Spilling Electronic Ink
Earlier in this series, here, here, and here, I discussed and critiqued an earlier post of Cullen Roche's expressing his criticisms of the Job Guarantee (JG) policy advocated by MMT economists, and contending that the JG proposal wasn't core to MMT. In the previous eight parts of this series I've argued against that view in the context of a blogosphere explosion on the subject. Since the earlier post I addressed, however, Cullen has spilled a lot more electronic ink trying to make his case. Specifically, he's offered four new posts on the subject. In my next few posts I'll review these new efforts, beginning with his conversation with Warren Mosler.
“Anyhow, Warren and I had a nice exchange and we agree far more than recent debate has likely implied. We’re just sort of on a different page about how we should meet our goals. . . . ”
Differences in Normative Structures
Here, Cullen suggests that his difference with Warren Mosler is only about means, and that they share the same goals, so that their differences are small. But, Warren is very plain in his book that he considers “public purpose” to be the overall standard that guides his thinking, and that he thinks that two essential aspects of public purpose that economic policy should fulfill are full employment with price stability. But nowhere in this or earlier posts does Cullen express agreement with these normative basics of MMT. As I pointed out here and here, part of the reason why Cullen doesn't agree with Warren and the academics who developed MMT is because he doesn't share these normative views. So his disagreement is not a small thing (which Warren confirms in this dialogue), however much he may want to minimize it. It goes to the core of the policy side of MMT.
Also, Cullen speaks to this disagreement on goals later on in his post on the conversation. He says that he's for “prosperity, increasing living standards, and says that subsidiary goals are innovation, increasing productivity, and a “real goal” of “full productivity.” He also says that:
“. . . . massive increases in living standards come from increases in innovation and productivity (which are MOSTLY pvt sector and profit driven). So my thinking is rather basic. Why obsess over FE (I am referring to low unemployment here) when the real goal is full productivity (which is a vague concept I know)?”
“Full Productivity” (FP) is a vague concept, but, in addition, prosperity is only one dimension of public purpose. Why should we accept it as the primary standard, along with increases in living standards coming from increases in innovation and productivity leading to “ full productivity”? Why does Cullen propose that our goals should be these rather than “public purpose”?
After all, public purpose can include full employment at a living wage for all who want to work with price stability, prosperity (including innovation and increasing productivity), freedom, environmental sustainability, political, economic and social justice, renewal of our individual rights under the constitution, decreasing economic inequality with increasing economic opportunity for all, fair elections free from the power of money, and more generally the list of things FDR laid out in his second bill of rights. But “prosperity” is a much narrower goal, than “public purpose,” so why should we agree with Cullen that this, alone, is our goal? And if we don't, then doesn't Cullen's whole case fall to the ground?
Cullen continues by saying “. . . that perhaps” FE is “ the wrong goal to have . . . “ because we know we can have prosperity with a UE buffer stock, but we don't know if it's possible to have it with an FE buffer stock on a “long-term multi-generational” basis, and he concludes his argument with:
“So a lot of this comes down to potential downsides of employing workers in the JG (some excellent questions were asked here) versus leaving them unemployed. One of the big problems with the JG is that it has never been done in any mass scale that has resulted in prosperity over any multi-generational period. So, it’s very hard to prove that the JG can work because it has never worked in the past. What we know has worked is having an unemployment buffer stock. We know for a fact that human beings can achieve enormous prosperity despite unemployed people."
I've already examined the argument that an unemployed buffer stock has worked in the past in creating prosperity here and here. While I agree that many of us have been prosperous while unemployment remained high. There's no evidence suggesting that our unemployed buffer stock was somehow a positive factor in creating and maintaining this prosperity, and there's also the fact people who were part of the UE buffer stock didn't share in “prosperity.” In other words, there's no evidence that a UE buffer stock “worked” to create prosperity, or that whatever prosperity existed was not created in spite of it, or reduced due to it. We only know that UE buffer stocks have accompanied prosperity for those who were prosperous. Correlation, we all know, is not causation, nor does it even indicate a necessary condition for an outcome.
This doesn’t make this the optimal position and it doesn’t mean we shouldn’t strive for full employment, but what if the approach of plugging in the unemployment hole via government workers is the wrong approach? . . . What if there is an optimal way to leverage the government’s monopoly supplier powers that doesn’t involve unproven and potential downside risks? . . . ”
First, up until this statement, Cullen's view has been that FE is the wrong goal to have, which, I think, does imply that we should not strive for it. Instead, he suggests that we should strive for FP, and that he expects that if we reach it, that will create FE as a side effect.
