero of the information age,

    http://www.google.com/url?sa=t&rct=j&q=dark%20hero%20of%20the%20information%20age&source=web&cd=1&ved=0CFAQFjAA&url=http%3A%2F%2Fwww.amazon.com%2FDark-Hero-Information-Age-Cybernetics%2Fdp%2F0465013716&ei=4D4EUMHJK8ji2QX94r2FCw&usg=AFQjCNHlw8LZ35Km490r95aG5FhnocNO_Q

    it goes into a lot of detail about the analog v discrete weapons system that would probably interest you.

    Talking further about multiple layers, I also spent a couple days at a freedomfest money conference in Vegas, and a LOT of people are saying from UN Agenda 21, to IMF, to local and state governments, there is wicked plan to layer so many damn levels of government and regulations from global down to local on citizens that their heads are going to constantly spin with all the LAYERS of rules and systems they are going to have to comply with. I admit to sometimes feeling very overwhelmed with so many layers of culture and society and government. My brain can only handle so much :(

  11. A very neat and fresh idea, Warren! a very politically acceptable way to balance things out a bit!

    Not sure about the costs though – if production moves to countries with different (read more expensive) labour laws, costs can be higher than in the initiator country, creating a bit of a reverse flow.

    And sometimes, for good security of supply reasons, governments want to keep production of sensitive stuff, like military, under their jurisdiction…

    Reply

    Neil Wilson Reply:

    @Viorel Teodorescu,

    They are keeping it under their jurisdiction – the European Union.

    The problem is that the propaganda has been that the peripheral EU nations have been immoral and must be punished.

    And that will continue until those doing the punishing start to feel the economic effects of their approach.

    Europe is little more than a classic Victorian Debtor’s prison at the moment. Beatings will continue until moral improves.

    Reply

    Unforgiven Reply:

    @Neil Wilson,

    Spirit of Christmas Present: My time with you is at an end, Ebenezer Scrooge. Will you profit from what I’ve shown you of the good in most men’s hearts?

    Ebenezer: I don’t know, how can I promise!

    Spirit of Christmas Present: If it’s too hard a lesson for you to learn, then learn this lesson!
    [opens his robe, revealing two starving children]

    Ebenezer: [shocked] Spirit, are these yours?

    Spirit of Christmas Present: They are Man’s. This boy is Ignorance, this girl is Want. Beware them both, but most of all, beware this boy!

    Ebenezer: But have they no refuge, no resource?

    Spirit of Christmas Present: [quoting Scrooge] Are there no prisons? Are there no workhouses?

    Reply

    Matt Franko Reply:

    @Unforgiven,

    “This boy is Ignorance, … most of all, beware this boy!”

    Good catch! rsp

    Save America Reply:

    @Neil Wilson, Europe is little more than a classic Victorian Debtor’s prison at the moment. Beatings will continue until moral improves.

    What I don’t get Neil, is Warren had success in Italy, but seems to have no succes with the larger EU getting them to use his ideas, and his blog here proves day after day that these larger concentrated “governmental” bodies are failing the citizens, so why is keeping the EU together a good thing instead of letting them go back?

    Warren’s own life and blog seem to indicate that more power, more concentrated, is the wrong direction to go.

    Lets say spain and italy were not part of the EU, and warren could fly in there and get those 2 countries to use his ideas (like he did italy before), but he couldn’t get the rest of EU or USA to do so, at least he could save spain and italy, but if you have all of europe under 1 body, and they don’t want to listen to warren, look at the lost output and destruction that happens. In a peer-2-peer network of say 25 nodes, maybe he could save 2, but in the server-client where it all rests on 1 server, and warren can’t fix it, the whole damn thing crashes. It seems to me he would be working for a more “robust” network of idea and meme penetration than what he seems to be advocating now, it goes against the history of his own blog and personal experiences.

    It is not wise to put all the eggs in one basket, why warren thinks 1 central body is better than 25 seperate ones just doesn’t bear out, of course if tomorrow the EU adopts all his proposals then he will look golden, but right now he looks silly.

    Reply

    Save America Reply:

    @Save America, To further this meme, he maybe cant get DC to do good and listen to him, but if there were 50 seperate nations instead of the USA, maybe he could get 5 or 10 to listen to him and do a jobs gaurantee and give money on a per capita basis, etc etc That way he could save a few, and maybe the others seeing those few grow, would try those ideas too.

    Why is more centralization and concentration good? It gives you less chances to get your ideas used and implemented, erickson I think can see in network design, why Darpa chose the structure of our modern internet, its no good for 1 central server to keep things robust, take out that 1 node, and everybody dies.

    Unforgiven Reply:

    @Save America,

    I don’t think I’ve ever read anything that Neil has put forth along those lines. He seems like an open source kind of guy to me. Not more centralization, rather a shift, diffusing centralization via more conscious participation.

    What could the brilliance of all that potential (currently lost) output bring forth?

    THAT BEING SAID… I think Warren was looking for more operational content and less ideological comment. And he’s been doing an excellent job of holding that banner so far. Hellva tough job, just that.

    Thank you, Warren. I’m not always up to returning in kind, but I’m working on it.

    WARREN MOSLER Reply:

    thanks!

