The Job Guarantee and the MMT Core Series

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This is an introduction to a series of 16 posts I began in reply to a number of posts by John Carney at the CNBC blog and Cullen Roche at Pragmatic Capitalism, and discussions replying to them. The posts by Carney and Roche criticized the MMT Job Guarantee (JG) proposal. They did so by calling into question whether the JG would be effective in achieving Full Employment (FE) and Price Stability (PS), and also by calling into question the MMT goals of "Public Purpose", and "FE with a living wage" as appropriate. The critics proposed that “Full Productivity” (FP) and PS be goals of MMT, and that “prosperity” be the higher level goal. They also proposed that MMT concentrate on description and avoid policy prescriptions, and that it deal only with “facts” and not with “theory.”

The first 13 posts in this series refute these proposals, and also discuss the question of the appropriate hourly rate for the JG program. They also discuss various fallacies of composition inherent in many of the objections made to the MMT JG program, the issue of whether an FE or an unemployed “buffer stock” is more in line with public purpose, and also the issue of whether it's possible to deal only with “facts” and not with “theories.” In the 14th post I introduce the idea of the MMT Knowledge Claim Network (KCN) consisting of Social/Value Gaps, Knowledge Gaps (problems), Descriptive Knowledge Claims, Prescriptions, and Narratives. I also argue that the MMT KCN is a fused fact-value network with important value commitments, that it was developed holistically by its originators. that it is not focused on descriptive aspects of economics alone, that it offers explicit value claims, and that it's normative aspect is clear.

I also argue that many of its practitioners, offer policy prescriptions rather than simply concentrating on the way the world is right now. I also note that the social/value gap, problems, and prescriptive aspects of the MMT KCN are progressive and Second New Deal oriented, and that is why many people who are persuaded by parts of the descriptive aspect of MMT want to do what they can to place these aspects into a secondary role and drive them out of the KCN altogether.

In the 15th post, I offer my view of the current components of MMT in its five categories of knowledge claims as preparation for concluding 16th post in the series, which answers the questions I posed at the beginning of the series; namely:

-- What is part of the MMT core right now? and

-- how ought we to change it in the future?

Since I finished the series, its importance as a resource was underlined by new posts from Cullen Roche and Mike Sankowski (Trader's Crucible), and by Cullen's revision of his earlier paper on MMT which is now an introduction to a new approach called “Monetary Realism.” Here's Cullen on MMT and MR.

”As many of you now know, the divide within some of the MMT thinkers has grown fairly substantial. The schism over the Job Guarantee revealed several points of disagreement that lead to vastly different conclusions than those espoused by the primary MMT thinkers. Several commenters and vocal proponents of MMT have made it clear that my positions are not those of the MMT economists and founders and are in fact something different. I won’t do the developers of MMT the disservice of pretending that my ideas are completely in-line with theirs. That would only serve to confuse those learning MMT and could undermine the efforts of the MMT developers.

I feel that the core operational aspects of MMT are among the most important ideas in the world and my goal here has always been to help promote those ideas. Because I believe in those ideas I will not stop promoting them. So I’ve been working with Michael Sankowski, Carlos Mucha (who most of you probably know as reader Beowulf) and several others to help formulate our thinking. I’ve also been in detailed talks with Warren Mosler over the last several weeks hashing out some differences. It’s safe to say that we have his blessing even though he’s not 100% in agreement with all we’ve concluded.”

I'm not sure I agree with the claim that Cullen, Mike, and Carlos have “Warren's blessing” beyond his wishing them luck in pursuing their orientation, which I also have done. Certainly, Part Seven of my series doesn't indicate to me that they have his blessing in the normal sense of this term, and I also think that no group that departs from the core value of “public purpose” as the goal of Government economic policy would ever have his full blessing.

”Importantly, I want to be clear that I do not view Monetary Realism as a competing idea to MMT. Rather, it is merely the form of Mosler Monetary Theory that I wish to promote (without confusing readers into thinking that I am promoting the exact MMT ideas and prescriptions). After all, Warren is still the father of the theory and it’s incredibly important to note that he is, by far, the most influential thinker in this offshoot of MMT. If anything, I hope that by focusing on the operational realities of MMT via Monetary Realism that I will bring even greater credibility to MMT and its operational realities. The fact that we have differences regarding prescriptive uses, in my opinion, gives the idea even greater credibility. But in the end, it should be clear who gets the credit for these ideas – Warren and the other developers. Monetary Realism is merely standing on their shoulders.”

And Cullen also goes on to state that he has revised his introduction to MMT, so that it is now an introduction to MR. In that paper, he also has added “innovation” and “growth” to the goal structure of MR, and also stated that: “The core value of Monetary Reality is transparency of the global monetary system.” He also states that a new web site is being created to promote MR. Two posts have also appeared at the Trader's Crucible web site here and here, announcing the new development.

My take on MR is that even though it tries to minimize the differences between MMT and its “offshoot,” these are at the core of the two systems and that if they were not there would be no MR. If MR proponents still accepted 'public purpose” as the highest level goal in their KCN, and had not replaced it with “prosperity,” if they had not replaced FE with FP as a key second-level goal, then there would have been no split.

The replacement of FE as a goal indicates that MR doesn't consider a job at a living wage as a right of every individual. That is a huge difference between the two approaches that cannot be minimized, as the MR adherents are trying to do.

Beyond these explicit differences there is the further implicit difference that the MMT commitments to public purpose and to FE are commitments to greater equality in American and global society. The abandonment of FE and the JG suggest that the MR proponents are much less concerned about social and economic justice than are the MMT founders and others who practice the MMT approach. In a time when democracy is threatened by plutocracy throughout the world, that difference between the two approaches is fundamental and will shape their future development.

In the future, I'll try to clarify further the differences between MMT and MR and illuminate some of the foundational problems of MR that are already apparent.

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The Job Guarantee and the MMT Core: Part One

MMT Going Mainstream?

Modern Monetary Theory (MMT), an approach to economics that emphasizes the facts about how fiat monetary systems actually work in the real world and the implications of these facts for fiscal policy and economics is beginning to go mainstream. As it does, more and more people are contributing to shaping the approach and are adding to the debate about it. Very recently John Carney of CNBC created a stir in the MMT community by writing favorably about MMT.

While doing so, however, he expressed his disagreement with the emphasis of the primary MMT founders, Warren Mosler, Bill Mitchell, and Randy Wray, as well their initial students and collaborators on the policy idea of a Job Guarantee (JG) as a way of achieving both full employment and price stability. Carney believes a JG program will be: “massively inflationary”, a bureaucratic nightmare, and economically stagnating. So either the JG isn't part of the MMT core, or MMT is just wrong.

Carney's post touched off an explosion of blog-based discussion and commentary here, here, here, here, here, and here. Some believe that the JG policy is somehow grafted on to the basic MMT description of the facts and operations of fiat monetary systems, and is not essential to MMT as an approach to the economy. And Peter Cooper at heteconomist was motivated to write a series on the subject with each new installment driven by the commentary on his earlier posts about the issue.

Until now I've resisted commenting on the discussion, because my main concern in writing about MMT has been to popularize its overall point of view, while concentrating on myths and fairy tales from neoliberal ideology it debunks. I've also been concerned with exploring the political implications of using Proof Platinum Coin Seigniorage (PPCS) in the context of the MMT approach to provide a basis for progressives to become much more aggressive in their advocacy of fiscal policy to heal the various economic and societal problems facing the US.

From my point of view, the internal debate among MMT sympathizers, initially appeared as a distraction from the more serious work of popularization. But after reading many of the post and comments it became clear to me, that the issue of what is at the core of MMT, and how to tell what is and is not part of the core, is a very important one, that has not, perhaps been entirely clarified by the debate. So the purpose of this series is to explore that question of MMT scope. I'll start with Cullen Roche's post on the JG and the mainstream MMT position.

Cullen Roche and the Job Guarantee

I think Cullen Roche posed the issue very well here:

”It’s not that I think the JG “cannot” be a component of MMT (Bill drew a very clear line in the sand saying that the JG is “central” to MMT and not “peripheral”), but that our knowledge, understanding and implementation of modern money need not involve the JG.  The JG might be central to the idea the founders had when creating MMT, but that just means it’s central to the original concept of MMT as they saw it.  And they have by no means proven the JG to be the optimal usage of the government’s monopoly currency supplier powers (despite substantial evidence and persuasive arguments).   I’ll cover this in more detail in the near future, but I simply don’t believe the JG is the optimal usage of these monopoly powers and in fact could come at substantial long-term cost.  Instead, I think there are better options which can also lead to price stability and full employment.”

I think Cullen puts this issue well, but in an incomplete way. He doesn't say why the JG idea has become central to the MMT founders, and in not making clear their reasoning about this, I think he's missing something important that was also missed By John Carney, Rogue Economist, and numerous other bloggers and commenters writing on the subject over the past week. The original practitioners of the MMT approach don't simply describe monetary realities and then say that this description is where MMT stops. They also emphasize that since money is ultimately a creature of the Government, which, in turn, is obligated by the constitution to provide for the general welfare, its fiscal policy should be guided by the standard of whether or not it fulfills the public purpose; and also should be evaluated after the fact by whether its impact has been to get society closer to the public purpose rather than to produce gains for just a small part of the population.

The Argument for the Job Guarantee

I know that the term “public purpose” is an abstraction and that for some schools of economics which don't recognize the reality of collectives, that the term is meaningless; but for most Americans terms like “public interest,” “the general welfare,” and “the public purpose” are important normative standards written into our founding documents, and have a place both in common and in positive law. Bill Mitchell, Warren Mosler, Randy Wray, Stephanie Kelton, Scott Fullwiler, Marshall Auerback, Pavlina Tcherneva, Mat Forstater, Jan Kregel, Eric Tymoigne, Rob Parenteau, Yeva Nersisyan, Michael Hudson, Bill Black, and Jamie Galbraith, have all written about fiscal policy with that or a similar standard in the forefront of their writing. For them, the fiscal policy side of MMT is about achieving public purpose including full employment and price stability, because 1) these goals are written into our laws; and 2) high unemployment is causally related to a host of other effects of poor fiscal policy. As Randy Wray put it during his talk at the Washington, DC Fiscal Sustainability Teach-In Counter-Conference on April 28, 2010:

[00:13:52] But... the sociologists and political scientists would point to these other things, which are also huge, and they are almost always ignored by economists. OK, just run through very quickly: poverty, social isolation, crime, regional deterioration -- because unemployment usually is regionally concentrated and all the Americans know we can identify parts of the country that suffer from unemployment to a greater extent than others -- health issues, family breakdown, school dropouts. You know, this is well established in the literature outside economics. It promotes violence, ethnic hostility, even terrorism. The loss of human capital, because when people are unemployed for a long periods of time they become unemployable, partly because of behavioral changes, but also because of the way that potential employers perceive them. Two years unemployed, I don't want to take a chance on you. So, whether it's a real human capital loss or a perceived capital loss, it will prevent them from having the same job opportunities they would have had if we hadn't gone through this two year period. OK, and hysteresis: long-term unemployed become unemployable because of all these things I'm mentioning here. You become homeless and this is going to have a very long-term impact on your employability.

In short, the MMT founders think that the real costs of unemployment are far, far worse, than any short-term price increases or side effects that might result from instituting a JG program substituting a full employment buffer stock that would serve as a counter-cyclical automatic stabilizer during both recessions and expansions, for the present unemployed buffer stock, that may contain demand-pull inflation, but only by incurring the real costs spoken of above by Randy. From an MMT viewpoint, further, there is no choice about using some kind of buffer stock to achieve price stability, given an economy that relies on the Government's own monopoly fiat currency and private sector markets. Warren Mosler put it this way in his comment on Cullen's post:

“. . . so it comes down to ‘pick one’-
gold
fx
unemployment
employed/jg/elr
wheat
whatever!
I pick ‘employed/jg/elr
as it works best as a buffer stock based on any/all criteria for a buffer stock. . . .“

Considering all the research done by MMT founders on the JG, as well as statements like these which are very plentiful in the MMT literature, I think Warren's is nearly a decisive argument that the JG is a core component of MMT, provided, of course that one accepts that full employment with price stability is an important component of “public purpose” or “the general welfare,” and that also one thinks that the Government's fiscal policy ought to fulfill the the public purpose. Since all the MMT founders and later MMT adherents such as myself agree with this, it's not surprising that we think that the JG is a core component of MMT.