Second, in asking for “. . . an optimal way to leverage the government’s monopoly supplier powers that doesn’t involve unproven and potential downside risks? . . . ” Cullen is asking for the impossible. Every new fiscal policy the Government may select will involve unanticipated consequences and “unproven and potential down side risks,” since the economy isn't a mechanism, but a complex adaptive system. For that matter, even continuing old policies involves such risks, since the future is often not like the past in such systems.
Third, in asking what if the approach of direct Government job creation through a JG is the wrong approach, I think Cullen is using a biased frame, because it is much too narrow in scope and doesn't even make a minimal attempt at fair comparison of alternative policies.
A Fair Comparison Approach
A more unbiased approach to prospective policy evaluation would be something like the following.
Given these choices:
1. Creating and implementing a JG with a living wage and full benefits program to achieve an FE buffer stock within the context of other MMT stimulative fiscal policies such as payroll tax cuts, State revenue sharing, and infrastructure;
2. Creating a set of programs to achieve FP within the context of other MMT fiscal policies, while maintaining a UE buffer stock;
3, Continuing with the present spectrum of policies mostly relying on Fed monetary policy, and occasional minor fiscal initiatives like the “paid for” 2% payroll tax cut and UE extensions, to “fuel” the economic recovery while maintaining a UE buffer stock;
a) which of these alternative courses of action is most likely to produce the most progress toward public purpose, the best balance of benefits to costs across the various dimensions of public purpose, given an agreed upon time frame; and, b) in addition, what is the risk of error of each of these alternatives in the context of the others assuming we choose it as the best of the decisions to implement?
Continuing the Present Fiscal Policies
We know that the third of these alternatives is likely to have the highest costs among the three, because we've seen these in the past few years. Bill Mitchell lists them again in a recent post:
It is well documented that sustained unemployment imposes significant economic, personal and social costs that include:
-- loss of current output;
-- social exclusion and the loss of freedom;
-- skill loss;
-- psychological harm;
-- ill health and reduced life expectancy;
-- loss of motivation;
-- the undermining of human relations and family life;
-- racial and gender inequality; and
-- loss of social values and responsibility.
To which Bill might have added other likely effects, such as:
-- increased economic inequality;
-- increased poverty;
-- increasing crime rates
-- increased anger against an elite that gets more and more and more wealthy;
-- increased political inequality undermining democracy;
-- possible increasing political violence in major American urban areas.
As far as benefits of the present course are concerned, these will depend on other occurrences, for example the possibility of another bank crash spreading from a European collapse. If that happens, then reliance on a UE buffer stock will accelerate a very rapid downward plunge into a depression and erase all likely benefits of continuing current policies, the costs will be like those most Americans paid in the 1930s, and the risks of political extremism and civil strife will be very great.
However, if a crash doesn't occur, then we will have:
-- continued deficit spending sufficient to expand GDP slowly;
-- continued slow decline in unemployment
-- continued slow recovery in the housing market
-- continued slow repair of private sector balance sheets
-- continued enormous paper profits and bonuses for Wall Street banks and Trading Houses
So, it seems that the likely benefits of continuing the present course are very hard to name or underwhelming for most Americans; while the likely costs associated with it are very high. On the other hand, if we project these results, the risk of error associated with this theory is relatively small because we've had plenty of experience in recent years seeing things turn out this way using the fiscal policies being followed by the Administration and Congress.
Cullen's FP/UE/”MMT” Alternative
But what if we follow the FP/UE/”MMT” stimulus alternative, then what are the benefits and costs likely to be associated with that?
-- the ability to produce material goods at much lower cost than today, thus increasing business profits to unprecedented levels;
-- the ability to reduce work hours substantially while producing all our material needs;
-- the ability to provide renewable energy at costs competitive with fossil fuels today;
-- the re-invention and enriching of our societal infrastructure at lower costs
-- the invention and dispersion of new electronic and computing devices that can enrich our lives in various ways
-- greater profits for business than ever before
-- greater AD injected into the economy through payroll tax cuts; State revenue sharing; and deficit spending on infrastructure and new technological developments
And possible costs:
-- continued recession and high unemployment rates, due to a failure to pass any productivity gains along to employees, and accumulation of new AD in the hands of higher income people;
-- faster trading than ever, giving technologically advanced investors and traders advantages over everyone else;
-- further concentration in business as large corporations leverage productivity gains and accumulate new technology innovations for their own use;
-- further decline in middle class purchasing power as wealth concentrates in a smaller and smaller group, preventing full recovery and resulting the need for continued deficit spending;
-- plus all the costs listed for alternative one by Bill Mitchell and myself.
