Hi like what this chap is saying.I would like to add:
it could take many years for the masses to listen and understand mmt scope despite the speed of social networks.This unless mmt will be taugh to schools and universities and debated in the news more frequently.In a word EDUCATION.Even in a commercial way if that will work.
For now I see only a few intelligent and sensitive people interested on Mosler work ( more or less the same kind of individuals who started the enlightenment in the 18 century ) and when I talk about economy issues with friends or colleagues they either spit the same deficit/austerity/national corruption as cause/solution or abandon themselves in the usual conspiracy ‘stoned style’ fantasies ( if they lack of brain cells ).
Bests
Enrico UK
PS for those who live to survive with their low income and no parents back…sorry Mosler it takes them an extra efforts even to stop and read your work.They are busy to survive most of their time.
I don’t think Cullen Roche is an “arch enemy” of MMT and I don’t believe he has posted any personal attacks on Warren Mosler. Having said that, he has gone in a different direction (within the last year or so) from MMT and is now calling his work Monetary Realism (MR). He claims his goal with MR is to be descriptive of just how our monetary system works and not be prescriptive. I believe one of his major disagreements with MMT is the jobs guarantee. I enjoy both Mosler and Roche, and credit Roche with pointing me to Mosler’s site.
Roche has written a paper that discusses the differences in MMT and MR. I would encourage all to find it on Cullen’s Pragcap site.
“as the government creates greater and greater entitlements, the incentive to work versus the incentive to stay homes tilts in favor of staying home”
This is your political backhand of a broad group of people you would appear to deem inconsequential, not a factual observation. There is zero evidence to support what you say. Canada provides greater entitlements than the US. Their economy is healthier, and their population better educated.
@MRW,
“as the government creates greater and greater entitlements, the incentive to work versus the incentive to stay homes tilts in favor of staying home”
Why do some people believe that people who use social benefit programs are lazy? In 2007, our unemployment rate was 3%….that showed when people can find work, they will be glad to work.
Most of the social benefits go to the elderly and disadvantaged. Yes, there are those exceptions who will try to get over on the system, but the reality is they are exceptions.
So the question is are we better off as a nation providing social benefits that help the elderly and disadvantaged or should instead sack those programs so a few malfeasants can’t get over?
“Why do some people believe that people who use social benefit programs are lazy?”
Regardless of whether the vast majority of people who use social benefits programs are deserving of the help, the way these programs are generally designed creates perverse incentives, i.e. they discourage work.
This is the latest analysis to make the rounds. “… the single mom [in Pennsylvania] is better off earning gross income of $29,000 … than … $69,000 …”
I think we can all agree that the marginal tax rate should never exceed 100%, yet there are many places at the bottom of the income scale where it does.
In rebuttal to Warren’s comment above, the moral hazard associated with Social Security is that a perfectly healthy, productive 65-yr old is discouraged from working because he is facing a much higher effective marginal income tax rate (for the same level of income) than a 55-yr old. This link shows that the effective marginal tax rate for a senior in the 25% bracket is actually over 46%.
How is that a moral hazard when there aren’t enough jobs to go around in the first place?
The social security is designed to remove the individual from the workforce to free up the place for somebody else – but without causing a drop in demand.
That’s one of the main arguments for a retirement pension in the first place. It’s a way of addressing the paradox of productivity.
“How is that a moral hazard when there aren’t enough jobs to go around in the first place?”
That’s a separate problem. Even after the economy recovers and we are operating near full capacity, we will still have a social security system which is discouraging healthy and productive people from working.
@Greg:
“You mean that taxes create moral hazard?”
Well, not moral hazard per se. But the converse of moral hazard. By punishing work, it raises the relative value of not working.
“How old people should be before they should no longer be “encouraged” to work?”
Biological age is rather a poor metric. People should no longer be encouraged to work when their production is insufficient to compensate them for the leisure time that work requires them to forego. There are 45 year olds who are beat to hell and where it is cruel to require them to work 8 hour days. There are 70 year olds for whom work is actually a health benefit.
“a 39.6% marginal tax rate keeps people from working? even laffer doesn’t think that?”
Of course it keeps people from working, at the margins. Raising the tax rate from 35% to 39.6% is not a huge deal, but the effect is not zero. There might not be many examples of people who go from 40 hours/wk to 0, but there will be plenty who go from 50 hours/wk to 45.
“and by moral hazard i was thinking that knowing you will get social security when you are older doesn’t cause you to work less when you are younger.”
Probably not to work less, but I do think it causes people to consume more when they’re younger. As Neil alluded to, that is not a problem in the current environment, but there are times when it is.
I’d guess raising the marginal tax rate will cause people to work more hours to sustain take home pay. but that’s just my guess.
and it’s hard to make the case that social security causes younger people to consume more for a given income when most already consume pretty much all of their income, and often more than that. And if unemployment does get too low we can cross that bridge when we come to it.
also, the evidence i’ve seen is that when we allowed people collecting social security to work and not lose their social security hours worked by people collecting social security dramatically increased
Ed Reply: December 5th, 2012 at 4:34 pm
@ESM, i took a look at your chart reference about the mom with 4 kids grossing 29k living large with govt benies vs a “hard working” family of 4 making 69k.
my initial thought is she has 4 kids, a job that pays her 29k, but apparently no health insurance. so the govt is picking up where the private sector has decided to shrug a moral responsibility to it’s employees for the sake of profit. so, she is compared to a family of 4, assuming 2 spouses, which earns 69k, assuming this family has company provided health insurance.
i would bet a gazillion dollars, this single mom of four would be glad to earn 69k with benies and not have to ask for any assistance if she could find that job. I would dare to guess collecting govt isn’t all that much fun and most folks would avoid it when ever possible (granted there are exceptions, but they are exceptions)
we could dovetail this discussion into how companies are providing less and less to employees so it’s getting harder and harder for an avg person to get by. I used to have an anti union slate, but am rethinking that perspective after reading about what’s happening to Avg worker pay
“so, she is compared to a family of 4, assuming 2 spouses, which earns 69k, assuming this family has company provided health insurance.”
First, the presentation uses as its model family a single mom with two young kids. Not four kids, not 2 spouses. It is comparing apples to apples.
Second, it only compares a $29K gross wage to a $69K gross wage. Sure, if the $69K job came with health benefits, personal assistant, personal masseuse, personal chef, use of a company car, and two offsite meetings per year at luxurious hotels in the Bahamas, one could argue that the $69K job was a better deal. Of course, the $69K job might also require working longer hours or perhaps working in a salt mine naked, so it might be a wash.
Third, you’re missing the point that even if the employer is capturing the government benefits by underpaying the single mom and not giving her health insurance, it’s still a perverse system.
“we could dovetail this discussion into how companies are providing less and less to employees so it’s getting harder and harder for an avg person to get by.”
I’m not convinced that companies were providing less and less to employees before the recent bout of high unemployment. Wage stagnation was more likely a consequence of a larger fraction of employee compensation diverted to health benefits (which our tax code encourages by the way – another perversion).
However, if your implication is that the government is being forced to step in because companies are getting away with exploiting their workers, I would argue that you have causality reversed. Companies are increasingly taking advantage of the fact that workers are facing high implicit marginal tax rates (over 100% in some cases) by offering them lower total compensation. Just wait until Obamacare kicks in. It’s going to be really interesting.
Nihat Reply: December 5th, 2012 at 11:54 pm
Say, one has had and continues to have health insurance through employer. What will change for him/her when Obamacare kicks in? What’s in there other than the “tax penalty” for people who don’t have insurance? (“Tax penalty” or whatever it needs to be called after the SCOTUS ruling.)
“What will change for him/her when Obamacare kicks in?”
The federal government will now be determining what a qualifying health plan is, with a whole new smorgasbord of mandated coverage, mandated copayments, mandated coinsurance, no caps, community rating, etc. All of this crap will raise the cost of health insurance, and many companies will find it attractive to dump their insurance plans altogether and simply pay the per employee penalty. Of course if a company can get below the 50 or 30 full-time worker thresholds then the penalty is even lower, or nonexistent, respectively, so there are plenty of arbitrage opportunities for HR departments.
The beautiful thing about Obamacare is that Congress didn’t even specify the details. It simply gave HHS bureaucrats plenary power to write the rules, which no doubt will be done with plenty of help from various lobbyists. Forcing Catholic institutions to provide insurance that offers free contraception to female employees is just the beginning. This is going to be fun!
“That’s a separate problem. Even after the economy recovers and we are operating near full capacity, we will still have a social security system which is discouraging healthy and productive people from working”
It’s not a separate problem at all. The lack of jobs is the problem. And one way to deal with the lack of jobs is to retire people that are not required on an income.
The policy is to discard their output so that you don’t have to discard somebody else’s. And you then get to full employment on the current level of circulation. Whatever output you then get from the ‘retired’ is whatever they supply voluntarily to fill their day.
It’s an alternative view of how you get to full output.
‘‘(g) ADMINISTRATION AND PROCEDURE.—
‘‘(1) IN GENERAL.—The penalty provided by this section shall be paid upon notice and demand by the Secretary, and except as provided in paragraph (2), shall be assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68.
‘‘(2) SPECIAL RULES.—Notwithstanding any other provision of law—
‘‘(A) WAIVER OF CRIMINAL PENALTIES.—In the case of any failure by a taxpayer to timely pay any penalty imposed by this section, such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure.
‘‘(B) LIMITATIONS ON LIENS AND LEVIES.—The Secretary shall not—
‘‘(i) file notice of lien with respect to any property of a taxpayer by reason of any failure to pay the penalty imposed by this section, or
‘‘(ii) levy on any such property with respect to such failure. [my emphasis] http://www.gpo.gov/fdsys/pkg/BILLS-111hr3590enr/pdf/BILLS-111hr3590enr.pdf
The “Secretary” is the Secretary of the Treasury.
Helps to skim the document, although reading this sh*t is like drilling a nail through your forehead.
“The penalty provided by this section shall be paid upon notice and demand by the Secretary” is the famous tax penalty everyone talks about. Reread the passage and what follows now. Understand why the Supreme Chief went along with it? ;-) “SPECIAL RULES: Notwithstanding any other provision of law.” Read it.
That’s for the individual mandate. I was referring to the employer mandate.
Of course the individual mandate can still be enforced by netting what is owed against tax refund checks (or raising the paycheck withholding amounts in the first place), which might work for most of the people who would be tempted to forgo insurance.
Probably a bigger problem than the potential ineffectiveness of the individual mandate is community rating. Not only can people game the system (as they do already in Massachusetts) by buying the basic insurance plan while they’re healthy and switching to the premium insurance plan when they’re in need of an expensive medical procedure (and then going back when they’re done), but the whole system creates yet another huge wealth transfer system from the young to the old. As if we don’t have enough of that already.
“The policy is to discard their output so that you don’t have to discard somebody else’s.”
But why do that by age? Especially since 65 isn’t even old anymore. It’s the new 50! The US already has a disability insurance/pension program. You have to apply. Your age can obviously be a factor, but it doesn’t make sense to qualify people automatically just because they turned 65.
And as I’ve mentioned before, studies have hinted that continuing to work is an important causal factor in keeping you healthy as you age. Of course the NHS probably considers that a negative, since it postpones your inevitable trip on the Liverpool Care Pathway.
Probably because that’s what we’ve always done. I’m not saying it is a good system. I’m saying that is the approach.
“Of course the NHS probably considers that a negative, since it postpones your inevitable trip on the Liverpool Care Pathway.”
Probably best not to comment on something when you have no experience of it.
The NHS saved my wife and first born from complications, my sister-in-law from near death from pre-eclampsia, and is currently implementing a lengthy course of physio for a great aunt to sort out a knee replacement botched by a private hospital paid for through private medical insurance.
The majority of UK citizens are very glad it is there. Much as Canadians are glad of their system and Aussies of theirs.
“Probably best not to comment on something when you have no experience of it.”
Why is that? I can’t learn about something by reading about it or talking to others? And for the record, my family does have experience with the NHS when we lived in England in the 1960s, and it was a very negative one. An idiot doctor almost killed my mother by putting her on a course of sulfa drugs to which she was allergic. It was only through the aggressive intervention of my father that her life was spared. Not that such an anecdote is evidence of anything except that it was very difficult to switch doctors in England in 1967.
“The majority of UK citizens are very glad it is there. Much as Canadians are glad of their system and Aussies of theirs.”
They don’t really have a point of reference, so their perceived happiness is not evidence that there isn’t a much better system. In any case, it’s the age old problem of hidden costs. People tend to get tricked into believing they’re getting something for free.
“It is the US system that is the freak here.”
I am not happy with the US system either, but we’re going in the wrong direction.
Ed Reply: December 6th, 2012 at 5:47 pm
@ESM, hey esm, back to the single mom scenerio for a sec. ok, i miss read the scenerio a bit.
But my point with it is still valid. It reads as if the single mom is a part of romney’s moocher society. when in fact the govt assistance is designed to give some basic parity with what she can’t receive from her employer, …enough salary to provide for a family and health insurance for children who otherwise would not have it.
another problem i have with it is this single mom is getting up and going to work doing the best she can, but it’s not enough to “get by”. so she’s not lazy, sitting home on the couch watching opra all day.
as i mentioned, i am sure she and the majority would rather gross the 69k at a job with benefits than require govt assistance. but if they can’t earn that 69k, i just can’t see how helping with basic necessities is perverse.
what i can see as perverse is using that money to instead fund wars that were started to eliminate wmd’s that only existed in someone’s imagination….:-)
Nihat Reply: December 6th, 2012 at 6:27 pm
Ed, for all we know (or for the sake of argument, let’s assume), she may not be skilled enough to receive $69K in wages and benefits from any employer. But that doesn’t change the fact that she has children to raise. Most federal aid dollars she receives are probably for the well being of her children, and the return on that investment from the society’s perspective should be remembered, too.