But what if one either doesn't accept “public purpose” as a normative standard guiding Government monetary and fiscal policies, or what if one thinks that full employment with price stability is either not a means that should be used to accomplish the public purpose, or if one thinks that another means can better accomplish public purpose and still lead to full employment and price stability? Then one's verdict on whether the JG is a part of the MMT core will be different.

I'll discuss this issue in Part Two.

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The Job Guarantee and the MMT Core: Part Two

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MMT and Public Purpose:The Normative Component

I ended Part One by saying that Warren Mosler's reply to Cullen Roche is nearly a decisive argument that the Job Guarantee (JG) is a core component of MMT, provided, of course, that one accepts that full employment with price stability is an important component of “public purpose” or “the general welfare,” and that also one thinks that the Government's fiscal policy ought to fulfill the public purpose. Since all the MMT founders and many later MMT adherents like myself agree with this, it's not surprising that we think that the JG is a core component of MMT.

But what if one either doesn't accept “public purpose” as a normative standard guiding Government monetary and fiscal policies, or thinks that full employment with price stability is either not a means that should be used to accomplish the public purpose, or thinks that another means can better accomplish public purpose and still lead to full employment and price stability? Then one's verdict on whether the JG is a part of the MMT core will be different.

For example, Cullen objects to the full employment goal because he doesn't:

“. . . believe the JG is the optimal usage of these monopoly powers and in fact could come at substantial long-term cost. Instead, I think there are better options which can also lead to price stability and full employment.”

In the post, or his replies to commenters he doesn't say anything about “public purpose,” but he reveals that he disagrees with the goal of full employment with price stability and thinks instead, that the Government's monopoly over the currency should be used to provide

“. . . the gift of time and the ability to live a fuller and more meaningful life via the prosperity that innovation and productivity create?”

And he also goes on to say that he thinks creating “full productivity” will also achieve full employment and price stability as a side effect, and that we have a moral responsibility to become enormously productive and increase living standards for our children and future generations, and he thinks Government spending to accomplish that should have a higher priority than Government spending to create a JG buffer stock.

Also, he's worried about the long-term real costs or risks of the JG as indicated in this comment:

“You guys see no need for unemployment. I do. I think it serves an incredibly important psychological component to any healthy economy. I’ve feared for my job and been unemployed. Those moments shaped who I am and what I’ve become. They were invaluable in retrospect. If I’d been able to apply for a JG job I might not be half the man I am today. Maybe it’s just personal entrepreneurial experience speaking here, but I know what it means to hunt and kill for ones dinner. Very little, aside from great parenting and education, was handed to me in life. My psychological development through having to earn things has been a building block that no govt program can ever provide. Ever.”

It's easy to make fun of this statement, or to criticize it rather bluntly, as I did at Cullen's site. But here I'd rather point to the larger issue. There may be side effects of the JG program we can't anticipate now; but we know what the effects of an unemployed buffer stock are on society. And Cullen's conjecture, based on his interpretation of his own experience that there is value in experiencing unemployment, which we will lose if we implement a JG (even if that value may not be apparent to others who have had the experience of unemployment and its corrosive effects), even if true, doesn't on the surface seem to suggest anywhere near the individual and social costs that we know are caused by unemployment.

Those of us who feel this way, may be wrong, but I think opponents of the JG have to do better than to just voice vague fears and anxieties about future real costs. They have to produce at least some cogent negative arguments about why we should expect side effects of the JG that are more serious than the costly realities due to unemployed buffer stocks we see right now, and also they have to produce alternative policies that appear less risky than the JG proposal.

Why Not try Both?

So, it seems that the JG, assuming it is the best way to get full employment with price stability is very likely to be a component of the public purpose and therefore a core component of MMT. However, even assuming that the JG is such a core component, that doesn't mean that a goal of maximizing productivity should not also be viewed as a core component of MMT. As a number of commenters on Cullen's post have pointed out, the Government can afford to both pay for the JG and also for efforts to increase productivity. Nor are these components of public purpose competitive. So, why not try to enormously increase productivity and also implement an FJG?

There is a measurement problem, here. The current most common measure of increases in productivity, increases in GDP per labor hour, is laughable as a measure of real productivity gain, and I think it is enormously difficult to arrive at a good way to measure such gains, since doing so would involve measuring the non-monetary value of economic, including Government outcomes. But, if the measurement problem could be solved, then as productivity gains are made, the employment conditions of a JG buffer stock can easily be changed by raising JG wages to pass through productivity gains to whole labor force.

Since 1970 most of the productivity gains have been distributed by neo-liberal economic/political regimes to the wealthy, greatly increasing the inequality gap and clearly threatening democracy itself. But a JG program in concert with an emphasis on increasing productivity could fix that, if we can find better ways to measure productivity gains than we have now, and use those measures to help shape JG programs.

Peter Cooper's JIG Adds Freedom

Above, I said that I find the MMT argument for JG as a core component nearly a decisive one, provided, of course that one accepts that full employment with price stability is an important component of “public purpose” or “the general welfare,” and that also one thinks that the Government's fiscal policy ought to fulfill the the public purpose. However, as part of the general debate over the JG, Peter Cooper has proposed a JG, supplemented by a Basic Income Guarantee (BIG), as a better alternative than the JG alone, because net/net it would increase personal freedom since people could choose either JG or BIG based on their needs, while still fulfilling the requirement of having an employed buffer stock as an automatic stabilizer.

I think this idea is promising. It has received vigorous discussion over a number of days at Peter's site. Dan Kervick objected to it on numerous grounds. And in a comment I made on his objections, I summarize my views on Peter's proposal, which he decided to call “JIG”. Here's my comment.

The nub of it is that neither the private sector nor the Government is infallible in its judgments about which jobs and roles produce value, and which do not, or about which individuals are producing value and which are not in their individual activity. So, why should we rely completely on either the market or the Government to make these judgments?

Why shouldn’t we accept instead that individuals who would rather be free from working either for the private sector or for the Government still have the right to a decent living and free health care? Are they not human beings? Is there no possibility that people who make such a choice will not use the time they gain to contribute value to society, or that they might do so in the future?

I think there are some people who would use the time provided by choosing a BIG option to innovate and create outcomes of great value to society. Neither private sector nor Government authorities can be trusted with power to make all the decisions about which activities are valuable and deserve decent monetary compensation in return.

Ordinary people have to have some of the power to decide for themselves what they'd like to do and still be able to remain alive and in good health to do it. That is an increase in individual freedom that our modern economies, including the US, can afford, and it may provide a better core component for MMT than the JG alone.

In Part Three, I'll review John Carney's objections to the Job Guarantee.

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The Job Guarantee and the MMT Core: Part Three, A Reply to John Carney

Parts One and Two

In the first two parts of this series, I analyzed views on the Job Guarantee (JG) idea offered by Cullen Roche and Peter Cooper in conjunction with a post by John Carney which kicked off an explosion of blogosphere posts and commentaries on the JG. In this post, I'll analyze John's take on the JG. He says:

“There are at least three reasons the Jobs Guarantee cannot work.” it's: “. . . massively inflationary”; “. . . . a bureaucratic nightmare; and “. . . economically stagnating.”

His reasoning, and my interleaved replies from an MMT perspective are below. All my replies assume that the JG would not be “paid for,” but would occur through deficit spending.

Would the JG Be Massively Inflationary?

”While employing the unemployed may not create upward pressure on wages, it dramatically increases demand. The national income is increased by the amount the government pays those laboring in JG jobs.”

Actually, GDP is increased by even more than that, because there would be a fiscal multiplier attached to the JG wages similar to the multiplier associated with unemployment insurance, probably in the neighborhood of 1.6 – 1.7. In addition, unlike UI, JG jobs would carry benefits, including access to Medicare, so one would have to add Medicare-related payments and their multiplier onto the multiplier associated with UI. The fiscal multiplier attached to the initial introduction of the JG is one of the arguments for it, since it would represent increased private sector activity and expanded private sector hiring.

”That income is entirely from newly created money, so the money supply is expanding.
That additional demand is not matched by additional supply, however.”

I think this part of John's argument is really weak. Since the output gap is now between 25 -30% of what our economy is capable of, we can expect business to respond to the new aggregate demand with increases in supply, not with increased prices. This will depend on what people want to buy, of course. But there's no reason to assume that people living on a JG wage will want to buy goods and services that are scarce. If John thinks they will, then he needs to amplify that part of his theory about the impact of the JG.

"The people working in JG jobs are not producing goods that the market needs. Their work product is largely waste. Which means that demand increases without the supply of desired goods increasing. The result: inflation."

We can look at the people in JG jobs as supplying demand that the market needs. How do we know this is true? Because of the huge output gap between our capacity to supply and what we're selling. The idea that supply will not increase, as demand increases only makes sense when our capacity to supply is exhausted. But, of course, we have that gigantic output gap telling us that supply will increase and that inflation is not something we have to worry about until that gap is closed.

But when it is closed, JG inputs to the economy will be largely gone, because nearly all of the JG workers will have been hired back by the private sector, and the Federal payrolls will be reduced to its normal complement plus a maintenance staff for the JG program to safegaurd its capacity to ramp up once again, when the next private sector downturn hits.

Also, on what basis is John claiming that JG work products and services are largely "waste"? Is health care for the old and infirm waste? Is building solar and wind power capacity waste? Is work in public schools waste? Is mentoring children lacking parents waste? Is child care assistance waste? Is the outcome of cultural projects waste? Is repair of public facilities, infrastructure and public spaces waste? Is training people in new skills waste? Is working on entrepreneurial projects waste? Whether, JG work products are waste or not, depends on whether JG workers produce valued goods and/or services that improve the quality of life for other Americans. It doesn't depend on whether “the market” needs those goods and services in the sense that it judges that a profit can be made by producing and selling them.

The story of the US economy in recent years is the story of market failures. It is the story of pharmaceutical companies failing to produce drugs that would actually make people healthier. It is the story of financial services companies sitting on cash and speculating in a massive international gambling casino, rather than using money in a way that is productive for the economy. It is the story of energy companies failing to invest the money needed to bring the cost of alternative sources of energy down and leaving us dependent on fossil fuels. It is the story of the failure of insurance companies to provide affordable health insurance, and the failure of private health care providers to contain costs.

In short, the track record of the market as a mechanism for assessing and producing value for society has not been good for the past 40 years. It has not been adaptive for society at large. Greed has been bad for the market, because it has led business people to try to overturn its workings, to manage it, and even to control it in certain industries. The truth about the market is that works efficiently when it is free, but no business endeavor that is already established wants it to remain free.

In its own area of endeavor a business wants to manipulate the market, to control it, and to create a managed market. Businesses are not for free markets. They are against Government regulations. They are for their own domination of their own market sectors, without Government regulations impeding that domination.

In the past 40 years big business has been very successful at regulating wages in the labor market in a way that benefits them. So, the truth is that the market has largely been a mechanism for seeing to it that the financial benefits of productivity gains largely go to a very small percentage of Americans and an emerging global elite. It hasn't been a mechanism that has increased the real wealth of most Americans by very much over that period.

Will the JG Be A Bureaucratic Nightmare?

John arrives at this conclusion by pointing out that there are 13.5 million people unemployed in the US today, and that an effort to employ all of them would make the JG huge, and implies that the Government couldn't employ all those people without a huge bureaucracy. He claims that:

The JG is a creature of happier times and smaller economies. Bill Mitchell explains that he thought up the idea while he was a student at the University of Melbourne. The total employed population of Australia is only about 11.5 million. Australia currently has an unemployment rate of around 5.3 percent, which translates into 635,800 jobless people. In other words, a jobs guarantee in Australia might be workable. But it doesn't scale to fit the United States.

OK, first John isn't estimating the scale of the problem in a reliable way. It's off the top of his head based on U3 unemployment numbers. To do a better projection you have to recognize, first, that, since dis-employment is at about 28 million, about 25 million full-time jobs are needed to get the unemployment rate down to 2%, which is the MMT full employment goal. In other words, there's an unemployment problem much bigger than 13.5 million to handle. On the other hand, not all of this is necessarily a problem for the JG to handle.

MMT proposals for the JG usually occur in the context of $700 Billion worth of additional deficit spending in full payroll tax cuts for employees and employers, and State Revenue Sharing of $1,000 per person, with a fiscal multiplier of perhaps 1.3 that would kick in before the JG funds really started to flow. It's likely that this deficit spending would cut back the full time unemployed to about 6.5 million, but still leave an additional 8 million part-time employees looking for full-time jobs.