    Save America Reply:

    @Save America, Operationally, I remember bill gates saying IBM couldn’t stop him, because they were a massive titanic too hard to turn, while his little MSFT was nimble and easy to turn and quick to adapt (ala Roger Erickson memes). He predicted one day MSFT would become the 800lb gorilla and also be too hard to turn against the smaller agile competition. Operationally Warren has shown a few simple ideas that will help many people, and contribute trillions upon trillions of dollars in output cannot be implemented by our defunct government. It is too slow to adapt as Erickson points out, size probably being one of the main OPERATIONAL factors, having nothing to do with ideaology or politics.

    Operationally, a network made up of 2000 peer-to-peer nodes is FAR MORE ROBUST AND RESILIENT than 1 server to 2000 clients. You are using an internet made up of this OPERATIONAL logic ;)

    Operationally, warren has shown that very large centralized concentrated government bodies are failing the people, either through ignorance or design, and as erickson points out, too slow to adapt, and as bill gates said, operationally, smaller units can adapt to change faster than the massive titanic. LOL! The tower of babel grows to high and splinters, it is biblical!

    Jose Reply:

    @Save America,

    “Warren had success in Italy”.

    Please wake up.

    Unfortunately, MMT and Warren are virtually unknown by European public opinion.

    This is the harsh reality.

    IMO, MMT will have to make a real effort to abandon its incomprehensible technical jargon (buffer stocks, net financial assets, etc.) and start talking to people in concrete political terms in order to break out of its ghetto and stand a chance at the court of European opinion.

    History is being made by the hour in Europe, right before our eyes. The system is very unstable and people watch in disbelief as banks are saved with limitless amounts of money while austerity is imposed on workers under the pretext that there is, well…”no more money” available for them.

    There is no better theory than MMT to explain the absurdity of this predicament.

    And what do the proponents of MMT do? Do they denounce this situation where governments have been deprived of their power to spend, thus condemning whole economies to recession, while private banks get a free pass and endless aid packages?

    No. They get distracted in hair-splitting debates over whether they were the ones among the several schools of economics who got it more “right” (in the 1990s!) on the working mechanisms of a currency union. All this, while mass unemployment and depression threaten the European periphery.

    At least Paul Krugman can translate himself into everyday English or Spanish and watch his books on the need to fight depression selling in huge numbers in Spain.

    Save America Reply:

    @Save America, Jose, if you read 7dif, warren relates a story where he went to italy years ago and got the central banker to do some of his ideas – so you are wrong that nobody paid attention, I am not talking about this recent trip to italy that warren just took. I am in agreement with you, warrens ideas are falling on deaf ears, but that wasn’t the case when he went to italy years ago. That is my arguement, back when we had all these seperate nations, warren could get traction, but today, as you so ELOQUENTLY point out, warren can’t get no satisfaction. Using my earlier example, why have only 1 woman to take to the dance, when you can have a potential of 25 women? Warren has said 1 world currency (with proper counter cyclical policies) seems ok to him, but as a network guy, that seems like a total failure to me, you would have only 1 chance to convince your date to go where you wanted, but under the old way, you had 25 chances to covince a date, why limit yourself and policy options? It seems the more concentrated and centralized things are, the more limited options and choices you have, but the more spread out, the more “adaptability” you have (as erickson would say) to try many different policy options across many different governments and currency blocs.

    Jose Guilherme Reply:

    @Save America,

    I agree that Europe had better get back to twenty-some currencies

    WARREN MOSLER Reply:

    punish them by making them work and produce public goods for the union!

    Reply

    roger erickson Reply:

    @Neil Wilson,

    “Europe is little more than a classic Victorian Debtor’s prison at the moment”

    Well said. Exactly.

    Wasn’t Scrooge ever translated into German? Or into Orthodox Economics?

    Reply

    WARREN MOSLER Reply:

    thanks!

    the real cost is 0 if it’s just bringing you to ‘balanced’ trade from a ‘surplus’ trade position, as your real wealth remains all you produced and kept/consumed domestically, plus net imports.

    and agreed on that last part.

    Reply

    Jose Guilherme Reply:

    @WARREN MOSLER,

    “Taxes function in the first instance to create unemployment that the govt. can subsequently employ.”

    If taxes create unemployment just cut them back to the point where there is no unemployment created by them.

    Simpler than a politically-challenging-to-implement JG :)

    Reply

  12. Andrew says:

    There are so many hereditary rich and retirees who live fulfilling lives without an income producing job. There are many people trapped in powerless job positions who are deeply unhappy.

    We do need some fulfilling activity in our lives, but a job? It could also be hobbies and interests. When people are expressing the need for a job, they are expressing the need for good income, structured activity, social interaction and social status.

    It is difficult to meet these criteria on unemployment welfare….. barely surviving materially and being made a social pariah. A retiree may live on nothing but welfare but be respected in society, he can join common interest clubs and live a fulfilling life.

    Given a more apples to apples comparison……. If both options provided good income and social respect. Who would really prefer a no choice job over liesure and self determination?

    Reply

    Andrew Reply:

    @Andrew,

    Taking this perspective a little further. With the near robotic production of mass produced goods, artificial intelligence and the ubiquity of the internet. The real possibility of an age of material wealth AND leisure is here. (At least in the developed world) Most hum drum and dreary work tasks can alteady be performed by non-humans. (Ironically most financial service jobs will eventually be usurped by AI)

    There will always be a need for some humans to design, maintain and manage the robotic systems. It’s also abundantly clear it does not need many of us (few percent only). The real challenge is to order society dependent on humans relative human desires for self determined leisure and non deterministic structured activity. There is plenty of non factory work and non office work/leisure choices…..e.g. policing, security, healthcare, grooming services, tourism, fashion, entertainment, sport, crafts and hobbies.