“I’d guess raising the marginal tax rate will cause people to work more hours to sustain take home pay. but that’s just my guess.”
Yeah, they’ll work more hours trying to figure out how to avoid paying tax. I’m already spending gobs of time doing that for myself and my clients. By the way, there is going to be a massive bump in capital gains tax revenue because so many people are realizing gains now before the rate goes from 15% to 23.8% in 2013. I’m not sure the economists are putting that into their models.
“and it’s hard to make the case that social security causes younger people to consume more for a given income when most already consume pretty much all of their income, and often more than that.”
Have you ever heard of the Fox Butterfieldeffect? James Taranto references examples of it all the time. Your statement could easily have been written by Mr. Butterfield himself.
“It reads as if the single mom is a part of romney’s moocher society.”
Well, I didn’t really read it that way. I also think Romney got a bum rap on the 47% thing (although he did grossly overstate the percentages). His point was that from a political perspective people who receive more in government benefits than they pay in taxes are probably going to be less receptive to a politician promising to shrink government.
Anyhoo, my point wasn’t that a single mom making $29K and getting government benefits was lazy. Far from it. I salute her, and I certainly don’t begrudge her those benefits. My point was that she shouldn’t be punished with losing those benefits at the rate of more than $1 per $1 of gross wages. Warren’s idea of offering a guaranteed job with sufficient wages and benefits to survive on is a better solution obviously. If the private sector employer wants to compete, then it has to offer something better.
“what i can see as perverse is using that money to instead fund wars that were started to eliminate wmd’s that only existed in someone’s imagination”
Well, I wonder where we’d be now if Saddam Hussein was still in power. Nuclear arms race between Iran and Iraq perhaps? We will never know the counterfactual, but there are some plausible nightmare scenarios.
esm, from the first paragraph above the graph ” for increasingly more it is now more lucrative – in the form of actual disposable income – to sit, do nothing, and collect various welfare entitlements, than to work.”
that’s what made the article read as if they were calling people using social benefits, moochers. mean while the single mom they use for an example in the graph “IS” working but only earning 29k. And that’s exactly the problem most people had with romneys 47%..but i hear your point on that too.
i guess there has to be a cross over point where increasing salary yields less govt assistance, actually seems to make sense to me that benefits should taper off as salary grows, no?
as for warrens jobs idea, its an 8hr job for those not working. while it’s a great start to help people become less unproductive, $8hr is a far cry from enough to live on these days. the bigger issue i see is that people with the education/skills needed for better paying jobs have to take less money for those jobs. i know some major corps are laying off higher earning employees just to quietly back fill with lower salary because they can.
iraq was never an issue without wmds, although it will be one now when we leave and the shiite majority buddies up with iran….who really is developing nukes….sorry to inject politics into the discusion….:-)
“actually seems to make sense to me that benefits should taper off as salary grows, no?”
Well, it could taper off more slowly so low-income people don’t face ridiculously high marginal income tax rates. And it’s not even necessary to have benefits taper off. Why not give everybody the same benefits (but in the form of money)? If aggregate demand is too high, then you could also raise taxes. This is actually what Warren’s health care plan would do, effectively, and it’s what I would recommend if a national sales tax was implemented (rebate to every resident the sales tax on the first $25K of spending).
“$8hr is a far cry from enough to live on these days.”
I think the guaranteed job would come with benefits, or at least those benefits would still be provided regardless of whether you worked or not.
“the bigger issue i see is that people with the education/skills needed for better paying jobs have to take less money for those jobs.”
One of the things holding down wages is globalization which has American workers competing with people willing to do the same job for less in China or India. But if you take a macro view of this effect (more goods and services produced for Americans to consume at lower cost), you see that this shouldn’t be a bad thing. It should be win-win. And it is to a large extent, although it could be more if the government understood MMT.
I’ve often referred here to hidden costs. But there are also hidden benefits, or at least benefits not recognized as originating from things which produce more tangible costs. So the US auto worker bemoans his shrinking wages, but at the same time shops at Walmart or Costco and gets to buy a 50″ HDTV for $600.
People really do take a lot of stuff for granted. They bemoan the stagnant wages of the middle class for the 30 years, but ignore the absolutely mind-boggling increase in the mean (and median) standard of living over that same time. For example, I’d rather be a middle class American living in 2012 than John D. Rockefeller living in 1912.
Ed Reply: December 5th, 2012 at 3:45 pm
@MRW, ok, i have to say, i’m with neil w. on this one. working till 100? are you serious? i’m not there yet, but at 65, you just begin to tire out. on the other hand i would dare to guess most companies are biased (although they would never admit it) about hiring people over 50, maybe even 40, no?
i can’t get past no letting 65+ collect ss. does that make me a bad mmt person? will mmt not work unless you keep people working past 65?
no, it’s just that there is no reason to discourage people who want to work from working.
doesn’t mean they should be hired to do something they can’t do
there used to be a claw back, but Clinton reversed that after maybe age 67 or so.
So you get to keep all your social security regardless at that point.
“The relevant income for Social Security taxation includes all items which are normally part of your adjusted gross income, plus tax-exempt interest income, plus 50% of your Social Security benefits. (Historically, the 50% represents the fact that half of your Social Security contributions were made by your employer and thus not taxed.) [2]
There are two relevant base amounts; unlike most income limits in the tax code, they are not adjusted for inflation. The lower base is $25,000 if you are single, $32,000 if married filing jointly. The upper base is $34,000 if you are single, $44,000 if married filing jointly.[3]
If your relevant income is below the lower base, none of your benefits are taxable. For every $1 of relevant income between the lower and upper bases, 50 cents of your Social Security benefits become taxable, up to 50% of your total benefits. For every $1 of relevant income above the upper bases, 85 cents of your Social Security benefits become taxable, up to a total taxable amount of 85% of your benefits.[4]”
This was a great video post and enjoyed it much. I like the reference to Columbus and Copernicus and how hard it was for people to accept the world wasn’t flat and the earth revolved around the sun.
Very similar to today’s beliefs on monetary issues. Watching all the debt on taxes/debt/stimulus I can only conclude a vast number of people enjoy economic self flagellation, when in reality there is no need for it.
For the record, the idea that there was ever a widely held belief among human beings that the Earth was flat is a fallacy. Anybody who ever stood on a hill or gazed at a calm ocean could see the curvature of the Earth, and the ancient Greeks calculated the radius of the Earth to admirable precision.
Columbus was rightly ridiculed for claiming that he could get to the East Indies by sailing West. Not because he would fall off the edge of the Earth, but because it was too damn far. His assumptions about how far away the East Indies were was completely wrong, and he was lucky that he ran into the Americas along the way.
Actually, Ed, the only ‘people’ who believed the flat earth and sun around the earth biz were the forced members of the Catholic Church. It was a belief from 200 AD to 1700 AD. Deniers were put to death, like Fra Giordano in 1600 AD in a Roman square.
Not so the rest of the world. The Chinese in 1400 AD (look it up in National Geographic) started the first of many sails with their great ships. They were the size of football fields. The first tour included 321 ships (if i remember correctly) like this. The little ship in the lower left is Columbus’ for comparison: http://en.wikipedia.org/wiki/File:Zheng_He%27s_ship_compared_to_Columbus%27s.jpg
The Chinese built these in their Nanking shipyards (operational since 400 BC, not AD) with Arabic maritime technology, so advanced the technology has been lost to history, according to Chinese historians on BBC a few years ago. They carried an army of 28,000 men. They introduced watertight compartments that permitted swimming pools, laundry rooms, separated animal compartments for fresh food, and granaries side-by-side. They carried gold and silk for trade.
They were nine-sail ships that navigated with Arabic astronomical knowledge unknown to the west. They reached Italy sometime in the early quarter of the 15th C, according to the National Geographic, on one of their tours. So who knows who introduced what to whom.
I noticed that there is now a statement of dispute by “historians” below the picture of the treasure ship linked above. The date of the dispute is a 2005 book. Zheng He was ignored by the Chinese for centuries, and his history unknown during the communist period. They have rediscovered him in the last 20 years. But it was an anniversary in either 2008 or 2009 that produced a BBC radio investigation into him. A Chinese military historian had recently found documents that described the size and purpose of the ships, and how they built them. (They were built in dry dock, then 10,000 Chinese workers mounted on something akin to bicycle wheels peddling hard lowered them into the water in Nanjing.) Using the newly discovered blueprints, the Chinese rebuilt one of the ships for the anniversary. The BBC reporter was inside it commenting on the mammoth size of the thing, and it wasn’t even the largest of the group. I tend to give more weight to the Chinese discovery of their records at Nanjing, which post-dated the 2005 book. Of course, anything Muslim that is not relegated to goat-herding is considered suspect these days. Admiral Zheng He was a Muslim eunuch.
@MRW, esm/msw, thanks for the history lesson, the picture of the ship was astonishing too.
my point though was more about how through out history, people have a hard time changing their formed beliefs, even in the face of evidenced facts….it’s hard.
You’re right. Dr. Norman Doidge wrote a wonderful book called “The Brain That Changes Itself” about the breakthroughs in neuroplasticity of the brain culminating the early 00s. Every new thought or discovery is like a ski run through virgin snow. Soon, however, it becomes a hardened rut.
The smartest people I know, and the most interesting to me, are not those armed with advanced degrees whose reputation and moolah depend upon the defense of those degreed careers, but the people who can rise to the occasion of a new direction. Two years ago, I was a deficit dove/hawk. I didn’t know what I thought. But I thought I knew what I was talking about. Then I ran into MMT — which should be called Modern Monetary Science, fercrissake, not Theory ;-) — and I was stunned that I was so ignorant about the basic operations.
It has been a joy to learn about this. I could never understand economics before. It didn’t make sense. I was missing the secret handshake or something. And I’m not stupid. I have three advanced degrees. (Even the Eustace Mullins books on the Fed Reserve were missing something, and I’ve read every piece of literature on that POV as well; I’ll read anything.) But since 1999, I’ve discovered that just about everything I knew was useless, and I’ve had to reeducate myself about everything I thought was true, which has entailed endless research. In short, I think the greatest thing is to get new facts. It expands your worldview and your place in it. And it starts with ‘how does it work’ or ‘exactly how did it happen’. The curlicues of applied meaning — or social engineering or mythologizing — come later.
@MRW, yeah, good post mrw. i too had been conditioned to believe govt deficit/debt is bad. turns out the more i learn, i too am astonished at how off i was. thank god for the internet, so you can get more info than fox/cnbc slanted views.
@MRW,
“Another element in Aryabhata’s model, the śīghrocca, the basic planetary period in relation to the Sun, is seen by some historians as a sign of an underlying heliocentric model” from http://en.wikipedia.org/wiki/Aryabhata
Aryabhata (476–550 CE) was the first in the line of great mathematician-astronomers from the classical age of Indian mathematics and Indian astronomy. His most famous works are the Āryabhaṭīya (499 CE, when he was 23 years old)[5] and the Arya-siddhanta.
The works of Aryabhata dealt with mainly mathematics and astronomy. He also worked on the approximation for pi.
He was not only the first to find the radius of the earth but was the only one in ancient time including the Greeks and the Romans to find the volume of the earth.
Great info, and thank you. I will make corrections in my future pronouncements about this. Although in the AD era, we generally assign the first universities still standing to the Arabs, which is true for the period, it was the Indians who created the first one thousands of years ago. I’ve forgotten the name, and it lays in ruins today.
The other thing you guys did was invent Vedic math which is one of the most interesting systems I’ve encountered. God almighty, I wish we could educate our kids properly. W all functioning at 10th capacity in the brain department.
BTW, what was the relationship between the Sumerians and Indians? Didn’t the Sumerians come up with the first ephemerii and an astronomical system? We don’t have much info because the. Cuneiform tablets are fragmentary. I hope these records are some of the stuff that Saddam Hussein asked the British Museum to protect for him in September 2002 when Bush Cheney Rice and Rumfeld were whooping war cries on Meet The Press.
Additionally, as the government creates greater and greater entitlements, the incentive to work versus the incentive to stay homes tilts in favor of staying home. Thus, real output sags (as in Japan) but demand for real output continues to grow with the population (unlike Japan). In this instance, you’ll ultimately see weak growth and high inflation.
The problem with MMT (Mike) is that deficits are generally evaluated year to year as adequate or inadequate with little regard for policy. To quote Warren, “deficits become a problem when the public sector is competing with the private sector for scarce resources”. Or, “when government is lifting the offer instead of having its bid hit”, it’s inflationary.” However, to the extent that permanent spending policies are put in place, there will be a time when the private sector is operating near full capacity while at the same time permanent government spending with cause competition between public and private for scarce resources, causing inflation. At that point, significant tax hikes will be needed but won’t likely be enough.
@WARREN MOSLER, Perhaps but the permanency of spending programs makes them far less attractive than the automatic stabilizers and more immediate impact of using taxes as the appropriate vehicle for implementing policy.
Agreed. If he wants to absorb MMT into Keynesianism and keep calling it Keynesianism then the more the merrier. Most prominent economists (including Krugman!) are fairly old and probably too attached to their own school to jump ship to “post-Keynesianism”. But if Keynesians see core MMT ideas as a refinement of their own school then they may be willing to embrace them, or at least accept other people embracing them.