Then, as the JG jobs kicked in after 3 months of ramp-up time at a multiplier of 1.6 – 1.7, private sector hiring would start to accelerate. I think this would make the initial size of the JG problem more like 5 million rather than 13 million. But, please note, I'm not presenting this estimate as anything more than a guess.

Obviously we need some good modeling on this to estimate the dynamics over time and the interactions between different components of the MMT program in ramping up demand and the private sector response. What is clear is that John Carney's estimate of the necessary size of the JG program isn't thought through and is perhaps double or triple its likely actual peak size.

Also, as the JG demand began to hit, it's likely that we'd get a private sector response to it in the form of increased supply and hiring of full time workers within six months. We might very well have a JG program down to less than 500,000 employees within 9 months of the date the JG begins hiring.

In short, I see the JG as a permanent program with a temporary peak size of about 5 million, very quickly falling to 500,000 and eventually to less than a 100,000. If the Federal Government enlists the help of non-profits, State and local Governments to staff it up to the necessary short-term peak, and then relies on individual JG workers and the private sector to staff it down by hiring willing workers away, I don't see the creation of a large permanent Federal bureaucracy coming out of this. John's notion of a bureaucratic nightmare is way overblown, and we certainly can't accept the mere assertion that this would be the result as plausible.

Will the JG Lead to Economic Stagnation?

John also says:

Unemployment encourages those who went into trades that turn out to lack adequate demand to give up those trades and seek another. This is economically productive because it brings stagnate resources—people who can do things no one will pay for—out of stagnation.

The Jobs Guarantee would eliminate this process. The government would buy the labor of people who hold skills not demanded by the market, preventing those people from seeking out new skills. Stagnant human capital would just continue to stagnate.

This argument would be a much stronger one if we weren't in the midst of a balance sheet recession. In this downturn, people may be unemployed because their companies had sales problems due to decreased demand. Their skills may be very much needed by the market as the balance sheet recession eases and then ends. Also, in this particular recession, those in the building industry have experienced a crash. There's no reason to believe that when housing recovers and building starts again that their skills will not be needed. The same, of course, applies to the auto industry and related businesses in its supply chain.

The question of which jobs, and in what quantity, would be coming back in the wake of an MMT anti-recession job creation program is unanswered. But there's no reason to believe that a disproportionate number of people who lost their jobs have obsolete skills and would be unemployable as the recession ends. We need some numbers to see to what extent this is a JG problem. Insofar as it's not a problem, it would simply give the otherwise unemployed a wider range of skills to draw on.

But suppose that 1-2 million people now dis-employed were unemployable in the market when the economy recovered, then who ever said that the JG program would not contain training programs for helping people to acquire new skills. MMT writers have been very clear that the JG would contain such a component. If it's managed well in collaboration with business sectors that need those skills, then those people who lost their jobs due to skill obsolescence would be able to join the private sector again.

Let's Go beyond Talking Points

To the MMT claim that a JG can bring and maintain full employment, John Carney replies: it's: “. . . massively inflationary”; “. . . . a bureaucratic nightmare; and “. . . economically stagnating.” I hope I've shown here that all three risks are overblown, and aren't yet really beyond the stage of talking points. Fundamentally, John's objections seem to follow a script from Austrian economics, echoing Schumpeter and Hayek, while claiming favorability to MMT. Of course, pointing this out doesn't speak to the validity of his points, but it does suggest that he hasn't yet really internalized the full MMT perspective.

He offers these as three risks of the JG program, but in arguing for them he provides no thinking acknowledging that we're in a balance sheet recession where many people are unemployed because demand has collapsed, rather than due to skill obsolescence. He also assumes a likely size for the JG program without considering or thinking through its MMT context. For him, it's just: since we have 13.5 million U3 unemployed, the JG program will employ them all, conveniently forgetting the other elements in the MMT anti-recession program, and the dynamics of its two other legs, which would reduce the need for JG employment and the size of the program.

Finally, his failing to recognize that we're in a balance sheet recession and have a huge output gap indicates that in claiming that there will be “massive inflation” as a result of the deficit spending on the JG, he hasn't thought through the really basic insight that there won't be demand-pull inflation until we've reached full employment and that by that time JG spending will be greatly reduced and won't be a factor in causing any such inflation.

John Carney has written a new post, in addition to the one I've critiqued here. In my next post in this series, I'll critique that one, as well.

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The Job Guarantee and the MMT Core: Part Four, John Carney on the Mismatch Problem and Hayek's Theory

Parts One, Two, and Three.

In the first three parts of this series, I analyzed views on the Job Guarantee (JG) idea offered by Cullen Roche and Peter Cooper in conjunction with a post by John Carney, which kicked off an explosion of blogosphere posts and commentaries on the JG. In Part Three I began an analysis of John Carney's views by taking exception to his claims that the JG would be inflationary, a bureaucratic nightmare, and would cause economic stagnations

In this post, I'll begin analyzing John's further take on the JG in a second post of his. His reasoning in this post, focuses on the problem of a mismatch between demand and the skills needed to fulfill it, the possible inflationary impact of this mismatch, and also amplifies his claims on the JG and stagnation. My interleaved replies from an MMT perspective to his assertions and arguments are provided in this and upcoming posts. All my replies assume that the JG would not be “paid for,” but would occur through deficit spending.

The Mismatch Problem

In commenting on the Government's efforts to fight unemployment since “The Great Depression” John Carney writes about the Government's efforts to achieve full employment through monetary policy. He starts his narrative with:

”. . . there was little reason to think that the additional demand created would be for the skills and services the unemployed possessed. If the cause of unemployment was not just a lack of demand but a lack of demand for what the unemployed could do, job growth would not result. What would happen instead was that there would be more money chasing the goods and services actually in demand. This created the potential for high unemployment and high inflation.

Comment: I don't think it's true to say that the US Government was trying to achieve full employment using monetary policy during the post-war 1945-1970 period. Instead, fiscal policy and monetary policy advocates contended with one another about whether monetary policy could possibly produce full employment. During the Kennedy/Johnson Administrations fiscal policy certainly held the upper hand, and even during the 1970s Nixon famously asserted that “we are all Keynesians now,” conceding that fiscal policy was the key to full employment.

During the 1970s, however, neoliberalism began to gain traction, as did Milton Friedman's monetarism. By the time of the Carter Administration, and in the face of cost-push inflation introduced by the Oil Cartel, monetary policy to reduce inflation was the order of the day, and the Government backed off using Keynesian fiscal policy to create full employment.

The closest thing we've had to aggressive Keynesian fiscal policy since that time was the present Administration's attempt to use deficit spending to recover from the crash of 2008. But most Keynesian and MMT- inspired stimulus advocates believed in early 2009 that a stimulus bill twice the size of the ARRA act, with far less emphasis on tax cuts, and far more emphasis on public sector spending was necessary to enable recovery. Experience since 2009 has refuted the view that the $800 billion ARRA fiscal initiative was large enough to enable full employment, or anything near it. The view among many macro-economists now is that the Administration, probably due to its unwillingness to be aggressive with the Democratic Senate, and partly due to its admitted underestimation of the severity of the balance sheet recession, injected far too little aggregate demand and/or direct job creation into the economy.

Experience has also once again refuted the view that monetary policy can bring about full employment, or that aggressive monetary policy, designed to do that, would cause inflation or hyperinflation, since it is hard to imagine a more aggressive monetary policy than that practiced by the Fed since the crash, and we see that its policies have produced neither full employment nor any serious across-the-board inflation. This is consistent with MMT predictions, which viewed monetary policy as primarily impacting portfolio composition in the private sector, without however, adding any Net Financial Assets (NFA) to it. The Fed's expansion of the money supply, has added to reserves, but its hasn't added to the NFA stock and therefore to aggregate demand (AD).

In other words, MMT predicted that Fed policy would neither contribute to increased employment nor contribute to significant inflation, since trading bank reserves for assets of equal value held by the private sector increases the money supply in a very narrow sense, but doesn't increase AD in the private sector because it doesn't add to NFA. The question raised by this is whether Carney's view, quoted above, is even relevant to our present situation, since the real issue wasn't a mismatch between demand created by monetary policy and the skill composition of the labor force; but whether any significant demand at all was created by the Fed's monetary policy.

Mismatch and Hayek's Theory

John Carney goes on with his “mismatch” theory, quoting Hayek, he says:

"In other words, the core problem of most unemployment is a distribution problem. The distribution of labor did not match the distribution of demand. Increasing aggregate demand would not necessarily decrease unemployment. What is typically required to actually decrease unemployment is relocation and retraining of workers, something which many of the temporary measures intended to ameliorate the effects of unemployment actually interfere with.”

Comment: This is an assertion of theory, and one that is rather indirect in its construction of the problem. The creation of demand from a Job Guarantee program funded through deficit spending comes from paying JG workers, i.e. providing them with NFA in the form of high-velocity money, they did not have have prior to their participation in the JG program. At that point, those workers/consumers are the source of demand for further products/services in the private sector, not the Government directly.

These are likely to be products and services the JG workers could afford to buy before the crash resulted in their unemployment. So, if the capacity to supply those goods and services existed before the JG went into effect, there is no reason to believe that the same capacity would not be used to fulfill the new demand created by the JG provided that one is started before the recession causing unemployment has atrophied previously existing productive capacity. If the capacity is lacking because the recession caused lay-offs, then the workers necessary to satisfy the new demand can be re-hired as needed, as long as the private sector businesses are willing to exceed the JG floor on salaries and benefits.

The assertion that re-training and re-location are needed to lower unemployment assumes that some proportion of the people who want full-time private sector jobs can't get them because their skills don't fit businesses close to where the unemployed live, whose products and services would be demanded in the context of an operating JG program. This is probably true to some extent at a micro-level, but from a macro point of view, the actual size of that segment of the potential JG pool is what's important and that's an empirical question. John Carney doesn't even address that question. So, he doesn't even tell us what the size of his “problem” is.

And he also doesn't make explicit that he clearly has in mind local private sector for-profit businesses, that he thinks will not be able to employ that part of the JG pool whose skills don't fit the new demand these businesses will want to satisfy. Finally, he tacitly assumes, in the quoted passage, that Government-funded employment in the JG program isn't “actual employment”, when clearly the purpose of the JG is to create a buffer stock of fully employed people.

Next, there certainly will be some people whose skills don't fit the current labor market among those who want full-time employment, and there will be a consequent need to train these people. But, JG programs can make provision for re-training, and even for re-location within the US, if that's really what's needed. Many jobs these days, can be performed at a distance over the Internet. This will become increasingly the case over time, so that the relocation issue will become less and less important as the years go by as an important factor in employment decisions.

Hayek's argument about mismatch of demand and skills is now more than 60 years old, and re-location is far less important as a factor in structural unemployment than it once was. If it were still true to any significant degree, American businesses wouldn't be able to outsource consulting, marketing, advertising, software, accounting, and other private sector work to India and China, so clearly local businesses that can use these skills can certainly “outsource” them to other local areas within the United States, if that's what they want to do.

In fact, if John Carney is so keen about this problem of the JG program perhaps a partial solution is to pass laws requiring that businesses selling and operating in the US not to outsource services like the above to companies whose employees are resident in other nations. Some might think that such a proposal accompanying the JG is out of the MMT paradigm, since it's the MMT position that trade deficits add to the real wealth of nations, sovereign in their own fiat currencies. But if there's really a serious contention that the JG program might be less effective because of such a skills mismatch, then it seems to me that in a conflict between increased profits for US companies coming from that kind of outsourcing, which mostly serve to increase inequality in the United States, democracy in this country would be much better served by “outsourcing” to people in other local areas of the US, who are in the JG program, in order to minimize any possible “skills/demand mismatch” that may decrease the effectiveness of the JG, rather than by “outsourcing” to people of other nations.

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The Job Guarantee and the MMT Core: Part Five, John Carney on the Mismatch Problem and the Distribution of Labor

Parts One, Two, Three,and Four

In the first four parts of this series, I analyzed views on the Job Guarantee (JG) idea offered by Cullen Roche and Peter Cooper in conjunction with a post by John Carney, which kicked off an explosion of blogosphere posts and commentaries on the JG. In Part Three I began an analysis of John Carney's views by taking exception to his claims that the JG would be inflationary, a bureaucratic nightmare, and would cause economic stagnations. In Part Four, I critiqued his views on the problem of a mismatch between demand and the skills needed to fulfill it, the possible inflationary impact of this mismatch, and also his claims on the JG and stagnation.