    Obviously social conservatism (by definition resistance to change) will not provide many forward looking solutions and will lead to a disorderly breakdown of society. Capitalism is looking a pretty poor choice at this stage. A small minority will soon control all the means of production and distribution The paradox of late stage capitalism…most humans without income to buy the robot produced goods and AI services would soon become a terminal problem. (note I’m ignoring the possibility of an AI robotic takeover).

    The starting point is to respect both the desire for structured work and the desire for unstructured leisure. balance the two equitably. Society should provide material wellbeing for all whilst providing sufficient incentive to perform whatever undesirable, structured tasks are required to order society harmoniously. A society more along socialist lines looks a better long term bet than capitalism as we know it today.

    Reply

    Save America Reply:

    @Andrew, This was the argument of the father of cybernetics, Norbert Weiner at MIT, he said people like warren in the future that wanted to define 10 billions humans lives through jobs and pay would certainly bring about ww3 and the end of the planet. That the machines would take all the work and people just goof off, they made a movie about that called ZARDOZ I thought? :)

    Reply

    WARREN MOSLER Reply:

    thanks, no wisdom there…

    roger erickson Reply:

    @Andrew,

    Andrew, what you’re leaving out are all our expanding options. Group options expand as some exponential function of group capabilities. If what you say held any water, we certainly would never have formed NASA & gone to the moon, or done anything crazy – from Stonehenge & the Pyramids to the Panama Canal – not to mention highways, planes, internet, etc, etc.

    What you’re describing is the evolution of species. For 3.5 billion years at least, species on this planet have exceeded your expectations, by discovering & exploring their emerging options, not just those already explored. Whenever a given species exceeds it’s prior capabilities, it’s on the way to developing yet another species capable of invading a previously unimagined niche.

    Just survey kids and ask what they’d do if they didn’t have to do chores or homework. There’s always a spectrum. Some sit on their duffs, but plenty have insatiable curiosity & drive to do insanely … “different” .. things. It’s those driven to do different things that we SELECT from, and by doing so select our future.

    Wiener was a good mathematician, but unfortunately knew practically nil about all the other human drives.

    Reply

    Save America Reply:

    @roger erickson, WOWW! Erickson, I really thought you had read a lot of weiners works, have you read his 1948 cybernetics? I thought a lot of the memes you advocate here, about social structure, information processing, adaptability of our organizing bodies, etc etc all came from you reading weiner’s cybernetics and related people. I am shocked to find you slam the father of MIT and say he knew little about other human drives, he closely worked with the top thinkers in the world in all kinds of cross-disciplines, anthropology, sociology, etc etc and makes me think you are being unfairly critical when you say all he knew was math stuff but not other stuff, but I could be wrong.

    Weiner applied his cybernetics to far more than just math and physics, it was applied to psychology, sociology, internal medicine, how much of weiners stuff have you read?

    quote:
    As to sociology and anthropology, it is manifest that the importance of information and communication as mechanisms of organization proceeds beyond the individual into the community. On the other hand, it is completely impossible to understand social communities such as those of ants without a thorough investigation of their means of communication, and we were fortunate enough to have the aid of Dr. Schneirla in this matter. For the similar problems of human organization, we sought help from the anthropologists Drs. Bateson and Margaret Mead; while Dr. Morgenstern of the Institute for Advanced Study was our advisor in the significant field of social organization belongng to economic theory. His very important joint book on games with Dr. von Neumann, by the way, represents a most interesting study of social organization from the point of view of methods closely related to, although distinct from, the subject matter of cybernetics.

    False Optimism:

    There is a group who see nothing good in the anarchy of modern society, and in whom an optimistic feeling that there must be some way out has led to an over evaluation of the possible homeostatic elements in the community. Much as we may sympathize with these individuals and appreciate the emotional dilemma in which they find themselves, we cannot attribute too much value to this type of wishfull thinking…… It is the mode of thought of the mice when faced with the problem of belling the cat. Undoubtedly it would be very pleasant for us mice if the predatory cats of the world were to be belled, but – who is going to do it? Who is to assure us that ruthless power will not find its way back into the hands of those most avid for it? I mention this matter because of the considerable, and I think false, hopes which some of my friends have built for the social efficacy of whatever new ways of thinking this book may contain. They are certain that our control over our material environment has far outgrown our control over our social environment and our understanding thereof. Therefore they consider that the main task of the immediate future is to extend to the fields of anthropology, of sociology, of economics, the methods of the natural sciences, in the hope of achieving a like measure of success in the social fields. From believing this necessary, they come to believe it possible. In this, I maintain they show an excessive optimism……..

    WARREN MOSLER Reply:

    there is a moral hazard risk to society wherein if you all can get a ‘living income’ doing his hobby, no one will clean the bathrooms at the hospital, along with millions of other ‘unpleasant’ things we rely on someone doing, etc.

    Reply

    roger erickson Reply:

    @WARREN MOSLER,

    Right. Any species, nation, tribe or community that survives figures out some mechanism to have all “jobs” just adequately filled, just in time – regardless of whether those jobs are old ones, or newly emerging ones.

    In complex social groups, from amoebae to insects up to humans, many essential jobs are executed only briefly during a passing stage of individual development.