These benefits and costs are possibilities. To compare alternatives we have to assess the probabilities of both positive and negative outcomes and also assign values to the benefits and costs. We may make errors either in listing the outcomes, assessing the probabilities or assigning the values. If we err we may very well make the wrong selection of an alternative, and buy the negative consequences of that choice, including unanticipated costs of our error.
In arguing for his FP/UE/”MMT” alternative, have we seen an analysis even remotely like this sort of fair comparison of alternatives from Cullen? The answer is no. He does some “handwaving” about benefits and about the costs of continuing with a UE buffer stock not preventing "propserity." But his analysis is very vague, even though, if we take him seriously and select his alternative, the probability of serious consequences for millions of people looking for jobs is very high.
The JG/FE/MMT alternative
-- Full employment at a living wage with full benefits for JG participants;
-- Higher wages; in the private sector;
-- Higher sales in the private sector;
-- growing private sector employment;
-- improving middle class balance sheets;
-- Higher AD;
-- Closing the Output gap;
-- Lower profits for big businesses;
-- Strengthening of the counter-cyclical social safety net;
-- Strengthening of the automatic stabilizers
-- social inclusion and expanding freedom;
-- skill gains;
-- positive psychological reinforcement;
-- greater health and increased life expectancy;
-- strengthening of motivation;
-- mending of human relations and family life;
-- increasing racial and gender equality;
-- reinforcement of social values and personal responsibility;
-- increased economic equality;
-- decreased poverty;
-- decrease in crime rates
-- less anger and resentment against the wealthy;
-- decreasing political inequality undermining democracy;
-- avoidance of political violence in major American urban areas.
-- One-time price adjustment upward if JG wage is set too high;
-- Decrease in legitimacy of program if JG wage is too low
-- Shock to business from higher wage costs causing price adjustments upward
-- Administrative failures resulting in unpopularity of JG program
-- Lack of fit of available JG and private sector jobs to available skills
-- Substantial inflation
-- Slower or less new technological innovation
In all three cases above the possible benefits and costs may occur. To compare the alternatives one needs to assign probabilities to the possibilities and also values to the outcomes to really do a good job of selecting among them.
But here are some things to consider for a loose ball park assessment. The negatives of a UE buffer stock are pretty well-established, and if the FP/UE/”MMT” alternative is selected, then the probability of many of the negatives listed occurring seems pretty high, along with the negative values of the outcomes (risks), while a lot of the benefits may be less than high probability, but have high value (opportunities).
For the FE/JG/MMT alternative, many of the benefits seem to be very high probability, while some of the costs are lower probability and some of the values are much less negative than the values associated with the negatives in the other alternatives.
What if I've erred in this assessment? Then the most likely error is in the choice between the second and third alternatives, since the first one is the slow boat to plutocracy city. If I act on the third (FE/JG/MMT) and the second is true, then what is the consequence of the error? There may or may not be less technological progress, somewhat more inflation, and higher dissatisfaction with the bureaucracy, but there will still likely be near full employment and the worst consequences of the UE buffer stock will have been avoided.
On the other hand, what if I act on the FP/UE/”MMT” alternative, and the FE/JG/MMT alternative is true, then I will have condemned millions of people to unemployment, poverty, and lack of opportunity for the sake of pursuing and perhaps not achieving FP.
The Bottom Line?
Cullen Roche asked the risk of error question in connection with the FE/JG/MMT alternative; but didn't ask it in connection with the other two alternatives. That's why I said that he was failing in his duty of fair comparison.
But, if you ask the question in connection with all three alternatives, then it looks like both the conjectured “real” risk and the risk of error are much less with the FE/JG/MMT alternative than with either of the other two. So, I don't think raising that question benefits Cullen's argument, so much as it calls it into question even more.
But the worst thing here, I think, is that my analysis lays bare the lack of it Cullen has given to the full productivity idea, at least in "print." Cullen says that FP should be our goal, but he hasn't really told us what “full productivity” is. Until he does that his proposal for abandoning public purpose and the normative structure under that goal including FE with a living wage, and price stability, to pursue FP will really seem blue sky to me and perhaps other MMT writers as well, and will have the feel of a political slogan, rather than an economic goal that we ought to pursue.