In this post, I continue analyzing John's further take on the JG in in his 'The Trouble with a Job Guarantee. His reasoning in this post, focuses on the problem of a mismatch between demand and the skills needed to fulfill it, the possible inflationary impact of this mismatch, and also amplifies his claims on the JG and stagnation. My interleaved replies from an MMT perspective to his assertions and arguments are provided in this and an upcoming post, as well as in Part Four. All my replies assume that the JG would not be “paid for,” but would occur through deficit spending.

Does the JG Really Solve the Mismatch Problem?

”The Job Guarantee gets around one of these problems: it guarantees that anyone who comes to the government employment office ready, willing, and able to work will be able to get work for pay and benefits. The problem of mismatch is seemingly solved since the government will just supply the demand for something the unemployed can do. Direct hiring works better, in this sense, than trying to jigger the knobs of monetary policy.

But is the problem of mismatch really solved? I do not think it is.

The jobs created under the Job Guarantee are specifically not supposed to compete with the private sector, which means that they supply goods and services for which there is not a market demand. The total output of the economy might increase, but much of this output is non-productive—that is, it doesn’t actually improve our lives."

Comment: This statement really reflects John Carney's bias towards private sector employment, and is simply ridiculous and outrageous on its face! We all know that Government work produces valuable goods and/or services that improve our lot in life, everyday. We also know that a lot of Government work is valueless or produces negative real value. But we can equally well say the same things about private sector work. Much of it has zero or negative real value from the viewpoint of those of us who aren't getting paid for doing it, and I won't trouble to even provide the very obvious examples of this. There's also much private sector work that adds real value to our lives and is well worth doing.

My point is that whether JG work produces real value has nothing to do with markets or whether businesses in markets believe they can make a profit from certain kinds of activity. But it has everything to do with whether Americans are likely to and, in the event, will value the goods and services produced by JG work. Whether the output of the JG program is “productive” will be judged by the people that will or will not benefit from it, and not by the private sector market that it will not be competing with.

"Now some people will say that this is fetishizing the market. Aren’t there things that improve our lives other than what the market will pay for? I don’t want to argue that there are not. I do not think, for instance, that these days we could pay for the Sistine Chapel but our lives are greatly improved by its existence. The problem is that there is no reason at all to think that people laboring in Job Guarantee positions will supply meaningful improvements rather than holes in the ground."

Comment: I'm sorry, but the quote just before the disclaimer does “fetishize the market.” It clearly does make the a priori assumption that what the market values is much more valuable than what the political system or society or people value. And this is a generalization that John Carney cannot establish with any scientific tests or data. It is an ideological view coming out of Austrian economics and Randian ideology. It is not an assertion that should be taken at face value.

Actually, also, contrary to John's view, there is plenty of reason to think that people laboring in JG positions will add value to the economy. We know that many non-profits add value to American life. We know that New Deal project outcomes added lasting value to American life and continue to do so. We also know that many government activities add value today. But, most importantly, we have plenty of reason to believe that the people who run the JG program will be able to design it so that JG workers will be very likely to produce value. We have the years of research on the JG by MMT researchers to show that many good ideas already exist for JG projects that have value. All we have to do to assure ourselves that this is true is to read that literature.

I know that John says that he has read the MMT JG literature and that he hasn't any reason to believe that value will be produced, so he wants to be cautious before implementing the JG. But I've read that literature too, and I totally disagree with John and think his view is colored by the bias I called attention to above. He is predisposed to think that the JG cannot add value, so therefore, no examples of projects that might produce value will persuade him.

I can't say for sure whether this view of mine about John is right. To see whether it is, readers of this post should read the MMT literature themselves and decide. Don't take my word for it, and don't take John's. Decide for yourselves! I'm confident that you will decide that John's claim that “The problem is that there is no reason at all to think that people laboring in Job Guarantee positions will supply meaningful improvements rather than holes in the ground,” is just false.

"The Job Guarantee folks seem to think that there are plenty of meaningful jobs that aren’t getting done but that could be done by the unemployed. I don’t think this is correct. In fact, I cannot really think of many at all. Sometimes things like caring for the elderly or constructing bridges and roads are nominated as candidates. But these are not jobs that can be done just by anyone. They require a certain sort of person with a certain set of skills. Most jobs do."

Comment: This is the same claim as the one made above. Read the literature! Decide for yourself! It's easy to think of productive work for people to do. I'll bet you can do it for yourself. Here's one, start a JG project to provide the SEC with 50,000 new investigators to ferret out the control fraud in the private sector that led to the crash of 2008. That one will certainly add value to American life; specifically a value it is lacking now – namely the value of justice and fairness under the law. Of course, the 50,000 new investigators will need some training; but I suspect Bill Black could design a brief educational program teaching the basics of investigation that wouldn't require more than two weeks of intensive training to complete.

The Distribution of Labor and the JG

"So the Job Guarantee actually falls prey to that old problem of the distribution of labor. Unless the skills, talents and dispositions of the unemployed miraculously match the jobs the government would like done, it doesn’t actually work much better than the “full employment” monetary policy.

This creates the inflation problem I wrote about when I first addressed the Job Guarantee. The MMTers claim that their approach isn’t inflationary. In fact, they like to call it “Full Employment and Price Stability.”

But if they are creating jobs that put more money into people’s hands without creating more supply of that which is actually demanded, then prices are likely to increase. Businesses may be able soak up some of the extra-demand by increasing their output—but this has limits, especially if there is a labor-demand mismatch. The productivity of existing workers can only be increased so far."

Comment: This just re-hashes John's old assertions. Everyone agrees that Government can't deficit spend an unlimited amount without causing demand-pull inflation. MMT doesn't disagree with this. No one's proposing deficit spending beyond productive capacity using the JG or anything else. JG spending is designed to shrink as the private sector responds with more supply to the Government providing funding for real work that will add value to American life.

The reason why it will is that in responding to increased demand the private sector will rehire people from the JG and it will shrink. As I've argued above, the so-called labor/demand mismatch is really a claim that the increased demand can't be met by an increased supply response. But there is absolutely no evidence or reason to believe that we can't "supply" in response to the increased demand coming from the JG. If John thinks there is, then I think the burden is on him to provide some calculations based on empirical data. I challenge him, or anyone else, to do that.

"Because the workers without skills demanded by the private sector have jobs and earn income, their incentive to retrain and relocate is diminished—which means that the labor mismatch persists and businesses may not be able to increase output to match rising demand."

Comment: This one is really strange. If businesses aren't able to meet the demand that existed before the crash of 2008, then it will be because they don't hire back the workers they laid off. If State Governments can't meet the demand for the services they provided before the crash, it will, again, be because they are refusing to meet that demand by hiring their employees back. It won't be because of any skill mismatch. There's little empirical evidence that this will be a serious problem, if the demand is there.

Also, if some people remain on the JG because they can't get better-paying private sector jobs due to a skills mismatch, and if they know that those jobs are going begging, then they will take advantage of JG-related opportunities for retraining, because the incentive for them to do so in the form of higher pay and better benefits will be there if the market is working, and will pay a higher price for labor as demand increases. And if the market doesn't work, then the JG safety net is all the more necessary to give those the market can't provide for, work that will produce real value.

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The Job Guarantee and the MMT Core: Part Six, John Carney on Stagnation and Prosperity With Unemployment

Parts Two, Three, Four, and Five.

In the first five parts of this series, I analyzed views on the Job Guarantee (JG) idea offered by Cullen Roche and Peter Cooper in conjunction with a post by John Carney, which kicked off an explosion of blogosphere posts and commentaries on the JG. In Part Three I began an analysis of John Carney's views by taking exception to his claims that the JG would be inflationary, a bureaucratic nightmare, and would cause economic stagnations. In Part Four, I critiqued his views on the problem of a mismatch between demand and the skills needed to fulfill it, the possible inflationary impact of this mismatch, and also his claims on the JG and stagnation. In Part Five, I focused on his discussions of the problem of a mismatch between demand and the skills needed to fulfill it, the possible inflationary impact of this mismatch, and also stagnation.

In this post, I continue analyzing John's further take on the JG in in his 'The Trouble with a Job Guarantee. His arguments in this post cover incentives to work that might be impacted by a JG program, and the notion that we know that prosperity with unemployment is possible. My interleaved replies from an MMT perspective to his arguments are provided in this and an upcoming post, as well as in Parts Four and Five of this series. All my replies assume that the JG would not be “paid for,” but would occur through deficit spending.

The JG is a Guarantee of a Job Offer, Not a Job

”It would be possible, of course, to diminish or eradicate the inflationary effect by tightening other government expenditures, raising taxes, or making sure the Jobs Guarantee wages were so low that the increased demand generated would be minimal.

The MMTers argue that the Job Guarantee positions will be so low-paying that workers will not be incentivized to stay in them. But I’m not sure this is correct. Do we really understand how workers will react to a job they cannot lose? Will there be some people who prefer to work just enough to get by, showing up at the Job Guarantee office every now and then, working for a few weeks, then going back to their personal hobbies?”

Comment: People will be able to lose their JG job. MMT proposals guarantee an offer to work. They don't guarantee that someone will be able to continue to work if their work isn't satisfactory.

There may be some people who will want to work just enough to get by. So what? Why is this a problem, if people can get by this way. They'll be doing valuable work, while they're doing JG work from time to time. If they don't want to graduate to private sector work, and periodically join and drop out of the JG, instead, then why should that bother us, as long as they're getting paid for the work they do?

”Yes. There will be. And some of these people will be very intelligent, even diligent people. I know people like this in New York City, who go through long periods of voluntary unemployment during which they paint, act, and write. They are enabled in this lifestyle by unemployment insurance and rent-control. Some of these people used to be computer engineers but found that they preferred more leisure and the income from unemployment insurance to less leisure and income from a private sector jobs.

It’s a wonderful life, really. But if it were too popular it would obviously be economically stagnating. I can see the possibility of The Job Guarantee inviting this type of economic stagnation at a whole new level. Work a week per month, earn enough to pay your for your rent-controlled apartment, then spend the next three weeks painting.

Work every other day. Work half days. Whatever. There's always a job waiting for you the next day. Get sick? Go down to the Job Guarantee office, take a job, then use the health insurance to pay for the medicine you need.

We do not know that this is what would happen. But that’s part of the point. Nothing on this scale has ever been tried before. It is bound to produce unexpected and unintended outcomes. Pretending as if we know the economic and social consequences of this kind of revolution in the way Americans work is a dangerous conceit.”

Comment: Oh, those evil New York wastrels, and bohemians! How can the hard working folks out in Iowa possibly agree to support them with guaranteed occasional work, even if they have that same guarantee themselves, even if it provides them with the full-time continuing work they prefer, and even if they're not (remember, John, this is MMT) actually funding them from anyone's tax money?

And, what, exactly, is wrong with the value produced from painting, acting, and writing? Of course, not everything produced from these activities adds value. But the same is true of many private sector activities. Does John really think that economists are more valuable to society than artists, actors, and writers, for example?

And why isn't it the case that many people will use the JG as a means of leveraging getting new businesses started? Why assume that this sort of pattern will be economically stagnating? Maybe it will be the opposite. Maybe it will free up creativity? Why is a certain amount of freedom from other people's judgments about what activities are valuable to undertake “stagnating?” Again, John is showing an ideological bias here, and it is a conservative bias toward reinforcing authority and against increasing personal freedom.

Prosperity with An Unemployed Buffer Stock?

”As Cullen Roche at Pragmatic Capitalism points out, we know that we can have prosperity with unemployment. We don’t know we can have it without unemployment because we’ve never tried it and our economic models will always fall short. The maps aren’t the territory.”

Well, the question here is: prosperity for whom? Maybe there's prosperity for Cullen, and for John, but there's no prosperity for the people in the unemployed buffer stock, their families, or their children. There's also no prosperity for working people whose wages are either kept low or further depressed by the rising buffer stock of the unemployed. That's why the median wage in the US has increased very little in the US since the 1970s and that's also why inequality has grown so greatly. If we want to stop trends like this and create a more equal society, more consistent with robust political democracy, then we have to stop depressing wages by fighting inflation with large unemployed buffer stocks.