    There are 1000&1 ways to get all jobs done when & as needed, and it usually involves interleaving multiple duties. In successful, agile groups like Americans, everyone’s done many “jobs” at least once, filling in as needed.

    There was a great segment from a History Channel documentary on the Pacific-WWII, interviewing old vets. One guy said “the Japanese were great soldiers, but when they lost their officers, everything stopped. For us, no matter who we lost, somebody could immediately step up and do the job. I THINK THAT’S WHY WE WON.” That last sentence sums up a lot. Group agility follows distributed development of all available individuals. We have no predictive power at all, so the whole point of sexual recombination is to explore all possible combinations – meaning that we have no idea which classes, clans, neighborhoods or families the next crop of geniuses will spring from.

    Similar to sexual recombination, Output Gaps shrink when groups keep their growing provisions adequately distributed, thereby constantly increasing group resiliency. Call it Resource Recombination if you prefer. Democracy exceeds other governance forms simply by exploring & optimizing resiliency. It’s a simple math function of inter-dependent networks. It’s rather amazing that Wiener didn’t grasp that.

    Reply

    Andrew Reply:

    @roger erickson,

    I think you’ll find the US won the war mainly because they could build 10 aircraft carriers for every 1 the Japanese could cobble up.

    Save America Reply:

    @roger erickson, “In complex social groups, from amoebae to insects up to humans, many essential jobs are executed only briefly during a passing stage of individual development. ”

    Wow! Again, this sounds just like weiners ghost, how you can say he didn’t grasp complex social problem, and him and his “macy meetings” group were part of the REVOLUTION in applying cybernetics to sociology, economics, and other disciplines just leaves my jaw agape!

    http://en.wikiquote.org/wiki/Norbert_Wiener

    As I have already hinted, one of the directions of work which the realm of ideas of the Macy meetings has suggested concerns the importance of the notion and the technique of communication in the social system. It is certainly true that the social system is an organization like the individual, that it is bound together by a system of communication, and that it has a dynamics in which circular processes of a feedback nature play an important part. This is true, both in the general fields of anthropology and sociology and in the more specific field of economics; and the very important work, which we have already mentioned, of von Neumann and Morgenstern on the theory of games enters into this range of ideas. On this basis, Drs. Gregory Bateson and Margaret Mead have urged me, in view of the intensely pressing nature of the sociological and economic problems of the present age of confusion, to devote a large part of my energies to the discussion of this side of cybernetics. INTRODUCTION. p.24

    And as to democracy, kling has already effectively convinced me (along with the empirical proof I see here at warren’s blog and all over the place elsewhere) that it doesn’t scale well, 250 states.

    http://www.fcpp.org/publication.php/1134

    operationally, group size is part of the function

    roger erickson Reply:

    @Andrew ,

    “I think you’ll find the US won the war mainly because they could build 10 aircraft carriers for every 1 the Japanese could cobble up.”

    As many have said. Yet there’s never any reason to discount additional, direct statements from people who were actually there enmeshed in the operations. I respect the guy’s opinion as something to appreciate & learn from.

    The divergence between theory & operations is seen everywhere, not just in orthodox economics. Much of what is “heterodox” in many fields is simply people trying to reconnect theory & actual operations. It never has to be either/or, and it’s always best to fuse both.

    Tom Hickey Reply:

    @roger erickson,

    A friend was a US aid worker. He once told me that the people in the country where he was stationed had a lot of good ideas and knew ho to manifest them but need “permission” to do so. They would come to him and he would say that yes it was a good idea and they should do it. They would go out and do it. The govt couldn’t or wouldn’t do this.

    BTW, the govt changed one day, as often happens in such countries, and one of his well-connected friends came to his house that evening and said not to be in the country when the sun came up. He was on the next plane out at night. He was telling me this when he got back here.

    Jose Guilherme Reply:

    @WARREN MOSLER,

    If I get your point, the solution to this moral hazard problem would be: make those millions work for the minimum wage at unpleasant tasks or else let them earn nothing at all (ELR or job guarantee).

    Sounds logical.

    And yet… I think I’m beginning to understand why the JG proposition has generated such heated debates within the MMT camp :)

    Reply

    Tom Hickey Reply:

    @Jose Guilherme,

    Right. Does nothing about commoditization of labor and promotes the status quo, which is ruled by privilege. It’s basically a capitalistic solution and capitalism is fundamentally opposed to democracy in that it privileges ownership and makes work a commodity. The reason that this is so difficult to seek is the propaganda against Marxism as leading to totalitarian communism, and this was one of Marx’s fundamental insights. The ownership class under capitalism just melded with the feudal lords historically and eventually became the new lords. That melding is still going on in some countries, notably the UK. In the US is not as obvious, since the colonies were less feudal. But if one looks at the chain of title of land in some the original colonies it goes back to the royal land grants.

    ESM Reply:

    @Jose Guilherme,

    @Tom:

    “It’s basically a capitalistic solution and capitalism is fundamentally opposed to democracy Marxism in that it privileges ownership and makes work a commodity.”

    Fixed that sentence for you Tom. I wouldn’t want anybody to accuse you of abusing the meanings of words.

    WARREN MOSLER Reply:

    the monetary system functions first to provision govt.
    the jg is an alternative to unemployment and as a transition job necessary to facilitate
    the shift from unemployment to private sector employment as demand picks up.
    you’re missing the point
    you need to re read the 7 dif on this website.