This is not to say that MMT folks should rebrand themselves as Keynesians. MMT still has major policy prescriptions (ELR, zero interest rate) that Krugman does not advocate. Plus the sexy new branding appeals to a different audience that old-school Keynesianism. Keep it as a separate school and maybe one day PBS will put Warren on with Krugman and an Austrian and the audience will say “Oh, two of them agree, that Austrian guy must be wrong.”
Warren, please tell Mike that the Earth revolves around the Sun, not the other way around.
By the way, I think Peter won this round with Mike and others 6 years ago. Pretty embarrassing. It takes a lot of chutzpah to maintain your blustery schtick after that.
@WARREN MOSLER, When the facts change, I change my mind. LOL!!!
Obviously I MEANT “earth revolves around the sun.” Listen to the whole thing.
And Schiff “won” NOTHING. He was bearish on housing since at least 2002, when I first met him. Furthemore, NO ONE new the extent of mortgage fraud that was going on…NO ONE.
Schiff is a broken clock who appeared to be right once. He’s been wrong ever since on everything and is currently wrong on housing, which is recovering.
“Obviously I MEANT “earth revolves around the sun.” Listen to the whole thing.”
I never believed you thought the Sun revolves around the Earth, even before hearing your reference to Copernicus at the end. My point was that you should do another take since it’s not professional to have such a glaring mistake in a 6 minute video. Of course my real point is that you should dial back the bluster.
Low-key works so much better. First, if you end up being wrong about a prediction (which can happen even if you are using the correct model), you have less crow to eat. Second, if you end up being right, the people with the opposing view are less likely to be irrationally defensive and hate your guts. Third, you have more credibility with people on the fence. And fourth, you leave room open for real debate, which could lead to greater understanding on both sides.
MMT is not the whole truth. I have been engaged in a discussion with a friend for whom this is all new (he just read 7DIF at my suggestion), and he has posed some interesting questions/concerns which are not trivial. If he consents, I’ll post some of the discussion here.
John O'Connell Reply: December 3rd, 2012 at 12:58 pm
In mid 2006 I said the deficit was too small and demand would sag until it got weak enough for the deficit to get up over 5% if govt. didn’t move proactively
In q2 2008 we had a 170 billion stimulus and growth went from about 0 to about 2.5%. My partner karim said it didn’t look so good for q3 with the stimulus ended.
I said they’ll just do another one. The first one ‘worked’, didn’t seem like there was any mystery to it…
Anyway, when it started to fall apart in q3 the govt. did absolutely nothing for demand. Wasn’t until 9 months later that a fiscal adjustment was implemented.
Point is, the financial crisis did not have to spill over to the real economy the way it did. It was a total failure of govt. to not make the obvious adjustments.
Anyway, to your point, I did predict that without proactive fiscal the deficit would get to 5%+ the ‘ugly’ way- a slow down- which it did. But I had no idea of the magnitude of lender fraud that was taking place. And on this blog I made a ‘buy stocks and go play golf’ call in March 09 after I thought the deficit was high enough to support a doubling of stocks from depressed levels, though not enough for full employment, etc.
What is really wrong in Austrian School of Economics are not the predictions they make (as they may have accidentally seen a thing or two a bit earlier than people immersed in the conventional economics – despite the fact that the most of the Austrian predictions were wrong anyway).
What makes to me Austrian economics a pseudo-science in the modern context is a thing called “praxeology”.
“Praxeology is the distinctive methodology of the Austrian School. ”
…
“Praxeology rests on the fundamental axiom that individual human beings act, that is, on the primordial fact that individuals engage in conscious actions toward chosen goals. This concept of action contrasts to purely reflexive, or knee-jerk, behavior, which is not directed toward goals. The praxeological method spins out by verbal deduction the logical implications of that primordial fact. In short, praxeological economics is the structure of logical implications of the fact that individuals act. This structure is built on the fundamental axiom of action, and has a few subsidiary axioms, such as that individuals vary and that human beings regard leisure as a valuable good. Any skeptic about deducing from such a simple base an entire system of economics, I refer to Mises’s Human Action. Furthermore, since praxeology begins with a true axiom, A, all the propositions that can be deduced from this axiom must also be true. For if A implies B, and A is true, then B must also be true.
Let us consider some of the immediate implications of the action axiom. Action implies that the individual’s behavior is purposive, in short, that it is directed toward goals. Furthermore, the fact of his action implies that he has consciously chosen certain means to reach his goals. Since he wishes to attain these goals, they must be valuable to him; accordingly he must have values that govern his choices. That he employs means implies that he believes he has the technological knowledge that certain means will achieve his desired ends. Let us note that praxeology does not assume that a person’s choice of values or goals is wise or proper or that he has chosen the technologically correct method of reaching them. All that praxeology asserts is that the individual actor adopts goals and believes, whether erroneously or correctly, that he can arrive at them by the employment of certain means.”
I would not follow the usual way of attacking Austrian economics developed by the intellectual successors of J.M.Keynes.
The best and most direct way of debunking these myths comes from the modern microeconomic school called Behavioural Economics which has evolved from modern Social Psychology. The myth of a “rational” human actor has been contradicted by so many relevant experiments that sticking to the 18th-century proto-psychology in microeconomics seems to be as appropriate as using the geocentric model of the Solar system to calculate the trajectory of a NASA Martian lander. Of course the Austrians reject that critique but the counter-arguments seem to be very week to me.
I would highly recommend reading books written by Dan Ariely which introduce the concept of “predictable irrationality” as the real engine of human action: http://danariely.com/the-books/
Monica Smith Reply: December 2nd, 2012 at 12:56 pm
@Adam (ak), Some people act on the basis of information that’s been processed and evaluated and some people merely respond to internal or external prompts. The latter are what our Uncle Cons refer to as “responsible.” Some are aware of their environment and others are clueless. Some manipulate their material environment; others manipulate the people who can do things for them. Willard Romney refers to the latter as “makers” without, apparently realizing that he is conflating creating with coercing. He does not appreciate that to coerce is to take without justification. So, he had the takers and makers exactly reversed.
What I meant was not to poke fun at the conservatives but rather to expose the following, probably not well known “feature” of the methodology used in Austrian economics, the complete rejection of empirical methodology:
—
“One major concern was whether psychology should avail itself of the experimental method. After all, psychology too deals with human beings, and in particular with their mental states and dispositions. So, does the Austrian believe that the method of the natural sciences—in other words, the formulation of a hypothesis that is then subjected to experimental verification or refutation—is as inappropriate in psychology as it is in economics?
In response, I pointed out that Mises was quite clear on the dividing line between psychology and praxeology: Psychology deals with theories to explain why people choose certain ends, or how people will act in certain settings. Praxeology, on the other hand, deals with the logical implications of the fact that people have ends and the fact that they act to achieve them. Because of this difference, it may be entirely appropriate for psychologists to engage in experimental testing of hypotheses, while utterly misguided for economists to similarly ape the method of physics.”
“To illustrate the difference, let us compare two “laws” from the respective disciplines. Psychologists have conducted many experiments confirming the apparent truth of the “bystander effect,” which states that people will be less likely to help someone (a stranded motorist, for example) if there are a large number of other bystanders.”
…
“In contrast, let us analyze a typical economic law: If the government runs a deficit, then interest rates will be higher than they otherwise would have been. Now this law too seems commonsensical (just as the bystander effect), but it is more than that: Once the economist takes care to precisely specify the definitions of the terms, he or she can actually prove the proposition as an exercise in pure logic. There is no reason to go out and “test” whether it is true, because this would miss the point. It would be as nonsensical as “testing” whether the interior angles of a triangle (in Euclidean geometry) add up to 180 degrees.”
This is precisely how the Austrians have chosen to peddle utter nonsense and ignore the reality. I could have not found a better example than one invented Dr Murphy.
Matt Franko Reply: December 2nd, 2012 at 10:39 am
@ESM, I used to listen to Mike and Warren on Mike’s show before and leading up to 2008 and they both would rationally discus the situation and go over the govts options to deal with what was happening in real time…
They both then agreed that what was needed were Fed (as per charter) providing full liquidity to banks and PDs and a fiscal adjustment (1st part of the fiscal we got from Bush/Cheney in June time frame).
Then govt just dropped the ball in the fall and ended up doing exaclty what Warren and Mike had been discussing anyway later after much ‘lamentation and gnashing of teeth’.
If any “mistake” was made, it could only have been in underestimating the near criminal neglect on the part of policy makers.
This we might want to keep in mind as we face this so-called “fiscal cliff” that these same unqualified persons in authority have set up before us presently…
Monica Smith Reply: December 3rd, 2012 at 11:34 am
@Matt Franko, Not sure I’d call it “near criminal neglect.” The people we’ve hired to manage our natural and man-made resources have figured out how to commit crimes and not get caught — by not doing their jobs. So, there’s no evidence to collect and “prove” the crime. But, if we define crime as an unjust deprivation of rights, then people who have been hired to provide the necessities of life are, at a minimum, committing fraud when they collect their pay. I think in the railroad industry such behavior used to be called “featherbedding.” The Capitol Hill Gang have developed it to an art. My moniker of the moment for them is Our Uncle Cons.
Most believe as you do that this is some sort of conspiracy and they know better, I take the position that they are (mostly, 99%) all “stupid”.
Since there is no evidence that any of these people know different than what they assert (borrowing from China, ‘out of money”, etc…) you cant make the case for criminal fraud. Being stupid is not fraud…
However perhaps a case can be made for negligence as based on what they have prescribed as a “cure” and the dismal results we can witness, they should self-assess that they are unqualified and RESIGN; and let someone else have a crack at it… short of doing that it perhaps starts to become a case of negligence as they continue to be ineffective and are not seeking alternatives nor resigning… rsp,
Someone said elsewhere that MMT is in a selling phase. This rant is a good example of how to turn off your potential customers. We need someone who can get good ratings on whatever show he keeps going on, else the word will spread only slowly, and the other points of view will continue to get wider exposure and gain wider acceptance. If you want to be Christopher Columbus, you need a Queen Isabella to sponsor you, and then you need to bring something back from the new world, to prove that you can really do it. The empirical evidence that ordinary people can see (e.g., Clinton surplus coincident with a strong economy and low unemployment) is just as powerful as the evidence of all the ships that sailed over the horizon and never returned. Absent such proof, the advertising has to be more convincing than simply saying that anyone who disagrees with you is just stupid. You mock them for that tactic, and then you use it yourself. It’s just not persuasive.
@John O’Connell,
Queen Isabella is certainly not anywhere to be seen in the offices of the main stream media. They are all bought and paid for by the current elite.
The blogosphere is where the message is growing. The fact that Krugman and Stiglitz have come around speaks volumes. It’s going to be up to the likes of them to make inroads to the Queen. It may come relatively soon, when some of the hedge funds betting against Japan will wonder what went wrong.
I’ll have to start reading Krugman again. In the past, I have found him to be a lacky for any liberal Democrat, opposed to any policy that could be MMT-friendly, such as Romney’s tax cut, if it were proposed by a Republican.
If he is now opposing Obama’s economic plans, based on MMT principles, then that would be a big plus for MMT. He has a widely heard voice. Maybe he could make some favorable comments about MMT on this blog, or on NEP, or his own blog, or This Week, or his MSM columns, if he has truly “come around”. I see him on This Week whenever he’s on, and I have never heard him utter the sound “MMT”, or any related policy proposal.
Just read the last week or so of his blog. Several mentions of “Austrian” and “Keynes” and his own pet theory, “liquidity trap”, but “MMT” is nowhere to be seen. Also, the occasional slam of a Republican and defense of a Democrat.
Today’s entry struck me right away:
“my own answer is still what it has been all along: the time for austerity is when the economy is close enough to full employment …”
He is consistent, if nothing else: a true deficit dove, never a deficit owl.
Interestingly, there is one shoutout for Cullen Roche, who was, last I heard, the main arch-enemy of MMT. At least Cullen acknowledges the existence of MMT, which is more than Krugman does.
I don’t see any evidence of any “coming around”. Maybe someone can point it out for me.
“Interestingly, there is one shoutout for Cullen Roche, who was, last I heard, the main arch-enemy of MMT. At least Cullen acknowledges the existence of MMT, which is more than Krugman does.”
Why is Cullen Roche the main arch-enemy?
Ben Johannson Reply: December 2nd, 2012 at 7:33 am
“For we have our own currency — and almost all of our debt, both private and public, is denominated in dollars. So our government, unlike the Greek government, literally can’t run out of money. After all, it can print the stuff. So there’s almost no risk that America will default on its debt — I’d say no risk at all if it weren’t for the possibility that Republicans would once again try to hold the nation hostage over the debt ceiling.
I’m not really sure. It appears to me that a theoretical disagreement escalated into personal attacks, and it went downhill from there. Maybe it’s all blown over by now?
I heard on TV yesterday one of the talking heads (not even an economist) say straight out that of course the US could print as much money as it needed to avoid default. In fact, that’s what the deficit hawks are most afraid of. Far from it not being acknowledged by any other school of economics, it is universally known inside and outside the profession.
As for it not causing inflation while the economy is depressed, that is the core deficit dove belief. Not unique to MMT. Krugman favors deficit reduction, just not all at once. He does not understand sectoral balances. If he occasionally says something consistent with MMT, it’s purely accidental.
Incidentally, his slam on the opposition party in your quote is an example of my point that he is mainly a political lackey (did I spell it right this time?) more interested in the triumph of his side than in correct policy.
If he wants to tell Obama that the US can’t be broke or run out of money, then that would be useful. I’m sure Obama listens to him. Maybe Obama also knows it, but doesn’t want to let on.