Also, what is the standard used to say that the unemployed buffer stock “works”? It certainly hasn't worked for working Americans if we compare their state with citizens of other nations. With each passing year we see that cross-national indicators of economic well-being show that US citizens are falling farther and farther behind the citizens of other modern nations. There is no getting around it: something's rotten in the United States, but not in Demark. The US isn't working as it should as an economy producing the kinds of opportunities people value; including the opportunity to start new businesses, to attend college, to receive health care when you need it, or even to have an economic safety net when disaster strikes. And one of the reasons is that we don't (John Carney and Cullen Roche, not withstanding) have widely shared prosperity due to our insistence on having an unemployed buffer stock.

”You’ll notice that in my story of my arty NYC friends above I pointed out that unemployment interacts with rent control in ways that many people have never considered. The Job Guarantee will not come into an economy unencumbered by regulation. It will become part of an extremely complex web of regulations enacted during the last hundred and fifty years. It is impossible for anyone to know how the Job Guarantee will interact with the rest of the regulatory state.”

This is a very common conservative complaint about any attempt to change the way things are done. Yes, we live in a complex adaptive system, and our participation in it is reflexive to boot. Life is about unanticipated consequences and “black swans.” It is impossible to know exactly what will happen if we make major changes to our economic system. But the only way to find out is to make the changes we think will improve things, to evaluate them, and then change things again if what we've done doesn't work. John's attitude toward the JG is the traditional conservative 'can't do” attitude. The attitude that says the sky will fall if you change anything substantially. But, I think that the present system is ruining a lot of lives. We need to change it, and keep changing it, until we get it right -- until those lives are no longer being ruined.

Conclusion: Fallacies of Composition

What we're seeing in the objections to the JG offered by Cullen Roche and John Carney are micro-economic and even anecdotal arguments arguments being used against the JG proposal by people who don't want to risk certain possible, but not likely effects of the program. What's possible can be recognized by thinking through scenarios like those which end in inflation, excessive bureaucracy, skills mismatch, and stagnation. All these things are possible consequences of the JG impact on some individuals.

Implementing a JG may well cause one-time price adjustments in the economy. We will probably be able to point to examples where its introduction causes certain prices to go up. But, because of the impact of other MMT stimulus programs and the aggregate demand introduced by the JG itself, the private sector will move strongly toward providing full employment (though at higher wage levels) within 6 months. So, the JG population will be declining, and along with it Government deficit spending and any inflationary impact it could have. From the micro point of view, it may be reasonable to project that the JG will cause inflation, but from the macro point of view it makes no sense at all if we look at things over time and in terms of the likely interactions between the Government and the private sector.

When we think about the JG, further, and also think about our personal experiences with Government programs, a plausible reaction is: “Oh no, not another Government bureaucracy.” However, if the JG program primarily relies on State and local authorities and non-profits to hire JG people, while the Government restricts itself to funding, then it may not add very much to bureaucracies that already exist. So, if we look at it in the context of other existing bureaucracies, the micro objection that this is going to take another big bureaucracy pales before the reality that the work on the ground can be overseen by bureaucracies and organizations that are already there.

The skills mismatch complaint, next, looks plausible, when we reflect that most of us may have had the experience of seeing an advertisement for a desirable job and then lamenting that we are lacking a few qualifications to take advantage of the opportunity. But that's not looking at things from a macro point of view. Which industries really have skills/job qualifications mismatches that would require more than a short time of company paid for, or JG supported training or both to resolve? What percent of the unemployed pool is affected by that? What percent won't be hired because they want good wages and benefits, and people who need people with their qualifications cost much less in other nations? Without good data on the frequency of the mismatch “problem”, how can we know whether it will impact the JG or not? It may be a possibility; but that doesn't make it likely.

Finally, we all know about “welfare queens.” Reagan's never existed. He just told a story, and people believed it because they could imagine that it might have happened, and because they wanted to believe the worst about people on welfare.

John Carney's story about his “arty friends” in New York, may be true, and maybe he knows them. But the fact, that the JG may produce JG Queens or Kings only becomes a problem, if the people involved are a statistically large proportion of the program, and also if they're people who aren't producing value in their JG and broader social roles.

Anecdotes about individuals John knows, don't show that this possible phenomenon would be an actual problem if the JG program were implemented. They only show, instead, his own judgmental Calvinism, which looked at from a macro societal point of view may be a bigger and much more serious problem than any possible JG Queens or Kings could ever be.

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The Job Guarantee and the MMT Core: Part Seven, Dialogue With Warren Mosler

Warren Mosler kindly replied to my Part Two of this series which provided the basis for this dialogue, reproducing Part Two with comments by Warren and myself.

MMT and Public Purpose:The Normative Component

I ended Part One by saying that Warren Mosler's reply to Cullen Roche is nearly a decisive argument that the Job Guarantee (JG) is a core component of MMT, provided, of course, that one accepts that full employment with price stability is an important component of “public purpose” or “the general welfare,” and that also one thinks that the Government's fiscal policy ought to fulfill the public purpose. Since all the MMT founders and many later MMT adherents like myself agree with this, it's not surprising that we think that the JG is a core component of MMT.

Warren Mosler: The understanding of the dynamics of the JG is an MMT contribution to economics.

Joe: Thanks for amplifying my comment. I agree that it is an MMT contribution.

But what if one either doesn't accept “public purpose” as a normative standard guiding Government monetary and fiscal policies, or thinks that full employment with price stability is either not a means that should be used to accomplish the public purpose, or thinks that another means can better accomplish public purpose and still lead to full employment and price stability? Then one's verdict on whether the JG is a part of the MMT core will be different.

Warren Mosler: No, one's decision as to whether to implement a JG will be different.

Joe: Yes, one's decision about implementing a JG will be different; but also provided one wants to think of themselves as following an MMT approach, then one would have to conclude that the JG isn't a core component of that approach. That's certainly what Cullen Roche, and Trader's Crucible are saying right now, and it's also what John Carney is contending as he proposes a synthesis of Austrian and MMT thinking.

For example, Cullen objects to the full employment goal because he doesn't:

“. . . believe the JG is the optimal usage of these monopoly powers and in fact could come at substantial long-term cost. Instead, I think there are better options which can also lead to price stability and full employment.”

Warren Mosler: He's just wrong as there is no long term cost, only long term benefits, even by his standards of what's a cost and what's a benefit. Nor does he have a better option for price stability and full employment.

Joe: I agree. But he will come back with an argument as to what the long-term effects are likely to be and as you know by now, John Carney is claiming they will include inflation.

In the post, or his replies to commenters he doesn't say anything about “public purpose,” but he reveals that he disagrees with the goal of full employment with price stability and thinks instead, that the Government's monopoly over the currency should be used to provide

“. . . the gift of time and the ability to live a fuller and more meaningful life via the prosperity that innovation and productivity create?”

And he also goes on to say that he thinks creating “full productivity” will also achieve full employment and price stability as a side effect, and that we have a moral responsibility to become enormously productive and increase living standards for our children and future generations, and he thinks Government spending to accomplish that should have a higher priority than Government spending to create a JG buffer stock.

Warren Mosler: He's wrong again here too, in that JG promotes 'full productivity' and living standards better than unemployment does, and government spending to fund a JG buffer stock does not reduce the ability to spend elsewhere. In fact, it increases that ability.

Joe: I agree. But, Cullen appears to think that the negative incentives provided by the possibility and reality of unemployment, encourage people to be more innovative, inventive, and “productive.” That's a neo-liberal Calvinist position if there ever was one.

Also, he's worried about the long-term real costs or risks of the JG as indicated in this comment:

“You guys see no need for unemployment. I do. I think it serves an incredibly important psychological component to any healthy economy. I’ve feared for my job and been unemployed. . . .

Warren Mosler: He would have feared it just as much if there had been a JG. And in any case the real fear comes during times of a lack of aggregate demand that is evidenced by rising unemployment and/or a rising JG pool due to the private sector being starved for consumer dollars to compete for.

Joe: Yes, I think he would have feared it just as much if there had been a JG, since Cullen doesn't strike me as someone who would be even remotely satisfied with a JG wage. So, the interesting thing here is that even though Cullen is opining about what other people might or might not need, he isn't basing his conjecture on any scientific findings, only on his own personal experience. It's anecdotal.

. . . Those moments shaped who I am and what I’ve become. They were invaluable in retrospect. If I’d been able to apply for a JG job I might not be half the man I am today. . . .

Warren Mosler: Wrong. There is no reason a low paying JG job with no possibility of advancement other than a 'real' private sector job would have left him half the man he is. However, long term unemployment has been shown to leave people less than half the person they were, with little statistical possibility of recovery.

Joe: I think this is an important point. It's very likely that Cullen would have been heavily incentivized to get off a JG program, had he ever been in one, given what we know about his background and writings. He would have struggled just as hard to rise above the problems he had. And your statement about the real costs of long-term unemployment is very well-documented by sociological studies showing family breakups, loss of housing, Medical disasters, and all sorts of serious negative effects triggered by loss of employment followed by loss of status in one's community.

Maybe it’s just personal entrepreneurial experience speaking here, but I know what it means to hunt and kill for ones dinner. Very little, aside from great parenting and education, was handed to me in life. My psychological development through having to earn things has been a building block that no govt program can ever provide. Ever.”

Warren Mosler: First, there has been no claim that a JG would provide 'that', ever. What JG does is preserve employability far better than unemployment does, and thereby foster private sector growth far better than unemployment does, by acting as 'employment agency of last resort.'

Joe: But it's also true that Cullen can't possibly know what a JG program might have provided in the way of psychological development, because he never went through one. Many people got their first work experiences through the WPA and the CCC during the 1930s, and have reported on the immense benefits they got from those experiences. There's no reason to assume that a JG program wouldn't provide many good experiences for people whose economic fall was broken by that kind of safety net.

It's easy to make fun of this statement, or to criticize it rather bluntly, as I did at Cullen's site. But here I'd rather point to the larger issue. There may be side effects of the JG program we can't anticipate now; but we know what the effects of an unemployed buffer stock are on society. And Cullen's conjecture, based on his interpretation of his own experience that there is value in experiencing unemployment, . . .

Warren Mosler: Certainly not long term unemployment, which has been shown statistically to be a dead end.

Joe: I think Cullen's assumption is that unemployment provides motivation to find work that the JG would not provide, and also that such motivation is very important in finding work. But, clearly, in most recessions the motivation to find work as a factor in producing employment pales before the macro effects of too few jobs matching up with too many people trying to find them. To believe that motivation will produce employment in spite of all external obstacles is to believe in Horatio Alger stories or persistence fairies, or the belief of the French Generals in the First World War that superior will and élan would overcome all advantages the German Military might bring to the battlefield, and it's also, implicitly, to place blame on a victim finding him or herself caught in a balance sheet recession, and not being able to find work.

. . . which we will lose if we implement a JG (even if that value may not be apparent to others who have had the experience of unemployment and its corrosive effects), even if true, doesn't on the surface seem to suggest anywhere near the individual and social costs that we know are caused by unemployment.

Warren Mosler: Nor the aspect of preserved employability needed to fuel private sector growth in a recovery.

Joe: Very true. The perceived unemployability of the long-term unemployed is a very significant social cost that Cullen seems determined to discount.

Those of us who feel this way, may be wrong, but I think opponents of the JG have to do better than to just voice vague fears and anxieties about future real costs. They have to produce at least some cogent negative arguments about why we should expect side effects of the JG that are more serious than the costly realities due to unemployed buffer stocks we see right now, and also they have to produce alternative policies that appear less risky than the JG proposal.

Why Not try Both?

So, it seems that the JG, assuming it is the best way to get full employment with price stability is very likely to be a component of the public purpose and therefore a core component of MMT. . . .

Warren Mosler: It's not about 'core components of MMT' but about core MMT understandings.

Joe: I'd prefer to view it as I suggested. “Understandings” are psychological things, and I'm not talking about that kind of subjective knowledge. We can't really divine what that is anyway. I'm talking about MMT as a body of “objective” cultural knowledge in the sense clarified here and here (See Ch. 1).

However, even assuming that the JG is such a core component, that doesn't mean that a goal of maximizing productivity should not also be viewed as a core component of MMT. As a number of commenters on Cullen's post have pointed out, the Government can afford to both pay for the JG and also for efforts to increase productivity. Nor are these components of public purpose competitive. So, why not try to enormously increase productivity and also implement an FJG?