    Tom Hickey Reply:

    @WARREN MOSLER,

    @WARREN MOSLER,

    “there is a moral hazard risk to society wherein if you all can get a ‘living income’ doing his hobby, no one will clean the bathrooms at the hospital, along with millions of other ‘unpleasant’ things we rely on someone doing, etc.”

    That just means the price of what is is “worth” to clean latrines will increase. Now the people doing these things are at the bottom of the social, political, and economic scale and get paid a subsistence wage, if that.

    If a floor is set, e.g., a BIG,, then a truer price will emerge from the market for what workers at the bottom will take to improve satisfaction.

    This is Marx’s basic argument. In an economy in which people are job depend for subsistence and labor is treated as a commodity, then a significant portion of the population is free in name only. Since there aren’t enough bones for every dog, the dogs will knock their bids for work down to next to nothing. And that suits the “job creators” just fine.

    America was a free nation due to its large frontier. That’s been over for some time due to enclose and restrictions of public lands. Now the US is a complex market economy in which a job is needed to survive unless one is disabled and qualifies for disability, or is incarcerated by public expense. That’s the road to serfdom many face who are not “well-born.” For most not “well-born” the option is joining the military, which is really the employer of last resort at present.

    Reply

    Jose Guilherme Reply:

    @Tom Hickey,

    I agree that for lower class Americans the only realistic chance for upper mobility is a career in the military. Walmart type jobs won’t certaiy get them very far.

    Maybe that’s the reason so many among them vote for right wing republicans who promise to keep America “strong” (read: engaged in expensive military adventures).

    It’s only rational self-interest. And it’s high time liberals start trying to understand that.

    WARREN MOSLER Reply:

    agreed that in a good economy those jobs pay a lot more and in real terms.

    i still say a BIG wage that’s too high poses systemic risk

    Save America Reply:

    @Tom Hickey

    “there is a moral hazard risk to society wherein if you all can get a ‘living income’ doing his hobby, no one will clean the bathrooms at the hospital, along with millions of other ‘unpleasant’ things we rely on someone doing”

    Warren I donated years at a VA hospital (sometimes cleaning), you are wrong that people WON’T do things if they can’t get paid for it. In the future machines will do this work (check out irobot) http://www.irobot.com/us/

    So when the janitors are replaced by machines, and even volunteers can’t do it because the machines do it better, what then?

    To andrews point and weiners predictions, as technology takes over, and makes billions of humans redundant under our current political structure, making me have warren’s business cards to be able to eat is going to cause a lot of problems, it is not necessary.

    “The reason why men enter into society is the preservation of their property..”- John Locke

    As hickey points out, as my rights and property are taken away by the government, I don’t want to be part of it anymore.

    WARREN MOSLER Reply:

    ‘you are wrong that people WON’T do things if they can’t get paid for it’

    I never said that

    ESM Reply:

    @Tom Hickey,

    @SA:

    “>>> making me have warren’s business cards to be able to eat is going to cause a lot of problems …”

    You’re not going to want Warren’s business cards to eat. Food will be essentially free. You’ll want Warren’s business cards to book a trip to the new dude ranch on the moon where you can frolic like a ballet dancer despite your 400lbs of blubber.

    Save America Reply:

    @Tom Hickey, You’ll want Warren’s business cards to book a trip to the new dude ranch on the moon where you can frolic like a ballet dancer despite your 400lbs of blubber.

    LOL! Boy do you have me pegged, I sure do love dude ranches and frolicking! ;)

    But warren has educated me, imports are a benefit, I am gonna let that chinese astronaut go to the moon and frolick and film it while I watch it on youporn. And check this out ESM http://oculusvr.com/ a new large field of view, low latency HMD endorsed by Space GURU DOOM guy john carmack no less! I would short dude ranches and moon trips if I were you, and go long HMD’s and the matrix NEO! LOL!

    Neil Wilson Reply:

    @WARREN MOSLER,

    I don’t think that’s necessarily the case. You would have to get *more* to do the unpleasant tasks.

    Shouldn’t that be the case?

    Remember that JG and BiG have precisely the same underlying function – state purchases spare labour at fixed price/fixed quantity. It’s just that JG realises there is an economic effect from *making sure* that there are enough opportunities for everyone to demonstrate that they are hireable.

    I don’t see it as black and white alternative, more a continuum between pure ‘Dole’ at one end, to ‘Workhouse/Chain Gang’ at the other. Neither extreme is acceptable: morally or economically.

    Reply

    Unforgiven Reply:

    @Neil Wilson,

    Perhaps a difference wrt state money vs existing private sector money? Depends on how quickly the transition happens, average level of JG (or BIG) stock and ????

    WARREN MOSLER Reply:

    Agreed.
    I would think the unpleasant work would earn more under competitive market conditions with adequate aggregate demand?
    Maybe i’m wrong?

    The JG is an alternative to unemployment.
    The unemployed are people looking for paid work.

    Taxes function in the first instance to create unemployment that the govt. can subsequently employ.
    It’s about provisioning govt.

    BIG removes that state of unemployment taxes are meant to create.
    Hence the systemic risk.

    Andrew Reply:

    @WARREN MOSLER,

    I did actually say society would have to provide sufficient incentive to do the undesirable jobs. If you do an undesirable job you would get a better income. Seems everyone missed that bit.

    Reply

  13. Dan Lynch says:

    Warren said: “In real terms, the allocation of the production of goods and services to a region is a real cost to that region. This is because that region has to supply its labor to the production of output that is directed to the public sector for the mutual benefit of all the regions.”