Yes, Krugman is a thoroughly dishonest political hack. No doubt about that. He ceased being an economist 15 years ago.
But even his current pronouncements (which he would not be making if Repubs were in charge and wanted to cut taxes to simulate the economy) are misguided.
The truly important insight of MMT is that there is virtually no difference between Treasuries and cash. Krugman still believes that the issuance of Treasuries somehow absorbs buying power from the private sector and dampens aggregate demand. Thus he sees the $11T of Treasury debt as an overhang that will have to be dealt with by running smaller deficits or even surpluses in the future. He just doesn’t think we need to do anything about it right now because there’s a Democrat in the White House.
“The truly important insight of MMT is that there is virtually no difference between Treasuries and cash. Krugman still believes that the issuance of Treasuries somehow absorbs buying power from the private sector and dampens aggregate demand.”
And he is wrong to believe that because there is no coercion in the exercise? I mean, treasures do not coerce money out of active economy, but instead –to the extent they are sold on the market– soak up monies already seeking a parking spot, so to speak? Is that why he is wrong?
That’s the way Warren puts it. Treasuries are priced at indifference levels. Perhaps if Treasuries did not exist, and people had to choose between earning 0% on cash (rather than 2% on Treasuries) and spending the cash, they would be more inclined to spend, and aggregate demand would be somewhat higher. But the Fed always has it within its power to adjust the short-term interest rate on cash to tinker with aggregate demand in that way.
I think this is a very elegant way of describing the situation, but perhaps not complete. Some might be concerned about a rush for the exits if there were ever a widespread need to raise cash. For example, stocks are priced at indifference levels too, but not everyone can sell at the same time.
From a purely operational perspective, though, the Fed stands ready to lend an unlimited amount of cash/reserves at the short-term interest rate against Treasuries, with almost 0% haircut, to any large bank with Fed repo lines. In turn, this makes the liquidity for Treasuries almost perfect since a bank can and will always buy them from you at a slight discount. Since the liquidity of Treasuries is great, and the value is stable (doesn’t deviate much from par, especially for short-term bills and notes), nobody who has wealth tied up in Treasuries is precluded from spending whenever they want. Basically, they’re no different from demand deposits. You can sell them whenever you want, for T+1 settle (even same day settle if you’re really desperate).
History has borne this out. Whenever there is a financial crisis, prices of Treasuries actually increase and liquidity improves. To some extent it is a self-fulfilling prophecy, but it is rooted in a fundamental operational truth, which is that the Fed will lend against Treasuries in any amount on very favorable terms.
Nihat Reply: December 4th, 2012 at 3:25 pm
ESM, wow, very interesting. Thanks. I suppose this is the way any CB could operate, not just the Fed, right?
WalidM Reply: December 1st, 2012 at 3:06 pm
@John O’Connell,
If we could merge mike and warren into one we could get the perfect salesman for MMT.
Monica Smith Reply: December 2nd, 2012 at 12:42 pm
@John O’Connell, That the Clinton economy was beneficial in the long term is an illusion. De-industrialization continued apace and much “growth” was merely the result of churning, which continued the transfer of assets to the one percent and the deterioration of our infra-structure apace. Building new schools did not improve the quality of the education provided therein.
It pays to be a pessimist. If you’re making predictions, negative ones are better than positive. If your negative predictions turn out wrong, all your critics will be happy and, if they are right, you can be satisfied at having been right.
forget money&debt you see ONLY a world of industry & machine&farm&service not saturated.. why aren’t saturated ? because the mechanism of coordination betwenn this businessis&customers doesen’t work, and this mechanism are money&debt that are better of barter but often doesn’t work.. MMT could be a technical metode to manage this vicious circle..
BUT: I have a Fisolofical Great Doubt on Capitalism (does’nt matters if Austrian or Chicago or Keynes or MMT) : it isn’t possible in future that passing from 2 billion personS (Western) to 4 billion persons (Brics) with same level of Consumption of Rationing World Commodity.. a change on the very long term will be inevitable.. and will be less consumptions for everyone.. that is less richness..that doesn’t mean less wellbeing if this process will be pacific.. but will mean poverty and harm if will be aggressive (economic war or army war)..
“BUT: I have a Fisolofical Great Doubt on Capitalism (does’nt matters if Austrian or Chicago or Keynes or MMT) : it isn’t possible in future that passing from 2 billion personS (Western) to 4 billion persons (Brics) with same level of Consumption of Rationing World Commodity.. a change on the very long term will be inevitable.. and will be less consumptions for everyone.. that is less richness..that doesn’t mean less wellbeing if this process will be pacific.. but will mean poverty and harm if will be aggressive (economic war or army war)..”
Correct me if I am mistaken, but it sounds to me like you are making a Malthusian argument. Regarding the issue you raise of economic and/or actual warfare, I think if MMT is to be taken seriously by policy makers, it can no longer afford to remain silent on this issue. Speaking as someone who straddles theory and policy initiatives of MMT, Austrian school and Supply Side disciplines, I would love to hear some voices from MMT weigh in on approaching war with Iran and on the National Defense Authorization Act, (NDAA).
In connection with this, the Senate has just endorsed new harsh economic sanctions on Iran to prevent it from acquiring nuclear weapons in a bipartisan 94 to 0 vote in an amendment to the $631 billion defense bill. The Senate also acted to curtail President Obama’s power to command the military to arrest U.S. citizens suspected of terrorism and indefinitely detain them without trial, access to a lawyer in an amendment backed by Liberal Democrats and Libertarian Republicans.
As a libertarian (small l) some of the powers assumed by government after 9/11 bother me, but we have been engaged by a new sort of enemy in new ways and a different kind of war, and we need to have some defense against their tactics. But we, the people, also must have effective defense against the misuse of government powers for personal gain, like imprisoning a guy for making a movie, for instance. Like many other situations, there is a tension between multiple objectives. It’s not an economic problem, but a political and philosophical one, and not unique.
As far as Iran, and any other international sorts of issues, I think it would help if the US were more clear about what would guide our actions, what our real interests are. War with Iran will not harm the US, except to alientate friends of Iran. Just like the war with Iraq (I mean the military part, the first week or so). The question is how to engage Iran, and other unfriendly governments, in a common vision of the world’s future that they can accept, other than their vision, which is the total destruction of their enemy.
Perhaps if they bought into MMT, they could see a possibility of prosperity and liberty for their people without bringing harm to others. Or maybe the rulers of those governments simply don’t care about their people’s prosperity and liberty, and nothing will change until they are replaced by new leaders who do care.
“As a libertarian (small l) some of the powers assumed by government after 9/11 bother me…”
It should bother you because incrementally, step by step, this is how societies morph into fascist authoritarian systems. If we surrender our liberty to achieve security, we will get neither.
John O'Connell Reply: December 3rd, 2012 at 12:53 pm
Yes, I’ve seen that thought before. Ben Franklin, isn’t it?
We do need to catch the bad guys before they do us in, though. We’re doing pretty OK with that, not perfect. The losses to freedom seem often unrelated to the successes against the terrorists. I think the number of terrorists caught by new TSA procedures is zero. I suppose if they (the fascist authoritarians) were good enough, they could be violating all sorts of rights of innocent citizens, and we wouldn’t know. But then they didn’t need 9/11 for that, did they?
“Yes, I’ve seen that thought before. Ben Franklin, isn’t it?”
Yes.
“We do need to catch the bad guys before they do us in, though. We’re doing pretty OK with that, not perfect. The losses to freedom seem often unrelated to the successes against the terrorists…..I suppose if they (the fascist authoritarians) were good enough, they could be violating all sorts of rights of innocent citizens, and we wouldn’t know. But then they didn’t need 9/11 for that, did they?”
You seem pretty tolerant of the fascist authoritarians, but be careful what you say or put in print in emails or internet blogs.
Monica Smith Reply: December 1st, 2012 at 10:58 am
@Piero from Italy, Humans don’t consume. We use, abuse, transform and reuse. What makes a big difference is the time-frame. And time, unfortunately, is something most economic analysis doesn’t take into account. So, the results are most often wrong.
Just keep in mind that the global community is currently producing enough food to provide adequate nutrition for 9 billion people. Since we are only a little more than 6 billion, and many are poorly fed, it’s obvious that we are wasting a lot. Better management is needed — not of people, but of resources and material assets. Talk is not enough.
Hi like what this chap is saying.I would like to add:
it could take many years for the masses to listen and understand mmt scope despite the speed of social networks.This unless mmt will be taugh to schools and universities and debated in the news more frequently.In a word EDUCATION.Even in a commercial way if that will work.
For now I see only a few intelligent and sensitive people interested on Mosler work ( more or less the same kind of individuals who started the enlightenment in the 18 century ) and when I talk about economy issues with friends or colleagues they either spit the same deficit/austerity/national corruption as cause/solution or abandon themselves in the usual conspiracy ‘stoned style’ fantasies ( if they lack of brain cells ).
Bests
Enrico UK
PS for those who live to survive with their low income and no parents back…sorry Mosler it takes them an extra efforts even to stop and read your work.They are busy to survive most of their time.
Reply
I don’t think Cullen Roche is an “arch enemy” of MMT and I don’t believe he has posted any personal attacks on Warren Mosler. Having said that, he has gone in a different direction (within the last year or so) from MMT and is now calling his work Monetary Realism (MR). He claims his goal with MR is to be descriptive of just how our monetary system works and not be prescriptive. I believe one of his major disagreements with MMT is the jobs guarantee. I enjoy both Mosler and Roche, and credit Roche with pointing me to Mosler’s site.
Roche has written a paper that discusses the differences in MMT and MR. I would encourage all to find it on Cullen’s Pragcap site.
Reply
WARREN MOSLER Reply:
December 5th, 2012 at 2:18 pm
and even then I don’t think he has issues with me, just with some ‘mmt proponents’ of which I have some issues now and then as well
;)
Reply
@IJR,
“as the government creates greater and greater entitlements, the incentive to work versus the incentive to stay homes tilts in favor of staying home”
This is your political backhand of a broad group of people you would appear to deem inconsequential, not a factual observation. There is zero evidence to support what you say. Canada provides greater entitlements than the US. Their economy is healthier, and their population better educated.
And you misrepresent what is happening in Japan.
Reply
WARREN MOSLER Reply:
December 4th, 2012 at 5:19 pm
there is no moral hazard associated with social security that I know of
Reply
Ed Reply:
December 4th, 2012 at 9:07 pm
@MRW,
“as the government creates greater and greater entitlements, the incentive to work versus the incentive to stay homes tilts in favor of staying home”
Why do some people believe that people who use social benefit programs are lazy? In 2007, our unemployment rate was 3%….that showed when people can find work, they will be glad to work.
Most of the social benefits go to the elderly and disadvantaged. Yes, there are those exceptions who will try to get over on the system, but the reality is they are exceptions.
So the question is are we better off as a nation providing social benefits that help the elderly and disadvantaged or should instead sack those programs so a few malfeasants can’t get over?
Reply
ESM Reply:
December 5th, 2012 at 10:00 am
@Ed,
“Why do some people believe that people who use social benefit programs are lazy?”
Regardless of whether the vast majority of people who use social benefits programs are deserving of the help, the way these programs are generally designed creates perverse incentives, i.e. they discourage work.
This is the latest analysis to make the rounds. “… the single mom [in Pennsylvania] is better off earning gross income of $29,000 … than … $69,000 …”
I think we can all agree that the marginal tax rate should never exceed 100%, yet there are many places at the bottom of the income scale where it does.
In rebuttal to Warren’s comment above, the moral hazard associated with Social Security is that a perfectly healthy, productive 65-yr old is discouraged from working because he is facing a much higher effective marginal income tax rate (for the same level of income) than a 55-yr old. This link shows that the effective marginal tax rate for a senior in the 25% bracket is actually over 46%.
Reply
Neil Wilson Reply:
December 5th, 2012 at 10:48 am
@ESM,
How is that a moral hazard when there aren’t enough jobs to go around in the first place?
The social security is designed to remove the individual from the workforce to free up the place for somebody else – but without causing a drop in demand.
That’s one of the main arguments for a retirement pension in the first place. It’s a way of addressing the paradox of productivity.
WARREN MOSLER Reply:
December 5th, 2012 at 2:32 pm
i’d structure soc sec so as to least discourage people from working.
Gary Reply:
December 5th, 2012 at 1:59 pm
@ESM,
You mean that taxes create moral hazard?
How old people should be before they should no longer be “encouraged” to work?
WARREN MOSLER Reply:
December 5th, 2012 at 2:53 pm
100?
WARREN MOSLER Reply:
December 5th, 2012 at 2:30 pm
a 39.6% marginal tax rate keeps people from working? even laffer doesn’t think that?
and by moral hazard i was thinking that knowing you will get social security when you are older doesn’t cause you to work less when you are younger.
ESM Reply:
December 5th, 2012 at 3:52 pm
@ESM,
@Neil:
“How is that a moral hazard when there aren’t enough jobs to go around in the first place?”
That’s a separate problem. Even after the economy recovers and we are operating near full capacity, we will still have a social security system which is discouraging healthy and productive people from working.
@Greg:
“You mean that taxes create moral hazard?”
Well, not moral hazard per se. But the converse of moral hazard. By punishing work, it raises the relative value of not working.
“How old people should be before they should no longer be “encouraged” to work?”
Biological age is rather a poor metric. People should no longer be encouraged to work when their production is insufficient to compensate them for the leisure time that work requires them to forego. There are 45 year olds who are beat to hell and where it is cruel to require them to work 8 hour days. There are 70 year olds for whom work is actually a health benefit.
“a 39.6% marginal tax rate keeps people from working? even laffer doesn’t think that?”