There is a measurement problem, here. The current most common measure of increases in productivity, increases in GDP per labor hour, is laughable as a measure of real productivity gain, and I think it is enormously difficult to arrive at a good way to measure such gains, since doing so would involve measuring the non-monetary value of economic, including Government outcomes. But, if the measurement problem could be solved, then as productivity gains are made, the employment conditions of a JG buffer stock can easily be changed by raising JG wages to pass through productivity gains to whole labor force.

Warren Mosler: With a JG wage being a nominal price anchor, with no JG wage adjustment productivity gains would be expected to be reflected in lower prices.

Joe: They might be if we had a free market. But in too many areas of the economy that doesn't exist, so competition won't force prices downward. They'll be sticky. So, the best thing to do will be too to see to it that the Government passes on the productivity gains by paying more for JG labor.

Since 1970, most of the productivity gains have been distributed by neo-liberal economic/political regimes to the wealthy, greatly increasing the inequality gap and clearly threatening democracy itself. But a JG program in concert with an emphasis on increasing productivity could fix that, if we can find better ways to measure productivity gains than we have now, and use those measures to help shape JG programs.

Peter Cooper's JIG Adds Freedom

Above, I said that I find the MMT argument for JG as a core component nearly a decisive one, provided, of course that one accepts that full employment with price stability is an important component of “public purpose” or “the general welfare,” and that also one thinks that the Government's fiscal policy ought to fulfill the the public purpose. However, as part of the general debate over the JG, Peter Cooper has proposed a JG, supplemented by a Basic Income Guarantee (BIG), as a better alternative than the JG alone, because net/net it would increase personal freedom since people could choose either JG or BIG based on their needs, while still fulfilling the requirement of having an employed buffer stock as an automatic stabilizer.

Warren Mosler: BIG is an 'optical illusion' that's an unstable equilibrium at best, capable of rapidly degenerating into hyper inflation at any time.

It reminds me of this Monty Python skit in 'the life of brian.'

The currency is defined by, at the margin of need, what you must do to obtain it from the issuer.

So if you can get a living wage from the issuer for doing nothing, there is nothing that can stop the currency from being worth nothing once it heads in that direction from an accelerating flight to BIG

Joe: I think your reasoning isn't compelling here. 1. People choosing the BIG aren't “doing nothing”. They're just not doing what anyone in the Government or the private sector has specified as having societal or market value as the case may be, other than consuming (which, btw, is an important function in our economy). However, the individuals choosing BIG, may be doing very valuable things, just as people who get nothing at all may be doing very valuable things for people. 2. Surely, the amount of currency people are getting here is relevant to your claim that there would be hyperinflation.

If private sector people get more currency, than JG people who, in turn, get more currency than BIG people, it seems to me that the value of the currency will still be maintained, because people don't just want to live. They want to prosper. They want to acquire assets beyond those required for a basic living. So, most people will still work on either private sector or JG jobs.

I think this idea is promising. It has received vigorous discussion over a number of days at Peter's site. Dan Kervick objected to it on numerous grounds. And in a comment I made on his objections, I summarize my views on Peter's proposal, which he decided to call “JIG”. Here's my comment.

The nub of it is that neither the private sector nor the Government is infallible in its judgments about which jobs and roles produce value, and which do not, or about which individuals are producing value and which are not in their individual activity. So, why should we rely completely on either the market or the Government to make these judgments?

Warren Mosler: I see govt. for public infrastructure for public purpose, broadly defined to include the incentives for the private sector embedded in the institutional structure.

Joe: So do I. But, more broadly, I also see the Government as using fiscal policy for all public purposes including those beyond “infrastructure” and private sector “business.” Isn't there a part of “the private sector” that is composed of individuals doing valuable things that they do not get formally paid for by someone with economic power public or private? Why should we, as a society, insist that these people have to have a by-your-leave from a Government or non-profit civil servant, or from some for-profit businessperson engaged in commercial activities. I know a lot of people like that. Not just “arty friends” like John Carney's; but other kinds of talented people of all kinds who want to pursue original ideas that they think are valuable, but don't want to write Federal State, Local Government, or non-profit grant or contract proposals to do that, or go to work for large corporations to earn a living and have to delay or give up development of their ideas.

A BIG could be very useful for helping to do that. It wouldn't let them live in luxury, but it would give them the space to keep themselves alive while they're getting their ideas off the ground. Why shouldn't people have that space? Why is it so threatening to authorities that people who are relatively poor have a bit of economic freedom?

Why shouldn’t we accept instead that individuals who would rather be free from working either for the private sector or for the Government still have the right to a decent living and free health care?

Warren Mosler: Free health care is ok, because you can't completely live on health care.

Joe: So, your position is that people have to be economically motivated by the need to stay alive or they won't be productive? Then why not say that people should have to “earn” their health care too?

Are they not human beings? Is there no possibility that people who make such a choice will not use the time they gain to contribute value to society, or that they might do so in the future?

Warren Mosler: They might, but history has shown that when they don't it's catastrophic. It's the 'damn fool' race to the bottom effect, such as 'I'm not going to be a damn fool and work when he gets everything for not working' etc.
Warren

Joe: Has history shown that? Let's have some empirical data. I just don't see it. That was the kind of reasoning used to “end welfare as we know it.” Have the effects of that really been good or do we now have greater privation, need, homelessness and economic oppression than we had before? In other words, have we just got a worsening economic and inequality problem, where before we had a “moral hazard” problem?

Also, while that kind of meme may be effective politics still, the truth, at least for the proposal I have in mind, would be that people choosing the BIG would not get “everything for not working.” They'd be getting a basic living, in return for greater personal freedom. JG people would be getting a decent living wage in return for less personal free and the opportunity to transition to the private sector. And those working for businesses would be accepting the leadership of business people implementing their visions of value, which may or may not be valuable, in return for making more than JG workers, and, presumably, acquiring the most marketable skills.

I think there are some people who would use the time provided by choosing a BIG option to innovate and create outcomes of great value to society. Neither private sector nor Government authorities can be trusted with power to make all the decisions about which activities are valuable and deserve decent monetary compensation in return.

People ought to have some of the economic power necessary to decide for themselves what they'd like to do and still be able to remain alive and in good health to do it. That is an increase in individual freedom that our modern economies, including the US, can afford, and it may provide a better core component for MMT than the JG alone.

In Part Three, I'll review John Carney's objections to the Job Guarantee.

Final Comment: Thank you Warren, for taking the trouble to reply to my post and for giving Peter Cooper's JIG idea some valuable discussion. I think it deserves a lot more. Thanks also for always being so open in letting me use your words for purposes of discussion. You're one of the most open people when it comes to critical exchange I've ever met. You truly embody Karl Popper's paradigm of the kind of discussion that should exist in a democracy. It's been a great honor to work with you over the past couple of years on spreading the word about MMT. I'm looking forward to keeping on keeping on, until, working with our many other MMT friends, we create the basis for the next round of progressive economics, securing FDR's economic bill of rights for everyone.

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The Job Guarantee and the MMT Core: Part Eight, The JG Rate

A little time out from my critiques of the various posts contending that the MMT Job Guarantee (JG) proposal is not the core of MMT as an approach. As I've argued in previous posts in this series, I very much think that it is, because I think it is the best means we know of right now to achieve the view of public purpose which is at heart of the prescriptive side of MMT in democracies. However, I think I've seen some disagreement among MMT proponents who think the JG is core to MMT, about the level at which the JG wage should be set in the US.

Everyone agrees on the accompanying benefits however, which would would be a full “standard” package, including Medicare or something like it for all JG participants. But when it comes to the wage level itself there's now wide variation among some leading MMT practitioners.

Here's Randy Wray, in an address he gave at a conference organized by Bill Mitchell in December, for example:

Rather, the best way to operate a money monopoly is to set the “price” and let the “quantity” float—just like the water monopolist does.

My favorite example is Bill’s buffer stock job guarantee program in which the national government offers to pay a basic wage and benefit package (say $15 per hour plus usual benefits), and then hires all who are ready and willing to work for that compensation.

And Pavlina Tcherneva says:

It is time for policy makers to take the Job Guarantee (JG) proposal seriously. Direct employment by government at living wages is the most immediate method for reducing the unemployment rate and keeping the jobless and their children out of poverty.

In another post, she says that a figure closer to a living wage than Warren Mosler's preferred $8.00 per hour JG wage is $10.00 per hour, suggesting that her own notion of a “living wage” may well be on the order of $12.00 per hour, which she notionally suggested earlier.

Also, Bill Mitchell has advocated a JG wage sufficient to meet "a minimum acceptable living standard," while I've seen other statements by Randy mentioning JG wages of $10 and $12.00 per hour.

However, Warren Mosler continues to hold to his position that the JG wage should be $8.00 per hour.

My own view, as a policy analyst, rather than a professional MMT economist, is that a $10.00 per hour JG wage with full fringe benefits is OK for the lowest cost areas in the US, but that the JG wage should be cost-adjusted by region, with the JG wage in New York City or other areas of comparable cost being about $24.00 per hour. I think that Warren prefers the $8.00 per hour rate because he proposes the JG in the context of State revenue sharing and a full payroll tax cut for employers and employees, and he fears that a more expansive JG wage rate could provide sudden demand and competition shocks to the private sector that might trigger inflation.

That's a real concern. But in my view, it would be better to design a program that provided for automatic tax increases based on excessive increases in the CPI, while no longer postponing the day when a living wage in America is the same as the minimum wage, which in effect would be set by the JG wage. In my view, there is no place in the US where $8.00 per hour is a living wage. There are probably some places where one can probably live on $10 per hour, but in most places in the US a good deal more is needed, and in our most expensive cities, wages of $10 per hour are a cruel joke, not a living wage.

In any event, my main point in this post is to call attention to the disagreement among MMT adherents in their proposals about the appropriate JG level. Disagreements aren't necessarily bad, but I think we ought to make clear to one another the differing judgments/assumptions/ trade-offs that account for the differences we see in the JG wage rates being proposed by various leaders in the MMT field. We also need some modeling and and to use whatever empirical data we can get to decide how far we can go in providing a “living wage” for JG workers, while also providing price stability, as the private sector begins to hire back people and JG employment shrinks to a relatively small level.

In proposing this, I'd like us to keep in mind the idea of “public purpose;” to ask ourselves what the major components of this notion are; and to also consider whether there are still conflicts among its various components. MMT suggests that Full Employment with Price Stability can both be achieved without conflict.

But, the question being raised by Warren's post linked to above, is whether Full Employment at a living wage, is possible with price stability. Warren seems to be implicitly questioning this, and also implying that public purpose is better served by placing more weight on avoiding an unwelcome one-time price adjustment to a JG that is set at too high a level, than it is by avoiding a JG wage that isn't really a living wage.

For my part, I think our private sector businesses need to pay more for labor and to have less profit. For far too many years they have taken advantage of a friendly political environment to keep wages down, and to pass most productivity gains to the top of increasingly steep income and wealth pyramids.

This has to stop, and a JG that pays a living wage is one way we can begin to stop it. So, my trade-off is to take the risk that the one-time price adjustment from too high a JG wage level won't be near as important to people as the end of unemployment and of employment that doesn't pay a living wage. So, I'm for a JG wage a good bit higher than the $8.00 per hour proposal. How about you?

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The Job Guarantee and the MMT Core: Part Nine, The Wrong Goal?

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.

He begins:

“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.

Unfair Comparison

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?

Benefit possibilities:

-- 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

Benefits:

-- 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.

Possible Costs:

-- 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.

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The Job Guarantee and the MMT Core: Part Ten – A 180 Mic Check?

Cullen Roche continued his attack on the JG and his critics with a post asking whether America really needs to do a 180? I see the post as a set of distractions and straw man arguments that misconstrue the positions of his critics. The post quotes no one and constructs their positions fictionally without any documentation.

A Drastic Overhaul? Who Said Anything About That?

“This whole job guarantee debate has really shed light on the schism in many MMT thinkers. One group wants you to believe that the American way of doing things is so broken that it needs a drastic overhaul (in this case, the hiring of up to 30 MILLION government employees). . . . “

There's no group in MMT that wants you to believe that a “drastic overhaul” is needed. There is a group that wants you to believe that 25 – 30 million Americans want full-time work and can't get it, and that the Federal Government ought to put an end to this situation by passing and implementing an aggressive fiscal policy including a full payroll tax cut, $1200 per person in revenue sharing aid to the States, and a Job Guarantee program paying a living wage to all who want full-time work. What's “drastic” about that? That's just fulfilling the public purpose of fiscal policy. No more and no less!