    Warren, you assume that labor is a bad thing — a “cost.” (You also use the same flawed assumption for the subject of free trade.)

    The reality is that most people prefer to have a job. A job is a good thing, not a bad thing.

    Since we generally have a surplus of labor, society does not give up anything by being “required to supply labor.”

    Reply

    WARREN MOSLER Reply:

    I assume labor is a cost of production, not a ‘bad thing’ per se.
    (And hardly a flawed assumption. In fact, it happens to be shared by ever mainstream economist as well.)
    Yes, most people prefer to have a job, and especially prefer to have a paycheck- maybe even more so in some cases!
    (How many people, if offered the choice, would work next Wed. or take the day off with full pay, for example?)

    And we only have a ‘labor surplus’ because govt. spending is insufficient to cover the need to pay taxes and residual desires to net save. there is no lack of things to do and/or things that need doing.

    good time to re read ‘the 7dif’ thanks?

    Reply

    Jose Guilherme Reply:

    @WARREN MOSLER,

    With the same reasoning one could argue that full employment (not to mention the job guarantee :))is a cost since everybody has got to show up for work, which is clearly burdensome…

    In fact, if Germany reinvested all her current account surplus with the PIGS in said 4 countries, she would probably guarantee a situation close to full employment in all of them. But then, why should she do that out of solidarity instead of economics if they don’t even speak German over there?

    Since 1991, btw, the Federal government of Germany has been unilaterally transfering funds to the former eastern Germany to the tune of some 70 billion 2011 euros a year (see the “Der Spiegel” supplement dedicated to unification of November, 2011).

    No wonder then that German unification has been a partial success, at a minimum, while the EMU is an abject failure – and will remain so unless someone (the ECB?) emerges to foot the unpaid past, present and future bill.

    Reply

    roger erickson Reply:

    @Jose Guilherme,

    Jose, here’s where another axiom of organized nation states appears. The net capabilities of a nation are a product of the capabilities of it’s individuals, and the group practice they get.

    This fact about any “networked” population was summed up well by Walter Shewhart, back in the 1920s.
    “In any complex system, the highest cost, by far, is always the cost-of-coordination.”
    (e.g., look at the DoD; training is more important than equipment)
    Obvious corollary: “Highest return, by far, is always the return-on-coordination.” [so obvious Shewhart apparently didn't bother stating it explicitly]

    Point is that without jobs & practice coordinating them, the Output of a nation falls dramatically short of it’s potential output. In adaptive terms, that’s always group suicide, since some group somewhere won’t sit on their duffs, watching their Output Gap grow out of sight.

    WARREN MOSLER Reply:

    Yes! The jg is a real cost to the workers, as I’ve stated from the beginning, now going on 20 years.

    That’s why/how it ‘defines’ the value of the currency.
    One has to sell his time for the $8/hr pay of the transition job.
    That defines the value of the dollar at $8/hr of transition job work.

    And if you give a ‘living wage’ for doing nothing, and it’s universally available, you are defining the value of the dollar at 0, and risking hyper inflation if everyone decided to take that job.

    Tom Hickey Reply:

    @Warren Mosler,

    “And if you give a ‘living wage’ for doing nothing, and it’s universally available, you are defining the value of the dollar at 0, and risking hyper inflation if everyone decided to take that job.”

    That presupposes that the economy cannot create sufficient jobs of a higher level of satisfaction to attract workers away from near subsistence level floor wage, which is still work and not leisure. Were that the case, hyperinflation would be the least of the country’s concerns. The productive economy would have to be dysfunctional for that to happen.

    WARREN MOSLER Reply:

    i’m saying it would introduce systemic risk.
    not that the worst would necessarily happen.

    roger erickson Reply:

    @Jose Guilherme,

    Warren: “i’m saying it would introduce systemic risk.”

    Warren, there’s also supra-systemic risk in NOT distributing current resources well enough to optimize the quality of distributed decision-making.

    We’re always in an adaptive race, not just a leisurely stroll.

    Neil Wilson Reply:

    I see that as simplistic Warren and really a logical fallacy. There is no evidence that the work that a transition job does is going to be any more economically productive than a individual receiving a living income.

    Those that want to get one will create visible output in either situation – with the JG on a job programme and with a BiG in a volunteer situation.

    Those who don’t care, either won’t take the Job Guarantee job, or could even be negatively productive from a pure efficiency point of view – taking more to supervise than they produce.

    I would suggest that the anchor buffer is those that want to get on and that policy should concentrate on making sure those that want to get on can get on.

    There is always going to be a rump that you can do little with to make them economically efficient. Then policy has to decide whether to ignore them, or actually spend resources to make them feel like they are helping.

    So its a mixed argument of economic efficiency and doing ‘what is right’ to make every individual feel a valuable member of society.

    WARREN MOSLER Reply:

    For this point it’s not about the quality of the output of the jg worker.
    It’s about the value of the currency being what must be done, at the margin, to get it.

    Go back to the room full of people with the man at the only exit with a gun who works for me.
    I say it takes 5 of my cards to get your self past my man and out of the room.
    Now my cards have value. People will work for them, buy them, etc.

    But if I say anyone who doesn’t have to work can get 5 free cards, what is their value?
    How much work can I get in exchange for my cards?