Of course it keeps people from working, at the margins. Raising the tax rate from 35% to 39.6% is not a huge deal, but the effect is not zero. There might not be many examples of people who go from 40 hours/wk to 0, but there will be plenty who go from 50 hours/wk to 45.
“and by moral hazard i was thinking that knowing you will get social security when you are older doesn’t cause you to work less when you are younger.”
Probably not to work less, but I do think it causes people to consume more when they’re younger. As Neil alluded to, that is not a problem in the current environment, but there are times when it is.
WARREN MOSLER Reply:
December 6th, 2012 at 1:10 pm
I’d guess raising the marginal tax rate will cause people to work more hours to sustain take home pay. but that’s just my guess.
and it’s hard to make the case that social security causes younger people to consume more for a given income when most already consume pretty much all of their income, and often more than that. And if unemployment does get too low we can cross that bridge when we come to it.
also, the evidence i’ve seen is that when we allowed people collecting social security to work and not lose their social security hours worked by people collecting social security dramatically increased
Ed Reply:
December 5th, 2012 at 4:34 pm
@ESM, i took a look at your chart reference about the mom with 4 kids grossing 29k living large with govt benies vs a “hard working” family of 4 making 69k.
my initial thought is she has 4 kids, a job that pays her 29k, but apparently no health insurance. so the govt is picking up where the private sector has decided to shrug a moral responsibility to it’s employees for the sake of profit. so, she is compared to a family of 4, assuming 2 spouses, which earns 69k, assuming this family has company provided health insurance.
i would bet a gazillion dollars, this single mom of four would be glad to earn 69k with benies and not have to ask for any assistance if she could find that job. I would dare to guess collecting govt isn’t all that much fun and most folks would avoid it when ever possible (granted there are exceptions, but they are exceptions)
we could dovetail this discussion into how companies are providing less and less to employees so it’s getting harder and harder for an avg person to get by. I used to have an anti union slate, but am rethinking that perspective after reading about what’s happening to Avg worker pay
ESM Reply:
December 5th, 2012 at 11:14 pm
@ESM,
@Ed:
“so, she is compared to a family of 4, assuming 2 spouses, which earns 69k, assuming this family has company provided health insurance.”
First, the presentation uses as its model family a single mom with two young kids. Not four kids, not 2 spouses. It is comparing apples to apples.
Second, it only compares a $29K gross wage to a $69K gross wage. Sure, if the $69K job came with health benefits, personal assistant, personal masseuse, personal chef, use of a company car, and two offsite meetings per year at luxurious hotels in the Bahamas, one could argue that the $69K job was a better deal. Of course, the $69K job might also require working longer hours or perhaps working in a salt mine naked, so it might be a wash.
Third, you’re missing the point that even if the employer is capturing the government benefits by underpaying the single mom and not giving her health insurance, it’s still a perverse system.
“we could dovetail this discussion into how companies are providing less and less to employees so it’s getting harder and harder for an avg person to get by.”
I’m not convinced that companies were providing less and less to employees before the recent bout of high unemployment. Wage stagnation was more likely a consequence of a larger fraction of employee compensation diverted to health benefits (which our tax code encourages by the way – another perversion).
However, if your implication is that the government is being forced to step in because companies are getting away with exploiting their workers, I would argue that you have causality reversed. Companies are increasingly taking advantage of the fact that workers are facing high implicit marginal tax rates (over 100% in some cases) by offering them lower total compensation. Just wait until Obamacare kicks in. It’s going to be really interesting.
Nihat Reply:
December 5th, 2012 at 11:54 pm
Say, one has had and continues to have health insurance through employer. What will change for him/her when Obamacare kicks in? What’s in there other than the “tax penalty” for people who don’t have insurance? (“Tax penalty” or whatever it needs to be called after the SCOTUS ruling.)
ESM Reply:
December 6th, 2012 at 12:36 am
@ESM,
@Nihat:
“What will change for him/her when Obamacare kicks in?”
The federal government will now be determining what a qualifying health plan is, with a whole new smorgasbord of mandated coverage, mandated copayments, mandated coinsurance, no caps, community rating, etc. All of this crap will raise the cost of health insurance, and many companies will find it attractive to dump their insurance plans altogether and simply pay the per employee penalty. Of course if a company can get below the 50 or 30 full-time worker thresholds then the penalty is even lower, or nonexistent, respectively, so there are plenty of arbitrage opportunities for HR departments.
The beautiful thing about Obamacare is that Congress didn’t even specify the details. It simply gave HHS bureaucrats plenary power to write the rules, which no doubt will be done with plenty of help from various lobbyists. Forcing Catholic institutions to provide insurance that offers free contraception to female employees is just the beginning. This is going to be fun!
Neil Wilson Reply:
December 6th, 2012 at 6:35 am
@ESM,
“That’s a separate problem. Even after the economy recovers and we are operating near full capacity, we will still have a social security system which is discouraging healthy and productive people from working”
It’s not a separate problem at all. The lack of jobs is the problem. And one way to deal with the lack of jobs is to retire people that are not required on an income.
The policy is to discard their output so that you don’t have to discard somebody else’s. And you then get to full employment on the current level of circulation. Whatever output you then get from the ‘retired’ is whatever they supply voluntarily to fill their day.
It’s an alternative view of how you get to full output.
MRW Reply:
December 6th, 2012 at 6:55 am
@ESM,
Simply pay what per employee penalty?
From page 131 of the final version of the Act:
‘‘(g) ADMINISTRATION AND PROCEDURE.—
‘‘(1) IN GENERAL.—The penalty provided by this section shall be paid upon notice and demand by the Secretary, and except as provided in paragraph (2), shall be assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68.
‘‘(2) SPECIAL RULES.—Notwithstanding any other provision of law—
‘‘(A) WAIVER OF CRIMINAL PENALTIES.—In the case of any failure by a taxpayer to timely pay any penalty imposed by this section, such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure.
‘‘(B) LIMITATIONS ON LIENS AND LEVIES.—The Secretary shall not—
‘‘(i) file notice of lien with respect to any property of a taxpayer by reason of any failure to pay the penalty imposed by this section, or
‘‘(ii) levy on any such property with respect to such failure. [my emphasis]
http://www.gpo.gov/fdsys/pkg/BILLS-111hr3590enr/pdf/BILLS-111hr3590enr.pdf
The “Secretary” is the Secretary of the Treasury.
Helps to skim the document, although reading this sh*t is like drilling a nail through your forehead.
“The penalty provided by this section shall be paid upon notice and demand by the Secretary” is the famous tax penalty everyone talks about. Reread the passage and what follows now. Understand why the Supreme Chief went along with it? ;-) “SPECIAL RULES: Notwithstanding any other provision of law.” Read it.
There is no penalty.
ESM Reply:
December 6th, 2012 at 10:13 am
@ESM,
@MRW:
That’s for the individual mandate. I was referring to the employer mandate.
Of course the individual mandate can still be enforced by netting what is owed against tax refund checks (or raising the paycheck withholding amounts in the first place), which might work for most of the people who would be tempted to forgo insurance.
Probably a bigger problem than the potential ineffectiveness of the individual mandate is community rating. Not only can people game the system (as they do already in Massachusetts) by buying the basic insurance plan while they’re healthy and switching to the premium insurance plan when they’re in need of an expensive medical procedure (and then going back when they’re done), but the whole system creates yet another huge wealth transfer system from the young to the old. As if we don’t have enough of that already.
ESM Reply:
December 6th, 2012 at 10:23 am
@ESM,
@Neil:
“The policy is to discard their output so that you don’t have to discard somebody else’s.”
But why do that by age? Especially since 65 isn’t even old anymore. It’s the new 50! The US already has a disability insurance/pension program. You have to apply. Your age can obviously be a factor, but it doesn’t make sense to qualify people automatically just because they turned 65.
And as I’ve mentioned before, studies have hinted that continuing to work is an important causal factor in keeping you healthy as you age. Of course the NHS probably considers that a negative, since it postpones your inevitable trip on the Liverpool Care Pathway.
Neil Wilson Reply:
December 6th, 2012 at 12:21 pm
@ESM,
“But why do that by age?”
Probably because that’s what we’ve always done. I’m not saying it is a good system. I’m saying that is the approach.
“Of course the NHS probably considers that a negative, since it postpones your inevitable trip on the Liverpool Care Pathway.”
Probably best not to comment on something when you have no experience of it.
The NHS saved my wife and first born from complications, my sister-in-law from near death from pre-eclampsia, and is currently implementing a lengthy course of physio for a great aunt to sort out a knee replacement botched by a private hospital paid for through private medical insurance.
The majority of UK citizens are very glad it is there. Much as Canadians are glad of their system and Aussies of theirs.
It is the US system that is the freak here.
ESM Reply:
December 6th, 2012 at 2:40 pm
@ESM,
@Neil:
“Probably best not to comment on something when you have no experience of it.”
Why is that? I can’t learn about something by reading about it or talking to others? And for the record, my family does have experience with the NHS when we lived in England in the 1960s, and it was a very negative one. An idiot doctor almost killed my mother by putting her on a course of sulfa drugs to which she was allergic. It was only through the aggressive intervention of my father that her life was spared. Not that such an anecdote is evidence of anything except that it was very difficult to switch doctors in England in 1967.
“The majority of UK citizens are very glad it is there. Much as Canadians are glad of their system and Aussies of theirs.”
They don’t really have a point of reference, so their perceived happiness is not evidence that there isn’t a much better system. In any case, it’s the age old problem of hidden costs. People tend to get tricked into believing they’re getting something for free.
“It is the US system that is the freak here.”
I am not happy with the US system either, but we’re going in the wrong direction.
Ed Reply:
December 6th, 2012 at 5:47 pm
@ESM, hey esm, back to the single mom scenerio for a sec. ok, i miss read the scenerio a bit.
But my point with it is still valid. It reads as if the single mom is a part of romney’s moocher society. when in fact the govt assistance is designed to give some basic parity with what she can’t receive from her employer, …enough salary to provide for a family and health insurance for children who otherwise would not have it.
another problem i have with it is this single mom is getting up and going to work doing the best she can, but it’s not enough to “get by”. so she’s not lazy, sitting home on the couch watching opra all day.
as i mentioned, i am sure she and the majority would rather gross the 69k at a job with benefits than require govt assistance. but if they can’t earn that 69k, i just can’t see how helping with basic necessities is perverse.
what i can see as perverse is using that money to instead fund wars that were started to eliminate wmd’s that only existed in someone’s imagination….:-)
Nihat Reply:
December 6th, 2012 at 6:27 pm
Ed, for all we know (or for the sake of argument, let’s assume), she may not be skilled enough to receive $69K in wages and benefits from any employer. But that doesn’t change the fact that she has children to raise. Most federal aid dollars she receives are probably for the well being of her children, and the return on that investment from the society’s perspective should be remembered, too.
ESM Reply:
December 6th, 2012 at 6:44 pm
@ESM,
@Warren:
“I’d guess raising the marginal tax rate will cause people to work more hours to sustain take home pay. but that’s just my guess.”
Yeah, they’ll work more hours trying to figure out how to avoid paying tax. I’m already spending gobs of time doing that for myself and my clients. By the way, there is going to be a massive bump in capital gains tax revenue because so many people are realizing gains now before the rate goes from 15% to 23.8% in 2013. I’m not sure the economists are putting that into their models.
“and it’s hard to make the case that social security causes younger people to consume more for a given income when most already consume pretty much all of their income, and often more than that.”
Have you ever heard of the Fox Butterfieldeffect? James Taranto references examples of it all the time. Your statement could easily have been written by Mr. Butterfield himself.
ESM Reply:
December 6th, 2012 at 6:53 pm
@ESM,
@Ed:
“It reads as if the single mom is a part of romney’s moocher society.”
Well, I didn’t really read it that way. I also think Romney got a bum rap on the 47% thing (although he did grossly overstate the percentages). His point was that from a political perspective people who receive more in government benefits than they pay in taxes are probably going to be less receptive to a politician promising to shrink government.
Anyhoo, my point wasn’t that a single mom making $29K and getting government benefits was lazy. Far from it. I salute her, and I certainly don’t begrudge her those benefits. My point was that she shouldn’t be punished with losing those benefits at the rate of more than $1 per $1 of gross wages. Warren’s idea of offering a guaranteed job with sufficient wages and benefits to survive on is a better solution obviously. If the private sector employer wants to compete, then it has to offer something better.
“what i can see as perverse is using that money to instead fund wars that were started to eliminate wmd’s that only existed in someone’s imagination”
Well, I wonder where we’d be now if Saddam Hussein was still in power. Nuclear arms race between Iran and Iraq perhaps? We will never know the counterfactual, but there are some plausible nightmare scenarios.
Ed Reply:
December 6th, 2012 at 10:21 pm
@ESM,
nihat, you echoed my thoughts exactly.
esm, from the first paragraph above the graph ” for increasingly more it is now more lucrative – in the form of actual disposable income – to sit, do nothing, and collect various welfare entitlements, than to work.”
that’s what made the article read as if they were calling people using social benefits, moochers. mean while the single mom they use for an example in the graph “IS” working but only earning 29k. And that’s exactly the problem most people had with romneys 47%..but i hear your point on that too.
i guess there has to be a cross over point where increasing salary yields less govt assistance, actually seems to make sense to me that benefits should taper off as salary grows, no?
as for warrens jobs idea, its an 8hr job for those not working. while it’s a great start to help people become less unproductive, $8hr is a far cry from enough to live on these days. the bigger issue i see is that people with the education/skills needed for better paying jobs have to take less money for those jobs. i know some major corps are laying off higher earning employees just to quietly back fill with lower salary because they can.
iraq was never an issue without wmds, although it will be one now when we leave and the shiite majority buddies up with iran….who really is developing nukes….sorry to inject politics into the discusion….:-)
ESM Reply:
December 7th, 2012 at 10:07 am
@ESM,
@Ed:
“actually seems to make sense to me that benefits should taper off as salary grows, no?”