Nor does this group contend that the Federal Government needs to hire 25-30 million Federal employees, It just contends that the legal obligation to provide work for them be implemented with a JG program. Since that program would be implemented along with the other MMT proposals, there would be far fewer JG workers actually hired. Most of the new jobs created by an MMT program with a JG would be created in the private sector as the economy grew, and the JG jobs actually provided would be transition jobs, most of which would be voluntarily given up in favor of new private sector jobs within a year's time

Ideals That Made America Great

Next:

”My position has been that we need to maintain a more measured approach and acknowledge that while America is in a deep hole currently, it does not require such a drastic overhaul (yes there are big problems and I’ve spent years being bearish and discussing them, but let’s keep things in perspective). There are things our government can do that will help enormously, but won’t risk undermining the ideals that helped build this great nation.”

It would be nice to know what 'ideals” Cullen has in mind, and what he means by “measured.” Does he mean an approach that won't produce full employment? I ask that question because all the "measured approaches" we've been employing in the US since 1970 have failed to produce full employment.

Also, I think the two primary ideals that have made America what it is, are individual freedom and equality of opportunity. These ideals have been emphasized to varying degrees at different times throughout our history. When one or the other gets emphasized too heavily, America loses its balance, and its other primary ideal and its political system are both threatened. This is what's happening now.

Equality of opportunity has been diminished over the past 30 years at least, and one kind of individual freedom, economic freedom for large corporations and wealthy individuals has gotten way out of balance, to the point where it threatens to devour its own long tail and eat the economic freedom of others including that of its very children. It's the way things have been going in America that is jeopardizing our ideals, not those MMT fiscal policies that will eliminate unemployment and contribute to greater equality of economic opportunity for everyone.

Is There Simply No Refuting That “Fact”?

”I think a little perspective will help with this whole debate. People seem quick to forget what has been built here in the USA. In just 235 short years we have built the most prosperous wealth creating economy ever known to man. EVER. There is simply no refuting that fact. . . .

Well, I'd like to know how Cullen measured that. The World Bank Total Wealth Per Capita estimates in 2000, showed the United States at 4th in the world on this indicator with close to $513,000 in wealth per capita. Sweden was third, about $800 per capita more than the US. But Switzerland was first with more than $648,000, and Denmark was second at just over $575,000 (See p. 20).

These estimates are out of date; but it's doubtful whether newer ones would show that the US has been gaining ground on the nations ahead of it, since none of the three has suffered as greatly from the crash of 2008, as has the US.

If we use GNI per capita as the measure, then this much more imperfect but also more recent (2010) measure of wealth shows that the US is 6th at $47,184, far short of Luxembourg, first at $108,921. Norway, Switzerland, Denmark and Sweden are also ahead of the US on GNI with Norway and Switzerland rather far ahead. Also, there are five other countries, including Canada that are rather close to the US on this measure, though they are a bit lower lower in the GNI rankings.

When you take into account the discrepancy between other modern nations and the US on the GINI index, a popular measure of inequality both across and within nations, you get a better perspective on the approximate median wealth per capita, a measure that is hard to find. The GINI index value for the US reflects much greater inequality than the other nations named above. The US's GINI is .45; whereas the GINI value in the other nations is in the low .30s and Sweden is even lower at .23.

This suggests that if a median wealth per capita measure were available it would show that the US economy has been a much less effective wealth generator for the American “man-in-the-street” than the economies of other nations. Considering all this, it's very likely that's Cullen's very bald statement about the US being the most successful economy ever at generating wealth, not only can be refuted, but already has been by a number of counter-instances.

Small Government and Individualism

The ideals that built that economy were based on small government and individualism. We took the idea of a constitutional republic and combined it with a rugged sense of individualism that unleashed a whirlwind of innovation and wealth creation.

Our ideals may have been based on small government and rugged individualism, but at least since the Great Depression, our practices, our wars, our booms and our busts, our technology and a lot of our innovation is traceable to the activities of a big Government and considerable collaboration among Americans during the Depression, the War, and the post-War era. We're now talking about close to 80 years of bigger and sometimes very, very, big Government. And, last time I looked there's not a lot of scope for rugged individualism in our large corporations, or in our other large organizations, either. Nor is there much respect for the law, or the constitution in many of those places, as we all know.

There may have been some measure of reality to the picture Cullen sketches above in the 18th and 19th centuries. But since the 20th Century began, our National Government has played a much larger role in our lives, since it was the only institution capable of constraining the giant corporations from controlling the market in their own interests. It's too bad that over the past 35 years the Government has gradually grown incapable of maintaining those constraints, and that as a result we are now rapidly approaching a kleptocracy.

Those Evil Capitalists? Why Are They Relevant to the JG?

That shirt on your back? Yep, an evil capitalist likely helped in its creation. The computer you’re staring at? Yeah, some evil capitalist likely helped make that. The medicine that helps save millions of lives every year? Yeah, capitalists help fund those. The hundreds of billions of dollars Bill Gates and Warren Buffett have convinced themselves and their rich friends to give to charity? ARRGGGG, THOSE GOD DAMN CAPITALISTS! This is not to imply that capitalists are some world saving group out to find world peace. But let’s not throw the whole idea under the bus just because a bunch of bankers got together and threw a wrench in the machinery over the last 20 years….

I'm not sure what Cullen has in mind here. Our MMT buddies are certainly not proposing to get rid of capitalism. They're just proposing a fiscal program which features a JG program providing a living wage and good benefits to people who want to work full-time, but who the private sector chooses not to employ, or to employ only part-time. So why include the paragraph above as part of the post. If it's directed at people who are not MMTers advocating a JG, it's irrelevant, and if it is directed at that them, then it's a straw man, clearly raising a non-existent issue. I think that paragraph is a clear attempt on Cullen's part to mischaracterize and brand his MMT opponents as anti-capitalist. But that is clearly nonsense since their intention is to save capitalism from its own very visible excesses.

American Exceptionalism? What Does That Have to Do With the Price of Eggs?

I know we’re in a rut right now. But before we start thinking about completely overhauling a system that has served so many incredibly well over the course of hundreds of years, let’s try to put things in perspective and not forget that while government can certainly help our society, it is not the answer to all of our problems. Call this story one of American exceptionalism or whatever you want to. I call it our reality. We know for a fact what built this great nation and we can prove (factually) how well it has performed and how far it has come in such a short period (despite recent turbulence). If your economic policy involves a drastic overhauling of that system then the onus is on YOU to prove that the current system is not only broken, but can be outperformed by another type of approach. To those people, I say good luck. You will need it.

More red herrings. The onus is not on MMT JG advocates to prove anything more than anyone else has to prove. Now is now! That is the reality! We have to make decisions about what to do now based on the choices we have now, all the ones we have time and resources to consider.

As I argued here, Cullen's put on the table three alternatives

1. continuing with our present policies.

2. Putting into practice Cullen's alternative using some MMT measures, pursuing “full productivity,” and retaining an unemployed buffer stock. And

3. pursuing the MMT program including the FE buffer stock through the JG.

Anyone considering the three alternatives has to fairly compare them and pick the one that stands up best to criticism and data which appears to contradict it.

There's no greater “onus” on 3, than there is on either of the other two alternatives. Alternative 1 isn't “working.” It's being refuted by the lack of a recovery that's gone beyond the wealthy and the upper middle class. So, we have to compare alternatives 2 and 3.

I did that in my last post, and I think I showed that Cullen's alternative is the weaker of these two. I'm sure there are other alternatives we can formulate and evaluate as well, and perhaps one of them will be better. But, as long as the current alternative is failing us, it makes no sense to claim that there is a greater “onus” on newer alternatives, either Cullen's or the full MMT alternative, just because they haven't been tried before.

Nothing “new” has ever been tried before. That doesn't mean it has a greater weight to overcome then something old that's not working. That viewpoint is just conservative ideology. It's just: Tradition! Tradition! Tradition!

Sorry about that; but the old something isn't working. We need something new. We need to move on! So, let's compare the new alternatives and see what looks like it is most likely to work best, then do that, and see if it works. If it doesn't, then let's move on to the next solution. Let's do what FDR did, try, try, try, until we get it right.

Also, as I indicated above, no drastic overhaul of the US economy is being suggested by MMT. Capitalism will remain the primary component in our mixed economy. All that will happen, if MMT policies are fully adopted, is that the social safety net will be strengthened with a JG, payroll tax cuts, revenue sharing and I'm sure, very soon after the real recovery starts, Medicare for All, more generous SS benefits, and free public higher educational opportunities.

The rule of law will be re-instated so that it again applies to businesspeople who commit fraud. Regulation will be perfected and implemented, and the Government will have a big role in helping us to solve other economic problems that we've been refusing to do anything about, like creating new, renewable energy foundations for the economy, new industries that produce sustainability for the economy, and re-invention of our crumbing infrastructure and public buildings and spaces.

In spite of all this, however, most of our mixed economy will remain capitalist. Most people will still work for managers and owners. Entrepreneurs will have a better economy to innovate within. And capitalism will be saved from itself once again, as it was during the 1930s. So, I don't see these things as a “drastic overhaul.” I just see them as the kinds of reforms that democracy needs from time-to- time to maintain itself.

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The Job Guarantee and the MMT Core: Part Eleven, Price Anchor or Price Buoy?

Is the JG a Price Anchor?

More on Cullen Roche's claims about the JG, this time a discussion of his price anchor vs. price buoy post.

Let's begin with:

”. . . This is right in theory and entirely unproven in reality. . . . with regards to the price stability issue, the term “price anchor” is misleading as it gives the impression that the JG can serve as a highly effective way to contain inflation over the course of the business cycle . . . More likely, the JG would serve as a good deflation fighter and only a “soft ceiling” (per Warren) or marginally better inflation fighter than what we have today . . . .”

Cullen also thinks the deflation fighting properties of the JG are not so important because modern governments have become adept at fighting inflation, as illustrated by the fact that the US just had only its first deflation episode in 50 years in 2009. So, he doesn't think it's the downside we're worried about so much as the upside.

He's right that deflation hasn't been a concern for a long time now. But, as I recall, Ben Bernanke and Timothy Geithner were pretty concerned about that in the early part of 2009, and they'd certainly become gravely concerned once again, if the banks in Europe would suddenly collapse, or if any “black swan” bringing the banking system to the brink of solvency suddenly hit the economic system.

With respect to the JG and inflation, Cullen says further:

”. . . its effectiveness in stopping high inflation will still rely on the boys switching the policy levers at Fed, Treasury and Congress….In this regard, I think the JG is severely lacking and requires something greater involving counter-cyclical policy (not men with perfectly trimmed beards making predictions!).”

Cullen then digresses and restates his view, expressed in previous posts, that full employment with price stability are the wrong goals for modern macroeconomics. He thinks the goal should be: “. . . full productivity (leading to full employment) focused on maximizing living standards over a multi-generational period. He thinks “we should use our proven MMT understanding to implement policy approaches that get the economy operating at full productivity . . . “ And he claims that:

The counter-argument in MMT is that you need the JG because it will help contain inflation over the cycle by serving as a “price anchor.” Of course, I am divorcing price stability as a secondary goal (it’s not “central” to my thinking though that doesn’t mean it’s unimportant) so I don’t know if that makes me non-MMT or not (perhaps it does)….Nevertheless, I think the inflation fighting argument is vastly overstated because the JG doesn’t serve as a price anchor at all. It serves as a price buoy.”

I think Cullen is distorting the MMT reply here. The first reply of the MMT founders and their students would be that you need the JG to create full employment and maintain it and to fulfill this component of public purpose. Then they'd say that the JG also helps to achieve price stability because it does serve as a stabilizing influence on prices throughout the business cycle. It is in this sense, that it is “a price anchor.” Here's Bill Mitchell's basic formulation:

”The fixed JG wage provides an in-built inflation control mechanism. In an earlier published paper I called the ratio of JG employment to total employment the Buffer Employment Ratio (BER).

“The BER conditions the overall rate of wage demands. When the BER is high, real wage demands will be correspondingly lower. If inflation exceeds the government’s announced target, tighter fiscal and monetary policy would be triggered to increase the BER, which entails workers transferring from the inflating sector to the fixed price JG sector.