    Save America Reply:

    @Jose Guilherme, “So its a mixed argument of economic efficiency and doing ‘what is right’ to make every individual feel a valuable member of society.”

    Weiner was adamant that once we got into many billions of humans and technology advanced enough to supply basic needs to most of them without their own labor required, the capitalist system would have to break down and be changed or we would face ww3. If my only worth to this world is doing useless busy work so I can get green pieces of paper to feed myself and my kids, I don’t feel very useful.

    roger erickson Reply:

    @Jose Guilherme,

    Neil, Warren, SaveAmerica;
    Several things run together here.

    1) We don’t HAVE logical networks. That’s partly where Weiner seems stiff. The following will seem dense, but it sums a lot quickly.

    We fail when we presume that there are absolute relationships, not analog probability functions.

    In contrast, all complex systems are conglomerates built up as iterative layers, one on top of the last. Every known system is held together by infinite permutations of interdependencies that are each probability curves, not fixed interdependencies. The result is that networks of analog probability functions allow more degree of freedom than we can presently predict. We have zero predictive power about what we’re capable of, and have always been wrong to doubt ourselves.

    If we can imagine physics, chemistry, biochemistry, biology .. then remind yourself that we have culture-chemistry as well. It’s more fluid than we can comprehend, so we shouldn’t be limiting anything unless it’s absolutely necessary to as a way to enable even more options.

    2) That’s why it’s been possible to eventually build up Trillions of individual cells in a typical mammalian physiology, including humans. No offense to Weiner, but it can & will be done for networks of humans. The fact that we’re still learning how is no excuse. It won’t, of course, be called capitalism – which is irrelevant in the long run. Operationally, we always need to be way more audacious. Otherwise, we’ll die of boredom.

    3) It is neither a logical fallacy nor simplistic to explore permutations of hundreds of millions of people having various patterns of guaranteed jobs or guaranteed, minimal living stipends. The closer you look, the less clear the boundary is. Knowledge workers like Buffet, Mosler, Einstein & Weiner spend months or years thinking between insights, or may only have one amazing idea in their whole life. Are they salaried per hour, or do they get a stipend? If we have floating permutations of salaried/stipended humans, does anything but the group outcome matter?

    4) Our goal is to explore our rapidly expanding group options by enabling quality & tempo of distributed decision making.

    Doing that only occurs as a process of discovery & selection, by distributing the resources allowing the distributed decision making.

    Why? Because a culture is a network of analog computing elements [humans] with near infinite degrees of freedom. A culture is a large analog computing system, NOT a digital system with fixed relationships.

    ps: SaveAmerica. You’re right. I haven’t read Weiner in full, but will take your hint & look more. However, from the excerpts you’ve provided it sure seems he’s fully discounting the known history of biology & ecology. Only thing he’s right about is that the future won’t be described as “capitalism.” The very concept is trivial when applied to all the preceding model systems we’ve already studied – both species & ecologies. In fact, given all the symbioses we’re STILL unraveling, there’s no clear dividing line even between species & ecologies. Every human is an ensemble of Trillions of human cells, enveloped & infiltrated by hundreds of trillions of bacterial cells & fungi, which we can’t live without. No one has the slightest idea how many orders of magnitude higher the viral population is that’s living throughout the ecosystem called the human body.

    Why would anyone care about the trivial differences between capitalism, socialism, marxism … tribalism, etc? We’ll consume ‘em all and do things insanely unimaginable … before lunch! :) What the heck happened to American ingenuity? Is it corralled under the Queen’s hat collection, choked by mothballs?

    Neil Wilson Reply:

    @Jose Guilherme,

    “But if I say anyone who doesn’t have to work can get 5 free cards, what is their value?”

    But if it isn’t about the quality of the work, then all you are buying is spare time anyway.

    Which is all you are effectively doing when you give five ‘free’ cards.

    There is no operational difference between buying time and deciding to throw it away (or that the output obtained is valueless) and ‘free’ cards.

    So I’m not sure I’m with the subtlety of your explanation. If quantity and quality of output doesn’t matter, then what does – that an individual merely places themselves at the disposal of a third party to the extent of the time ‘sold’?

    Is that the dividing line between a JG type scheme and a BiG scheme – that an individual’s time must be ‘given up’ if sold even if the purchaser then simply hands it back?

    WARREN MOSLER Reply:

    It’s not spare time. It’s time taken away from other endeavors by the reqiremet to pay the tax.

    I agree that the govt taxing/hiring for useless work does not serve public purpose.
    Better to not tax and/or give the cards away.

    The systemic risk of BIG is that ‘everyone’ goes for it, noting that it could all come apart long before that point.

    roger erickson Reply:

    @Neil,

    “Neil: But if it isn’t about the quality of the work, then all you are buying is spare time anyway.”

    So? One man’s nap is another’s eureka moment. Set a floor to allow both, then SELECT with agility.

    “Neil: There is no operational difference between buying time and deciding to throw it away (or that the output obtained is valueless) and ‘free’ cards.”

    ?? You’re totally discounting the unpredictable nature of innovation & evolution. We have ZERO PREDICTIVE POWER, only selective power. Hence all markets are really just proxies for selection-markets, whether the participants know it or not.

    “Neil: If quantity and quality of output doesn’t matter, then what does – that an individual merely places themselves at the disposal of a third party to the extent of the time ‘sold’?”