Well, it could taper off more slowly so low-income people don’t face ridiculously high marginal income tax rates. And it’s not even necessary to have benefits taper off. Why not give everybody the same benefits (but in the form of money)? If aggregate demand is too high, then you could also raise taxes. This is actually what Warren’s health care plan would do, effectively, and it’s what I would recommend if a national sales tax was implemented (rebate to every resident the sales tax on the first $25K of spending).
“$8hr is a far cry from enough to live on these days.”
I think the guaranteed job would come with benefits, or at least those benefits would still be provided regardless of whether you worked or not.
“the bigger issue i see is that people with the education/skills needed for better paying jobs have to take less money for those jobs.”
One of the things holding down wages is globalization which has American workers competing with people willing to do the same job for less in China or India. But if you take a macro view of this effect (more goods and services produced for Americans to consume at lower cost), you see that this shouldn’t be a bad thing. It should be win-win. And it is to a large extent, although it could be more if the government understood MMT.
I’ve often referred here to hidden costs. But there are also hidden benefits, or at least benefits not recognized as originating from things which produce more tangible costs. So the US auto worker bemoans his shrinking wages, but at the same time shops at Walmart or Costco and gets to buy a 50″ HDTV for $600.
People really do take a lot of stuff for granted. They bemoan the stagnant wages of the middle class for the 30 years, but ignore the absolutely mind-boggling increase in the mean (and median) standard of living over that same time. For example, I’d rather be a middle class American living in 2012 than John D. Rockefeller living in 1912.
Ed Reply:
December 5th, 2012 at 3:45 pm
@MRW, ok, i have to say, i’m with neil w. on this one. working till 100? are you serious? i’m not there yet, but at 65, you just begin to tire out. on the other hand i would dare to guess most companies are biased (although they would never admit it) about hiring people over 50, maybe even 40, no?
i can’t get past no letting 65+ collect ss. does that make me a bad mmt person? will mmt not work unless you keep people working past 65?
Reply
MRW Reply:
December 6th, 2012 at 5:24 am
@Ed,
Hey, Ed! I didn’t bring up the 100. You need to take that up with the Captain. Scroll up and see who suggested it. ;-)
Reply
Ed Reply:
December 6th, 2012 at 10:22 pm
@MRW, :-), i know
WARREN MOSLER Reply:
December 6th, 2012 at 1:04 pm
no, it’s just that there is no reason to discourage people who want to work from working.
doesn’t mean they should be hired to do something they can’t do
Reply
Neil Wilson Reply:
December 6th, 2012 at 1:31 pm
@WARREN MOSLER,
Is the US pension by right, or does it get clawed back if the pensioner does some paid work?
WARREN MOSLER Reply:
December 6th, 2012 at 2:42 pm
there used to be a claw back, but Clinton reversed that after maybe age 67 or so.
So you get to keep all your social security regardless at that point.
ESM Reply:
December 6th, 2012 at 3:28 pm
@WARREN MOSLER,
“So you get to keep all your social security regardless at that point.”
You have a strange definition of either the word “keep” or “all.”
See here:
“The relevant income for Social Security taxation includes all items which are normally part of your adjusted gross income, plus tax-exempt interest income, plus 50% of your Social Security benefits. (Historically, the 50% represents the fact that half of your Social Security contributions were made by your employer and thus not taxed.) [2]
There are two relevant base amounts; unlike most income limits in the tax code, they are not adjusted for inflation. The lower base is $25,000 if you are single, $32,000 if married filing jointly. The upper base is $34,000 if you are single, $44,000 if married filing jointly.[3]
If your relevant income is below the lower base, none of your benefits are taxable. For every $1 of relevant income between the lower and upper bases, 50 cents of your Social Security benefits become taxable, up to 50% of your total benefits. For every $1 of relevant income above the upper bases, 85 cents of your Social Security benefits become taxable, up to a total taxable amount of 85% of your benefits.[4]”
Now that Keynesianism has destroy the economies of the world, I wonder what will be next?
Reply
WARREN MOSLER Reply:
December 4th, 2012 at 5:18 pm
social security…
not
Reply
This was a great video post and enjoyed it much. I like the reference to Columbus and Copernicus and how hard it was for people to accept the world wasn’t flat and the earth revolved around the sun.
Very similar to today’s beliefs on monetary issues. Watching all the debt on taxes/debt/stimulus I can only conclude a vast number of people enjoy economic self flagellation, when in reality there is no need for it.
Reply
Ed Reply:
December 3rd, 2012 at 6:03 pm
@Ed, that was watching all the debate about taxes/debt/stimulus
Reply
ESM Reply:
December 3rd, 2012 at 9:38 pm
@Ed,
For the record, the idea that there was ever a widely held belief among human beings that the Earth was flat is a fallacy. Anybody who ever stood on a hill or gazed at a calm ocean could see the curvature of the Earth, and the ancient Greeks calculated the radius of the Earth to admirable precision.
Columbus was rightly ridiculed for claiming that he could get to the East Indies by sailing West. Not because he would fall off the edge of the Earth, but because it was too damn far. His assumptions about how far away the East Indies were was completely wrong, and he was lucky that he ran into the Americas along the way.
Reply
MRW Reply:
December 4th, 2012 at 5:44 pm
@Ed,
Actually, Ed, the only ‘people’ who believed the flat earth and sun around the earth biz were the forced members of the Catholic Church. It was a belief from 200 AD to 1700 AD. Deniers were put to death, like Fra Giordano in 1600 AD in a Roman square.
Not so the rest of the world. The Chinese in 1400 AD (look it up in National Geographic) started the first of many sails with their great ships. They were the size of football fields. The first tour included 321 ships (if i remember correctly) like this. The little ship in the lower left is Columbus’ for comparison:
http://en.wikipedia.org/wiki/File:Zheng_He%27s_ship_compared_to_Columbus%27s.jpg
The Chinese built these in their Nanking shipyards (operational since 400 BC, not AD) with Arabic maritime technology, so advanced the technology has been lost to history, according to Chinese historians on BBC a few years ago. They carried an army of 28,000 men. They introduced watertight compartments that permitted swimming pools, laundry rooms, separated animal compartments for fresh food, and granaries side-by-side. They carried gold and silk for trade.
They were nine-sail ships that navigated with Arabic astronomical knowledge unknown to the west. They reached Italy sometime in the early quarter of the 15th C, according to the National Geographic, on one of their tours. So who knows who introduced what to whom.
Reply
MRW Reply:
December 4th, 2012 at 5:48 pm
@MRW,
Here’s the National Geographic link:
http://ngm.nationalgeographic.com/ngm/0507/feature2/map.html
Reply
MRW Reply:
December 4th, 2012 at 5:54 pm
The story here: (doing this on my iPad so sorry for the disjointed posts)
http://ngm.nationalgeographic.com/ngm/0507/feature2/
MRW Reply:
December 4th, 2012 at 6:16 pm
I noticed that there is now a statement of dispute by “historians” below the picture of the treasure ship linked above. The date of the dispute is a 2005 book. Zheng He was ignored by the Chinese for centuries, and his history unknown during the communist period. They have rediscovered him in the last 20 years. But it was an anniversary in either 2008 or 2009 that produced a BBC radio investigation into him. A Chinese military historian had recently found documents that described the size and purpose of the ships, and how they built them. (They were built in dry dock, then 10,000 Chinese workers mounted on something akin to bicycle wheels peddling hard lowered them into the water in Nanjing.) Using the newly discovered blueprints, the Chinese rebuilt one of the ships for the anniversary. The BBC reporter was inside it commenting on the mammoth size of the thing, and it wasn’t even the largest of the group. I tend to give more weight to the Chinese discovery of their records at Nanjing, which post-dated the 2005 book. Of course, anything Muslim that is not relegated to goat-herding is considered suspect these days. Admiral Zheng He was a Muslim eunuch.
Reply
Ed Reply:
December 4th, 2012 at 8:40 pm
@MRW, esm/msw, thanks for the history lesson, the picture of the ship was astonishing too.
my point though was more about how through out history, people have a hard time changing their formed beliefs, even in the face of evidenced facts….it’s hard.
regards.
MRW Reply:
December 5th, 2012 at 12:09 am
@Ed,
You’re right. Dr. Norman Doidge wrote a wonderful book called “The Brain That Changes Itself” about the breakthroughs in neuroplasticity of the brain culminating the early 00s. Every new thought or discovery is like a ski run through virgin snow. Soon, however, it becomes a hardened rut.
The smartest people I know, and the most interesting to me, are not those armed with advanced degrees whose reputation and moolah depend upon the defense of those degreed careers, but the people who can rise to the occasion of a new direction. Two years ago, I was a deficit dove/hawk. I didn’t know what I thought. But I thought I knew what I was talking about. Then I ran into MMT — which should be called Modern Monetary Science, fercrissake, not Theory ;-) — and I was stunned that I was so ignorant about the basic operations.
It has been a joy to learn about this. I could never understand economics before. It didn’t make sense. I was missing the secret handshake or something. And I’m not stupid. I have three advanced degrees. (Even the Eustace Mullins books on the Fed Reserve were missing something, and I’ve read every piece of literature on that POV as well; I’ll read anything.) But since 1999, I’ve discovered that just about everything I knew was useless, and I’ve had to reeducate myself about everything I thought was true, which has entailed endless research. In short, I think the greatest thing is to get new facts. It expands your worldview and your place in it. And it starts with ‘how does it work’ or ‘exactly how did it happen’. The curlicues of applied meaning — or social engineering or mythologizing — come later.
WARREN MOSLER Reply:
December 5th, 2012 at 2:26 pm
:)
Ed Reply:
December 5th, 2012 at 3:28 pm
@MRW, yeah, good post mrw. i too had been conditioned to believe govt deficit/debt is bad. turns out the more i learn, i too am astonished at how off i was. thank god for the internet, so you can get more info than fox/cnbc slanted views.
pshakkottai Reply:
December 8th, 2012 at 1:46 am
@MRW,
“Another element in Aryabhata’s model, the śīghrocca, the basic planetary period in relation to the Sun, is seen by some historians as a sign of an underlying heliocentric model” from
http://en.wikipedia.org/wiki/Aryabhata
Aryabhata (476–550 CE) was the first in the line of great mathematician-astronomers from the classical age of Indian mathematics and Indian astronomy. His most famous works are the Āryabhaṭīya (499 CE, when he was 23 years old)[5] and the Arya-siddhanta.
The works of Aryabhata dealt with mainly mathematics and astronomy. He also worked on the approximation for pi.
He was not only the first to find the radius of the earth but was the only one in ancient time including the Greeks and the Romans to find the volume of the earth.
Reply
MRW Reply:
December 9th, 2012 at 8:17 pm
@pshakkottai,
Great info, and thank you. I will make corrections in my future pronouncements about this. Although in the AD era, we generally assign the first universities still standing to the Arabs, which is true for the period, it was the Indians who created the first one thousands of years ago. I’ve forgotten the name, and it lays in ruins today.
The other thing you guys did was invent Vedic math which is one of the most interesting systems I’ve encountered. God almighty, I wish we could educate our kids properly. W all functioning at 10th capacity in the brain department.
WARREN MOSLER Reply:
December 9th, 2012 at 10:39 pm
I wonder if that original university lost its funding to save funds for their retirement plan?
MRW Reply:
December 9th, 2012 at 8:42 pm
@pshakkottai,
@pshakkottai,
BTW, what was the relationship between the Sumerians and Indians? Didn’t the Sumerians come up with the first ephemerii and an astronomical system? We don’t have much info because the. Cuneiform tablets are fragmentary. I hope these records are some of the stuff that Saddam Hussein asked the British Museum to protect for him in September 2002 when Bush Cheney Rice and Rumfeld were whooping war cries on Meet The Press.
Additionally, as the government creates greater and greater entitlements, the incentive to work versus the incentive to stay homes tilts in favor of staying home. Thus, real output sags (as in Japan) but demand for real output continues to grow with the population (unlike Japan). In this instance, you’ll ultimately see weak growth and high inflation.
Reply
The problem with MMT (Mike) is that deficits are generally evaluated year to year as adequate or inadequate with little regard for policy. To quote Warren, “deficits become a problem when the public sector is competing with the private sector for scarce resources”. Or, “when government is lifting the offer instead of having its bid hit”, it’s inflationary.” However, to the extent that permanent spending policies are put in place, there will be a time when the private sector is operating near full capacity while at the same time permanent government spending with cause competition between public and private for scarce resources, causing inflation. At that point, significant tax hikes will be needed but won’t likely be enough.
Reply
WARREN MOSLER Reply:
December 3rd, 2012 at 7:29 pm
Be nice to see us get to that point and see what happens
Reply
IJR Reply:
December 4th, 2012 at 8:54 am
@WARREN MOSLER, Perhaps but the permanency of spending programs makes them far less attractive than the automatic stabilizers and more immediate impact of using taxes as the appropriate vehicle for implementing policy.
Reply
WARREN MOSLER Reply:
December 4th, 2012 at 3:25 pm
the transition job functions as a pretty good automatic fiscal stabilizer
You guys ought to give Krugman a break: if he takes on MMT ideas, that’s enough. Be magnanimous in victory, and MMT will spread farther and quicker.
Reply
Chaz Reply:
December 2nd, 2012 at 6:00 pm
@Thomas Bergbusch,
Agreed. If he wants to absorb MMT into Keynesianism and keep calling it Keynesianism then the more the merrier. Most prominent economists (including Krugman!) are fairly old and probably too attached to their own school to jump ship to “post-Keynesianism”. But if Keynesians see core MMT ideas as a refinement of their own school then they may be willing to embrace them, or at least accept other people embracing them.
Reply
Chaz Reply:
December 2nd, 2012 at 6:09 pm
@Chaz,
This is not to say that MMT folks should rebrand themselves as Keynesians. MMT still has major policy prescriptions (ELR, zero interest rate) that Krugman does not advocate. Plus the sexy new branding appeals to a different audience that old-school Keynesianism. Keep it as a separate school and maybe one day PBS will put Warren on with Krugman and an Austrian and the audience will say “Oh, two of them agree, that Austrian guy must be wrong.”
Reply
Warren, please tell Mike that the Earth revolves around the Sun, not the other way around.
By the way, I think Peter won this round with Mike and others 6 years ago. Pretty embarrassing. It takes a lot of chutzpah to maintain your blustery schtick after that.
Reply
WARREN MOSLER Reply:
December 1st, 2012 at 4:09 pm
will do.
that was before he was mmt
;)
Reply
Mike Norman Reply:
December 1st, 2012 at 10:12 pm
@WARREN MOSLER, When the facts change, I change my mind. LOL!!!
Obviously I MEANT “earth revolves around the sun.” Listen to the whole thing.
And Schiff “won” NOTHING. He was bearish on housing since at least 2002, when I first met him. Furthemore, NO ONE new the extent of mortgage fraud that was going on…NO ONE.
Schiff is a broken clock who appeared to be right once. He’s been wrong ever since on everything and is currently wrong on housing, which is recovering.
Reply
Bullish_Bear Reply:
December 2nd, 2012 at 4:15 am
@Mike Norman,
Were you or were you not completely wrong about housing and therefore the economic outlook?
“Furthemore, NO ONE new the extent of mortgage fraud that was going on…NO ONE.”
You can keep telling yourself that to make yourself feel better about being spectacularly wrong. Great way try to rationalize it.
ESM Reply:
December 2nd, 2012 at 3:02 pm
@Mike Norman,
“Obviously I MEANT “earth revolves around the sun.” Listen to the whole thing.”
I never believed you thought the Sun revolves around the Earth, even before hearing your reference to Copernicus at the end. My point was that you should do another take since it’s not professional to have such a glaring mistake in a 6 minute video. Of course my real point is that you should dial back the bluster.
Low-key works so much better. First, if you end up being wrong about a prediction (which can happen even if you are using the correct model), you have less crow to eat. Second, if you end up being right, the people with the opposing view are less likely to be irrationally defensive and hate your guts. Third, you have more credibility with people on the fence. And fourth, you leave room open for real debate, which could lead to greater understanding on both sides.
MMT is not the whole truth. I have been engaged in a discussion with a friend for whom this is all new (he just read 7DIF at my suggestion), and he has posed some interesting questions/concerns which are not trivial. If he consents, I’ll post some of the discussion here.
John O'Connell Reply:
December 3rd, 2012 at 12:58 pm
@ESM,
Yeah, that’s what I meant to say.
Bullish_Bear Reply:
December 2nd, 2012 at 4:28 am
@WARREN MOSLER,
Would MMT have predicted the housing bubble and the ’08-’09 crisis?
Reply
Adam (ak) Reply:
December 2nd, 2012 at 6:09 am
@Bullish_Bear,
In the Australian context, yes, at least in 2006.
BTW the impact of GFC on Australia was attenuated by the stimulus.
http://bilbo.economicoutlook.net/blog_archive/blog_entry.php?ID=5
http://bilbo.economicoutlook.net/blog_archive/blog_entry.php?ID=14
WARREN MOSLER Reply:
December 2nd, 2012 at 9:02 pm
In mid 2006 I said the deficit was too small and demand would sag until it got weak enough for the deficit to get up over 5% if govt. didn’t move proactively
In q2 2008 we had a 170 billion stimulus and growth went from about 0 to about 2.5%. My partner karim said it didn’t look so good for q3 with the stimulus ended.
I said they’ll just do another one. The first one ‘worked’, didn’t seem like there was any mystery to it…
Anyway, when it started to fall apart in q3 the govt. did absolutely nothing for demand. Wasn’t until 9 months later that a fiscal adjustment was implemented.
Point is, the financial crisis did not have to spill over to the real economy the way it did. It was a total failure of govt. to not make the obvious adjustments.
Anyway, to your point, I did predict that without proactive fiscal the deficit would get to 5%+ the ‘ugly’ way- a slow down- which it did. But I had no idea of the magnitude of lender fraud that was taking place. And on this blog I made a ‘buy stocks and go play golf’ call in March 09 after I thought the deficit was high enough to support a doubling of stocks from depressed levels, though not enough for full employment, etc.
Adam (ak) Reply:
December 2nd, 2012 at 6:40 am
@ESM,
What is really wrong in Austrian School of Economics are not the predictions they make (as they may have accidentally seen a thing or two a bit earlier than people immersed in the conventional economics – despite the fact that the most of the Austrian predictions were wrong anyway).
What makes to me Austrian economics a pseudo-science in the modern context is a thing called “praxeology”.
“Praxeology is the distinctive methodology of the Austrian School. ”
…
“Praxeology rests on the fundamental axiom that individual human beings act, that is, on the primordial fact that individuals engage in conscious actions toward chosen goals. This concept of action contrasts to purely reflexive, or knee-jerk, behavior, which is not directed toward goals. The praxeological method spins out by verbal deduction the logical implications of that primordial fact. In short, praxeological economics is the structure of logical implications of the fact that individuals act. This structure is built on the fundamental axiom of action, and has a few subsidiary axioms, such as that individuals vary and that human beings regard leisure as a valuable good. Any skeptic about deducing from such a simple base an entire system of economics, I refer to Mises’s Human Action. Furthermore, since praxeology begins with a true axiom, A, all the propositions that can be deduced from this axiom must also be true. For if A implies B, and A is true, then B must also be true.
Let us consider some of the immediate implications of the action axiom. Action implies that the individual’s behavior is purposive, in short, that it is directed toward goals. Furthermore, the fact of his action implies that he has consciously chosen certain means to reach his goals. Since he wishes to attain these goals, they must be valuable to him; accordingly he must have values that govern his choices. That he employs means implies that he believes he has the technological knowledge that certain means will achieve his desired ends. Let us note that praxeology does not assume that a person’s choice of values or goals is wise or proper or that he has chosen the technologically correct method of reaching them. All that praxeology asserts is that the individual actor adopts goals and believes, whether erroneously or correctly, that he can arrive at them by the employment of certain means.”
http://mises.org/daily/6090/Praxeology-The-Methodology-of-Austrian-Economics
I would not follow the usual way of attacking Austrian economics developed by the intellectual successors of J.M.Keynes.
The best and most direct way of debunking these myths comes from the modern microeconomic school called Behavioural Economics which has evolved from modern Social Psychology. The myth of a “rational” human actor has been contradicted by so many relevant experiments that sticking to the 18th-century proto-psychology in microeconomics seems to be as appropriate as using the geocentric model of the Solar system to calculate the trajectory of a NASA Martian lander. Of course the Austrians reject that critique but the counter-arguments seem to be very week to me.
I would highly recommend reading books written by Dan Ariely which introduce the concept of “predictable irrationality” as the real engine of human action:
http://danariely.com/the-books/
Reply
Monica Smith Reply:
December 2nd, 2012 at 12:56 pm
@Adam (ak), Some people act on the basis of information that’s been processed and evaluated and some people merely respond to internal or external prompts. The latter are what our Uncle Cons refer to as “responsible.” Some are aware of their environment and others are clueless. Some manipulate their material environment; others manipulate the people who can do things for them. Willard Romney refers to the latter as “makers” without, apparently realizing that he is conflating creating with coercing. He does not appreciate that to coerce is to take without justification. So, he had the takers and makers exactly reversed.
Reply
Adam (ak) Reply:
December 2nd, 2012 at 4:45 pm
@Monica Smith,
What I meant was not to poke fun at the conservatives but rather to expose the following, probably not well known “feature” of the methodology used in Austrian economics, the complete rejection of empirical methodology:
—
“One major concern was whether psychology should avail itself of the experimental method. After all, psychology too deals with human beings, and in particular with their mental states and dispositions. So, does the Austrian believe that the method of the natural sciences—in other words, the formulation of a hypothesis that is then subjected to experimental verification or refutation—is as inappropriate in psychology as it is in economics?
In response, I pointed out that Mises was quite clear on the dividing line between psychology and praxeology: Psychology deals with theories to explain why people choose certain ends, or how people will act in certain settings. Praxeology, on the other hand, deals with the logical implications of the fact that people have ends and the fact that they act to achieve them. Because of this difference, it may be entirely appropriate for psychologists to engage in experimental testing of hypotheses, while utterly misguided for economists to similarly ape the method of physics.”
“To illustrate the difference, let us compare two “laws” from the respective disciplines. Psychologists have conducted many experiments confirming the apparent truth of the “bystander effect,” which states that people will be less likely to help someone (a stranded motorist, for example) if there are a large number of other bystanders.”
…
“In contrast, let us analyze a typical economic law: If the government runs a deficit, then interest rates will be higher than they otherwise would have been. Now this law too seems commonsensical (just as the bystander effect), but it is more than that: Once the economist takes care to precisely specify the definitions of the terms, he or she can actually prove the proposition as an exercise in pure logic. There is no reason to go out and “test” whether it is true, because this would miss the point. It would be as nonsensical as “testing” whether the interior angles of a triangle (in Euclidean geometry) add up to 180 degrees.”
http://mises.org/daily/1351
—
This is precisely how the Austrians have chosen to peddle utter nonsense and ignore the reality. I could have not found a better example than one invented Dr Murphy.
Matt Franko Reply:
December 2nd, 2012 at 10:39 am
@ESM, I used to listen to Mike and Warren on Mike’s show before and leading up to 2008 and they both would rationally discus the situation and go over the govts options to deal with what was happening in real time…
They both then agreed that what was needed were Fed (as per charter) providing full liquidity to banks and PDs and a fiscal adjustment (1st part of the fiscal we got from Bush/Cheney in June time frame).
Then govt just dropped the ball in the fall and ended up doing exaclty what Warren and Mike had been discussing anyway later after much ‘lamentation and gnashing of teeth’.
If any “mistake” was made, it could only have been in underestimating the near criminal neglect on the part of policy makers.
This we might want to keep in mind as we face this so-called “fiscal cliff” that these same unqualified persons in authority have set up before us presently…
rsp,
Reply
WARREN MOSLER Reply:
December 2nd, 2012 at 9:05 pm
agreed, thanks!
Reply
Monica Smith Reply:
December 3rd, 2012 at 11:34 am
@Matt Franko, Not sure I’d call it “near criminal neglect.” The people we’ve hired to manage our natural and man-made resources have figured out how to commit crimes and not get caught — by not doing their jobs. So, there’s no evidence to collect and “prove” the crime. But, if we define crime as an unjust deprivation of rights, then people who have been hired to provide the necessities of life are, at a minimum, committing fraud when they collect their pay. I think in the railroad industry such behavior used to be called “featherbedding.” The Capitol Hill Gang have developed it to an art. My moniker of the moment for them is Our Uncle Cons.
Reply
Matt Franko Reply:
December 3rd, 2012 at 3:50 pm
@Monica Smith,
Monica,
Most believe as you do that this is some sort of conspiracy and they know better, I take the position that they are (mostly, 99%) all “stupid”.
Since there is no evidence that any of these people know different than what they assert (borrowing from China, ‘out of money”, etc…) you cant make the case for criminal fraud. Being stupid is not fraud…
However perhaps a case can be made for negligence as based on what they have prescribed as a “cure” and the dismal results we can witness, they should self-assess that they are unqualified and RESIGN; and let someone else have a crack at it… short of doing that it perhaps starts to become a case of negligence as they continue to be ineffective and are not seeking alternatives nor resigning… rsp,
I know there is a good chart showing inflation vs. commodity prices lying around this website somewhere.. anyone know where it is?
Reply
Someone said elsewhere that MMT is in a selling phase. This rant is a good example of how to turn off your potential customers. We need someone who can get good ratings on whatever show he keeps going on, else the word will spread only slowly, and the other points of view will continue to get wider exposure and gain wider acceptance. If you want to be Christopher Columbus, you need a Queen Isabella to sponsor you, and then you need to bring something back from the new world, to prove that you can really do it. The empirical evidence that ordinary people can see (e.g., Clinton surplus coincident with a strong economy and low unemployment) is just as powerful as the evidence of all the ships that sailed over the horizon and never returned. Absent such proof, the advertising has to be more convincing than simply saying that anyone who disagrees with you is just stupid. You mock them for that tactic, and then you use it yourself. It’s just not persuasive.
Reply
chewitup Reply:
December 1st, 2012 at 12:00 pm
@John O’Connell,
Queen Isabella is certainly not anywhere to be seen in the offices of the main stream media. They are all bought and paid for by the current elite.
The blogosphere is where the message is growing. The fact that Krugman and Stiglitz have come around speaks volumes. It’s going to be up to the likes of them to make inroads to the Queen. It may come relatively soon, when some of the hedge funds betting against Japan will wonder what went wrong.