    This is getting out of paradigm. Access to dynamic quality outweighs static presumptions about quality and value. Your left foot is always at the disposal of the aggregate rest of your body. How you select to utilize it is up to the aggregate. It may well be held in reserve until the unpredictable instances where it delivers the quality of survival in situations where life or death options present.

    “Neil: Is that the dividing line between a JG type scheme and a BiG scheme – that an individual’s time must be ‘given up’ if sold even if the purchaser then simply hands it back?”

    ?? An agile aggregate will choose floating patterns of both. Otherwise even the UK would have to give up peerages & other granted titles – presently based upon no predictive power whatsoever. We’re not talking about useless, one-size-fits all rules, but the flexibility to increase aggregate agility.

    It’s more pressing to develop the instrumentation to make agile selections (agility = quality x speed; aka adaptive selections).

    Neil, if you’re big on flexible, agile, OpenSource software, why not equally flexible, agile, OpenSource policy? Above all, we need an electorate agile enough to see, explore & select whatever pattern optimally expands our increasing options.

    roger erickson Reply:

    @Warren ,

    “Warren: The systemic risk of BIG is that ‘everyone’ goes for it, noting that it could all come apart long before that point.”

    Exactly. Much of this discussion is based upon rigid extrapolations, even though we already know that every market & culture applies endless conditional exceptions. Just look at English grammar. [I rest my case!]

    I’ll go out on a limb and bet that 2 “floors” will appear within decades, flexibly interleaved.

    1) no privation (i.e., adequate food & shelter for all)

    2) balanced time for service & personal innovation
    (a JG doesn’t have to be 8 hours;
    neither must a BiG guarantee corpulence & sloth)

    No one’s referencing “In Praise of Idleness”
    http://www.zpub.com/notes/idle.html

    That message echoes a phenomenon well known in biology. The cost-of-coordination is exceeded ONLY in proportion to adequate distribution of excess resources. Only when enough excess (time & resources and/or focus) are available does the PROBABILITY of selecting ways to achieve novel capabilities start to rise.

    Necessity may be the mother of invention, but her rate of impregnation & healthy delivery is a function of the number & availability of resource fathers [ SugarDaddies :) ]
    Ditto for the kid’s survival & dissemination.

    Neil Wilson Reply:

    Roger,

    You’ll forgive me, but I do find what you write impenetrable. I have no idea what you just tried to say.

    You’ve obviously got something in your mind about co-ordination that directs everything, but its not coming across clearly at all.

  14. PG says:

    Trade differentials are a consequence of the crisis not its cause.
    The “crisis” is the single currency.

    A commenter Jose Guilherme – to Wray article in

    http://www.economonitor.com/lrwray/2012/07/12/mmt-and-the-euro-are-current-account-imbalances-to-blame-for-the-euro-disaster-part-1/

    put it in a nutshell (European elite should read EMU elite)

    “Perhaps UMKC professors have now a unique chance to explain to European public opinion how the euro screwed the electorates while promoting banks to a level higher than national governments. In today’s EMU money creation is a prerogative of the ECB and commercial banks. The generous European elite, however, will allow peoples to choose at the ballot box governments that may not even create money.”

    Reply

    Save America Reply:

    @PG, Sometimes I swear I think people never reads stuff by Mundell about optimal currency areas.

    Warren says dont bring up politics or deficit myths, but Labor Mobility, effective counter-cyclical policies that affect the USERS of the currency, etc etc make not just the euro a bad idea, but the US dollar not OPTIMAL for all 350 million in the USA. (PS and my peers in the south say they lost a WAR because they let all the production industrial plants be built in the north) But when you see the world through the eyes of a banker, you try to make everything fit your paradigm.

    I don’t see how forcing 1 currency on all of europe was smart before they had union in language, customs, traditions, politics, what the banksters have cost us in lost output from these GAMES they play with us is disgusting. I think euro nations should take back their sovereingty, as well as US states, and decentralize all this power and then be able to give “MONEY” to thier respective citizens and do proper counter-cyclical policies.

    Warren’s blog here has been PROOF POSITIVE that the LARGE centralized governments we have today are EPIC FAILS, they can’t do a few simple things like give money out on a per capita basis as he advocates, or give a jobs gaurantee like he advocates. Warren was able to go to Italy when it had its own total sovereignty and get them to do some of his ideas and try some of his MMT memes, but he can’t get these LARGER more centralized bodies to do it, so why he is working for larger more CENTRAL power, when his own life and blog is proof that he should be going in the other direction seems silly to me! LOL!

    Reply

    Payam Reply:

    @Save America,

    Having seen much of Warren’s comments for over a year now, and being a heterodox economics student going into my third year, I’d say Warren has a good grasp of what he’s talking about. In fact, given the stuff he says it’s as if he’s already studied the heterodox literature, but in fact he probably hasn’t other than some of the macro stuff but even his micro stuff is compatible with sraffians and others. What I’m trying to say here is that Warren knows about market governance/power and the intermingling of power and the state, you don’t need to repeat what he already knows.

    Reply

    Save America Reply:

    @Payam, Dues ex was a great game, that german guy was fun! Too much power by the governments in that game.

    “Warren knows about market governance/power and the intermingling of power and the state, you don’t need to repeat what he already knows.”

    I am not as smart as you dude, all I know is that in warren’s 7dif book he was able to go to italy in the past and be listened too, and today it seems all his memes fall on deaf ears. Pre EU, warren had 25 political units he could have possibly talked to and influence, post EU, seems like there is one body to talk too and they aren’t listening.

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