Reply
John O'Connell Reply:
December 1st, 2012 at 12:14 pm
@chewitup,
I’ll have to start reading Krugman again. In the past, I have found him to be a lacky for any liberal Democrat, opposed to any policy that could be MMT-friendly, such as Romney’s tax cut, if it were proposed by a Republican.
If he is now opposing Obama’s economic plans, based on MMT principles, then that would be a big plus for MMT. He has a widely heard voice. Maybe he could make some favorable comments about MMT on this blog, or on NEP, or his own blog, or This Week, or his MSM columns, if he has truly “come around”. I see him on This Week whenever he’s on, and I have never heard him utter the sound “MMT”, or any related policy proposal.
Reply
John O'Connell Reply:
December 1st, 2012 at 12:44 pm
@John O’Connell,
Update on Krugman.
Just read the last week or so of his blog. Several mentions of “Austrian” and “Keynes” and his own pet theory, “liquidity trap”, but “MMT” is nowhere to be seen. Also, the occasional slam of a Republican and defense of a Democrat.
Today’s entry struck me right away:
“my own answer is still what it has been all along: the time for austerity is when the economy is close enough to full employment …”
He is consistent, if nothing else: a true deficit dove, never a deficit owl.
Interestingly, there is one shoutout for Cullen Roche, who was, last I heard, the main arch-enemy of MMT. At least Cullen acknowledges the existence of MMT, which is more than Krugman does.
I don’t see any evidence of any “coming around”. Maybe someone can point it out for me.
Bullish_Bear Reply:
December 2nd, 2012 at 4:07 am
@John O’Connell,
“Interestingly, there is one shoutout for Cullen Roche, who was, last I heard, the main arch-enemy of MMT. At least Cullen acknowledges the existence of MMT, which is more than Krugman does.”
Why is Cullen Roche the main arch-enemy?
Ben Johannson Reply:
December 2nd, 2012 at 7:33 am
@John O’Connell, Correct, Krugman writes stuff like:
“For we have our own currency — and almost all of our debt, both private and public, is denominated in dollars. So our government, unlike the Greek government, literally can’t run out of money. After all, it can print the stuff. So there’s almost no risk that America will default on its debt — I’d say no risk at all if it weren’t for the possibility that Republicans would once again try to hold the nation hostage over the debt ceiling.
But if the U.S. government prints money to pay its bills, won’t that lead to inflation? No, not if the economy is still depressed”
http://www.nytimes.com/2012/11/26/opinion/krugman-fighting-fiscal-phantoms.html?hp&_r=0
which is core MMT stuff no other school acknowledges. Does he give credit where credit is due? Of course not.
John O'Connell Reply:
December 3rd, 2012 at 1:16 pm
@Bullish Bear,
“Why is Cullen Roche the main arch-enemy”
I’m not really sure. It appears to me that a theoretical disagreement escalated into personal attacks, and it went downhill from there. Maybe it’s all blown over by now?
WARREN MOSLER Reply:
December 3rd, 2012 at 1:20 pm
i’m not aware of any problem. in fact he’s been a big help in getting the good word out
John O'Connell Reply:
December 3rd, 2012 at 1:36 pm
@Ben Johannson,
I heard on TV yesterday one of the talking heads (not even an economist) say straight out that of course the US could print as much money as it needed to avoid default. In fact, that’s what the deficit hawks are most afraid of. Far from it not being acknowledged by any other school of economics, it is universally known inside and outside the profession.
As for it not causing inflation while the economy is depressed, that is the core deficit dove belief. Not unique to MMT. Krugman favors deficit reduction, just not all at once. He does not understand sectoral balances. If he occasionally says something consistent with MMT, it’s purely accidental.
Incidentally, his slam on the opposition party in your quote is an example of my point that he is mainly a political lackey (did I spell it right this time?) more interested in the triumph of his side than in correct policy.
If he wants to tell Obama that the US can’t be broke or run out of money, then that would be useful. I’m sure Obama listens to him. Maybe Obama also knows it, but doesn’t want to let on.
ESM Reply:
December 3rd, 2012 at 4:57 pm
@John O’Connell,
Yes, Krugman is a thoroughly dishonest political hack. No doubt about that. He ceased being an economist 15 years ago.
But even his current pronouncements (which he would not be making if Repubs were in charge and wanted to cut taxes to simulate the economy) are misguided.
The truly important insight of MMT is that there is virtually no difference between Treasuries and cash. Krugman still believes that the issuance of Treasuries somehow absorbs buying power from the private sector and dampens aggregate demand. Thus he sees the $11T of Treasury debt as an overhang that will have to be dealt with by running smaller deficits or even surpluses in the future. He just doesn’t think we need to do anything about it right now because there’s a Democrat in the White House.
WARREN MOSLER Reply:
December 3rd, 2012 at 7:30 pm
True
Nihat Reply:
December 4th, 2012 at 1:21 pm
ESM, let me pick your brain again…
“The truly important insight of MMT is that there is virtually no difference between Treasuries and cash. Krugman still believes that the issuance of Treasuries somehow absorbs buying power from the private sector and dampens aggregate demand.”
And he is wrong to believe that because there is no coercion in the exercise? I mean, treasures do not coerce money out of active economy, but instead –to the extent they are sold on the market– soak up monies already seeking a parking spot, so to speak? Is that why he is wrong?
ESM Reply:
December 4th, 2012 at 3:01 pm
@John O’Connell,
@Nihat:
That’s the way Warren puts it. Treasuries are priced at indifference levels. Perhaps if Treasuries did not exist, and people had to choose between earning 0% on cash (rather than 2% on Treasuries) and spending the cash, they would be more inclined to spend, and aggregate demand would be somewhat higher. But the Fed always has it within its power to adjust the short-term interest rate on cash to tinker with aggregate demand in that way.
I think this is a very elegant way of describing the situation, but perhaps not complete. Some might be concerned about a rush for the exits if there were ever a widespread need to raise cash. For example, stocks are priced at indifference levels too, but not everyone can sell at the same time.
From a purely operational perspective, though, the Fed stands ready to lend an unlimited amount of cash/reserves at the short-term interest rate against Treasuries, with almost 0% haircut, to any large bank with Fed repo lines. In turn, this makes the liquidity for Treasuries almost perfect since a bank can and will always buy them from you at a slight discount. Since the liquidity of Treasuries is great, and the value is stable (doesn’t deviate much from par, especially for short-term bills and notes), nobody who has wealth tied up in Treasuries is precluded from spending whenever they want. Basically, they’re no different from demand deposits. You can sell them whenever you want, for T+1 settle (even same day settle if you’re really desperate).
History has borne this out. Whenever there is a financial crisis, prices of Treasuries actually increase and liquidity improves. To some extent it is a self-fulfilling prophecy, but it is rooted in a fundamental operational truth, which is that the Fed will lend against Treasuries in any amount on very favorable terms.
Nihat Reply:
December 4th, 2012 at 3:25 pm
ESM, wow, very interesting. Thanks. I suppose this is the way any CB could operate, not just the Fed, right?
WalidM Reply:
December 1st, 2012 at 3:06 pm
@John O’Connell,
If we could merge mike and warren into one we could get the perfect salesman for MMT.
Reply
WARREN MOSLER Reply:
December 1st, 2012 at 4:08 pm
Marren sounds like moron…
;)
Reply
Ben Johannson Reply:
December 2nd, 2012 at 7:34 am
@WARREN MOSLER, Wike would be better.
WARREN MOSLER Reply:
December 2nd, 2012 at 9:04 pm
welease bwian…
Monica Smith Reply:
December 2nd, 2012 at 12:42 pm
@John O’Connell, That the Clinton economy was beneficial in the long term is an illusion. De-industrialization continued apace and much “growth” was merely the result of churning, which continued the transfer of assets to the one percent and the deterioration of our infra-structure apace. Building new schools did not improve the quality of the education provided therein.
Reply
It pays to be a pessimist. If you’re making predictions, negative ones are better than positive. If your negative predictions turn out wrong, all your critics will be happy and, if they are right, you can be satisfied at having been right.
Reply
forget money&debt you see ONLY a world of industry & machine&farm&service not saturated.. why aren’t saturated ? because the mechanism of coordination betwenn this businessis&customers doesen’t work, and this mechanism are money&debt that are better of barter but often doesn’t work.. MMT could be a technical metode to manage this vicious circle..
BUT: I have a Fisolofical Great Doubt on Capitalism (does’nt matters if Austrian or Chicago or Keynes or MMT) : it isn’t possible in future that passing from 2 billion personS (Western) to 4 billion persons (Brics) with same level of Consumption of Rationing World Commodity.. a change on the very long term will be inevitable.. and will be less consumptions for everyone.. that is less richness..that doesn’t mean less wellbeing if this process will be pacific.. but will mean poverty and harm if will be aggressive (economic war or army war)..
Reply
Ed Rombach Reply:
December 1st, 2012 at 10:52 am
@Piero from Italy,
“BUT: I have a Fisolofical Great Doubt on Capitalism (does’nt matters if Austrian or Chicago or Keynes or MMT) : it isn’t possible in future that passing from 2 billion personS (Western) to 4 billion persons (Brics) with same level of Consumption of Rationing World Commodity.. a change on the very long term will be inevitable.. and will be less consumptions for everyone.. that is less richness..that doesn’t mean less wellbeing if this process will be pacific.. but will mean poverty and harm if will be aggressive (economic war or army war)..”
Correct me if I am mistaken, but it sounds to me like you are making a Malthusian argument. Regarding the issue you raise of economic and/or actual warfare, I think if MMT is to be taken seriously by policy makers, it can no longer afford to remain silent on this issue. Speaking as someone who straddles theory and policy initiatives of MMT, Austrian school and Supply Side disciplines, I would love to hear some voices from MMT weigh in on approaching war with Iran and on the National Defense Authorization Act, (NDAA).
In connection with this, the Senate has just endorsed new harsh economic sanctions on Iran to prevent it from acquiring nuclear weapons in a bipartisan 94 to 0 vote in an amendment to the $631 billion defense bill. The Senate also acted to curtail President Obama’s power to command the military to arrest U.S. citizens suspected of terrorism and indefinitely detain them without trial, access to a lawyer in an amendment backed by Liberal Democrats and Libertarian Republicans.
http://news.yahoo.com/senate-votes-tighten-sanctions-iran-154457698–politics.html
Reply
John O'Connell Reply:
December 1st, 2012 at 12:05 pm
@Ed Rombach,
As a libertarian (small l) some of the powers assumed by government after 9/11 bother me, but we have been engaged by a new sort of enemy in new ways and a different kind of war, and we need to have some defense against their tactics. But we, the people, also must have effective defense against the misuse of government powers for personal gain, like imprisoning a guy for making a movie, for instance. Like many other situations, there is a tension between multiple objectives. It’s not an economic problem, but a political and philosophical one, and not unique.
As far as Iran, and any other international sorts of issues, I think it would help if the US were more clear about what would guide our actions, what our real interests are. War with Iran will not harm the US, except to alientate friends of Iran. Just like the war with Iraq (I mean the military part, the first week or so). The question is how to engage Iran, and other unfriendly governments, in a common vision of the world’s future that they can accept, other than their vision, which is the total destruction of their enemy.
Perhaps if they bought into MMT, they could see a possibility of prosperity and liberty for their people without bringing harm to others. Or maybe the rulers of those governments simply don’t care about their people’s prosperity and liberty, and nothing will change until they are replaced by new leaders who do care.
Reply
Ed Rombach Reply:
December 2nd, 2012 at 9:24 am
@John O’Connell,
“As a libertarian (small l) some of the powers assumed by government after 9/11 bother me…”
It should bother you because incrementally, step by step, this is how societies morph into fascist authoritarian systems. If we surrender our liberty to achieve security, we will get neither.
John O'Connell Reply:
December 3rd, 2012 at 12:53 pm
@Ed Rombach,
Yes, I’ve seen that thought before. Ben Franklin, isn’t it?
We do need to catch the bad guys before they do us in, though. We’re doing pretty OK with that, not perfect. The losses to freedom seem often unrelated to the successes against the terrorists. I think the number of terrorists caught by new TSA procedures is zero. I suppose if they (the fascist authoritarians) were good enough, they could be violating all sorts of rights of innocent citizens, and we wouldn’t know. But then they didn’t need 9/11 for that, did they?
Ed Rombach Reply:
December 5th, 2012 at 10:32 am
@John O’Connell,
“Yes, I’ve seen that thought before. Ben Franklin, isn’t it?”
Yes.
“We do need to catch the bad guys before they do us in, though. We’re doing pretty OK with that, not perfect. The losses to freedom seem often unrelated to the successes against the terrorists…..I suppose if they (the fascist authoritarians) were good enough, they could be violating all sorts of rights of innocent citizens, and we wouldn’t know. But then they didn’t need 9/11 for that, did they?”
You seem pretty tolerant of the fascist authoritarians, but be careful what you say or put in print in emails or internet blogs.
http://youtu.be/OVmJxR_v-UI
http://youtu.be/TuET0kpHoyM
Monica Smith Reply:
December 1st, 2012 at 10:58 am
@Piero from Italy, Humans don’t consume. We use, abuse, transform and reuse. What makes a big difference is the time-frame. And time, unfortunately, is something most economic analysis doesn’t take into account. So, the results are most often wrong.
Just keep in mind that the global community is currently producing enough food to provide adequate nutrition for 9 billion people. Since we are only a little more than 6 billion, and many are poorly fed, it’s obvious that we are wasting a lot. Better management is needed — not of people, but of resources and material assets. Talk is not enough.
Reply
Well, making people smile is a skill. :-)
Reply