“Ultimately this attenuates the inflation spiral. So instead of a buffer stock of unemployed being used to discipline the distributional struggle, the JG policy achieves this via compositional shifts in employment. That is it can also deal with a supply-shock that generates distributional demands that ultimately cause inflation.

“The BER that results in stable inflation is called the Non-Accelerating-Inflation-Buffer Employment Ratio (NAIBER). It is a full employment steady state JG level, which is dependent on a range of factors including the path of the economy.” (emphasis mine)

Let's see what Cullen says to deny this claim.

”Robert LaJeunesse wrote an interesting book titled “Work time regulation as a sustainable full employment strategy” in which he explained the misguided thinking of the JG as a price anchoring buffer stock:

“During robust economic times, buffer stocks offer little prospect of abating wage pressures in the primary sector. Since buffer stocks target a minimum price of labor, an earnings floor if you will, and do not create a wage ceiling they will have little impact on the primary sector wage demands. Capitalists will be able to maintain a significant degree of labor market segmentation, allowing them to avoid hiring from outside the primary sector. As such they will avoid payroll expansion and attempt to squeeze more from existing workers in the form of longer hours and greater work intensification. One only has to look at the history of commodity prices (such as oil) to realize that buffer stocks do not place a ceiling on prices. Buffer stocks may mitigate price swings, but they tend to prop prices up rather than restrain them, particularly when the commodity is in short supply. Buffer stocks, therefore, do not serve as a price anchor but rather as a price buoy. That is, they represent an earnings floor rather than an earnings ceiling. Public and private sector employees alike will still face pressure to work long hours under a job guarantee – either to maintain insatiable consumption desires or to retain jobs that offer long hours on a take-it-or-leave-it basis. Such behavior would most certainly become inflationary as Mitchell and Wray (2005) concede when they write, ‘if the government decides not to deflate demand, the ELR pool still allows the economy to operate with higher aggregate demand and lower inflation pressures, although inflation can still result.’”

This argument is very unconvincing to me, because it seems to assume that the JG would operate in isolation. But that's not what the MMT advocates, including Bill Mitchell just above, assume. They assume instead that if demand-pull inflation threatens, then the Government will respond by raising interest rates, raising taxes, or both.

At that point, Aggregate Demand (AD) will be reduced in the private sector, sales will decline, and the private sector will cut back on employees. When that happens, the JG will expand, preventing people from becoming unemployed, but also paying them at less than the private sector prevailing wage they received before. This will cool demand further, but much less than would be the case if people were plunged into unemployment. Nevertheless, the JG program will certainly provide a price anchor, since as more and more people join the ranks of the JG employed, both AD and upward pressure on private sector wages would surely be reduced, but not by so much that there is likely to be price deflation as there was recently. I do not see how this conclusion can be avoided. Nor do I see that LaJeunesse's argument, quoted by Cullen, even touches it.

The last part of the LaJeunesse quote is hand-waving. If the JG is paying a living wage then why should workers want to work long hours to fulfill “insatiable desires.” And why should JG public sectors have such desires, or the JG program accommodate them? Finally, even if this dynamic obtains to some extent, then why should it be strong enough to overcome the tendencies toward weaker demand being created by private sector lay-offs? That is, what percent of the labor force would be involved in this dynamics? Not much of it, I think.

Finally, even though Mitchell and Wray “concede” that inflation can still result if the government doesn't do anything to deflate demand, clearly this isn't anything to worry about if the economy becomes over-heated. At a minimum, the central bank will raise interest rates, reducing the level of business activity and private sector employment, and at that point the JG program will work according to the dynamic outlined above. So, Mitchell and Wray may be conceding a theoretical possibility, but that possibility goes against both what they recommend, and also what is likely to be done.

Some Distractions and Irrelevancies

Next, this piece from Cullen seems entirely irrelevant to the argument:

The commodity buffer stock comparison has weak points, but one recent example of this sort of buffer stock idea surrounded the release of reserves from the Strategic Petroleum Reserve in the middle of last year. I spoke to several analysts and traders who, at the time, said the move was a desperate attempt to pull prices down and stimulate the economy. President Obama pulled hard on that buoy and released a small amount of this buffer stock into the market, but he couldn’t pull the prices down for long. Capitalists got back to being capitalists and market dynamics took control once again as prices floated higher. The labor market works a bit differently, but contains some of the same problems that specific commodity price targeting would.

This is more hand-waving. What does it have to with the Government expanding the buffer stock when private sector employment contracts, or with the private sector expanding its employment and shrinking the public buffer stock when it decides to do so? Nothing, as far as I can tell. Would Cullen care to explain the connection to slow folks like me?

The problem in the labor market is one of money neutrality (a concept that MMTers very publicly reject). In order for the buffer stock to control the market it essentially has to be THE market. But labor is not like any simple commodity. It is a highly specific and specialized commodity. We know this from the remarkable wage discrepancies that exist in the world today. A job at Goldman Sachs is a commodity unlike anything seen in the rest of the labor market. So setting the price of low price unskilled labor doesn’t have a sufficiently uniform effect across the entire labor market to keep wages low when the economy is booming and Goldman Sachs is poaching from Bank of America, Boeing is poaching from Caterpillar, and Microsoft is poaching from Cisco.

Forgive me, Cullen, but this comment is ridiculous! Obviously the Executive level employees of GS, BOA, and Boeing, and other large organizations aren't numerous enough that competition for them can cause wage inflation, when private sector demand for all other workers is rapidly declining. Sure, the price of certain kinds of labor will be sticky in the face of a serious recession. But the pay of 150 million workers across the economy will have a tendency to decline as more and more people leave the private sector and join the JG. The JG doesn't have to be "THE market" to cause that to happen.

Cullen's next point is equally out there.

To make this point clearer, arguing that the JG is a strong upside inflation deterrent is a lot like setting the price for wool and then claiming that you’ve stopped commodities from rising above a certain point. Clearly, that’s not true. You’ve set the price of wool relative to other commodities, but for instance, you haven’t stopped oil market dynamics from sending oil prices through the roof. Now, if the government set all prices in the labor market then we’d be having a different conversation, but the JG would cover roughly 3-5% of the unskilled laborers at a point approaching full capacity. Because this buffer stock will have been dwindled down to largely low-skilled workers whose convertibility into private sector jobs is likely negligible, it will have an equally negligible impact on the broader wage scale.

I think an argument like this one, shows that Cullen is really “reaching”, and is ideologically biased against the JG. A fixed floor price of wool wouldn't affect very many other products in the economy. But a price floor for labor specified in a JG program will aways mean that the private sector must offer jobs at a higher price and with equal or better fringe benefits than the JG program offers. Otherwise, why would people work for the private sector? Who cares if the JG is only 3-5% of the unskilled or the total employed, when the economy is near full employment? It will still provide a floor that the private sector cannot breach without either losing workers or hiring undocumented laborers who can't take those JG jobs if they're unhappy with substandard pay.

”So the upside benefits will be relatively muted regarding price stability during an economic boom (when we’re nearing traditional “full employment”). Additionally, the job guarantee pool at 3-5% of all unemployed will be so small and non-convertible into widespread private sector jobs that it won’t come close to impacting prices and wages (when it’s most needed) to the extent that private sector jobs will (which will see substantial wage pressure during a boom period as skilled laborers compete for the other 95-97% of jobs). As Mitchell and Wray say, this would most certainly add to aggregate demand during the boom times which would lead to higher inflation. Ultimately, we will still rely on men with perfectly groomed beards pulling levers regardless of whether we have a buffer stock of unemployed or employed so the fact that the employed buffer stock acts as a price buoy and not a price anchor is quite substantial. Given the fact that modern governments have become particularly adept at fighting deflation, I think the price stability case for the JG is vastly overstated (not to mention that the policy, in my opinion, is off target).”

Bill Mitchell and Randy Wray make the point that the JG will only work to cool a boom, along with other Government deflation mechanisms. They've never said or implied that the JG will do it alone. Just look at the quote from Bill above. The question is why is Cullen distorting the MMT position here and in the other places we've indicated in this series. What axe is he grinding? What ideology is he defending?

Summing up the Anti-JG Indictment

"Importantly, none of this even touches on the various other risks involved in such a program. I have contended that there is potential for such a large government program to become overrun by other problems (corruption, praxeological issues, lobbyist/political controls, regulations, mismanagement, lack of productive work, various forms of moral hazard, etc) creating sizable risks. The fact that its impact as a superior price stabilizer is muted is further cause for concern. In addition, the goals of targeting price stability and full employment don’t necessarily maximize our true target – full productivity. And perhaps most importantly, the idea that the JG is embedded in MMT as a “central” piece of the theory distracts from the core proven concepts and gives the impression that you cannot understand modern money without understanding a massive government spending program that is unproven in the real-world (on any scale as would be introduced in the USA) and entirely theoretical."

This is just a repeat of earlier posts by Cullen and John Carney, which I've evaluated, and, I think, refuted in earlier parts of this series. The bottom line is that if you don't agree with the MMT normative structure centered on public purpose, then you won't accept the JG as core. So, what? All Cullen's saying is that he doesn't share the normative side of MMT. He just doesn't believe that economics ought to be practiced for the public purpose.

If he did, and he also believed in the importance of “full productivity”, then he'd be arguing that “full productivity” and “prosperity” were part of the public purpose of economics; but not that full employment and price stability are not, because according to all the survey data we have, people believe that economics should be about helping the economy get to full employment and price stability. Obviously, they want “prosperity” too, and one can make the case that increasing productivity, innovation, creativity, and technological advance are all very important for “prosperity.” But I really don't think that people will agree that full employment and price stability aren't also very important components of public purpose.

So, let me ask you Cullen, do you think macroeconomics should be practiced for the public purpose; or do you think it should be a tool for private gain alone? If you think it it's for public purpose then let's see your narrative relating “full productivity” to public purpose. And if you think it's for private gain, then let's see your narrative explaining why MMT ought to commit to that goal.

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The Job Guarantee and the MMT Core: Part Twelve, Theory and Fact

Thread: 

Cullen Roche continued his extensive and multi-faceted critique of the Job Guarantee policy and the Modern Monetary Theory approach to economics with a piece attempting to distinguish “theory” and “fact.” His piece is based on the common sense idea that there's a distinction between them, and Cullen tries to use it in his argument. There is, but, unfortunately, the common sense notion of the distinction has long been put aside in the philosophy of science, and in most of the sciences a decade or so later, because of its incoherence. So, in using it, Cullen's argument shares this incoherence.

The “Theoretical” and Something Else

“. . . . It is my responsibility to stick to what my message has always been and that is offering readers a clear understanding of the world we live in. . . .

This is an admirable goal, but, in stating it, I hope Cullen realizes that “a clear understanding of the world” doesn't only include understanding the events and sequences of events that have occurred, or are now occurring in the world, but also includes an understanding of the way the world works. Inevitably, understanding how the world works involves understanding how the systems within it work, and understanding the different kinds of causal and non-causal relations and the dynamics that occur within it. Those relations are descriptive in character, and may even be called “factual” if they correspond in some meaningful sense with reality. But they are not “facts” in the sense they are particular events with specific spatio-temporal locations that are described using singular rather than universal statements.

. . . There are parts of MMT that do that and there are parts that are slapped on as nothing more than policy fixes. The latter is a clear theoretical part. And yes, the JG is ENTIRELY theoretical (which could be ENTIRELY right – I don’t know).”

My problem with this characterization is its attempt to distinguish the parts of MMT that offer a clear understanding of the world and other parts that “are slapped on” and are “nothing more than than policy fixes,” on the basis that the first part is not “theoretical,” while the second part is clearly “theoretical.” And the further notion that the JG is “ENTIRELY theoretical.” I say this characterization is “incoherent” because no radical distinction can be made between the “theoretical” and the “non-theoretical” in attempts to offer narratives about the world. I also say that the “theoretical” parts of MMT come down to the parts that Cullen doesn't agree with and the “non-theoretical” “factual” parts come down to the parts of MMT he likes.

That “theories” and “facts” (in the sense of statements of fact) aren't separable, has been widely recognized beginning, at least, with Popper's Logik der Forschung, published in 1934 in German, and published in English as The Logic of Scientific Discovery in 1959. Since then, Popper extended his argument further, in many of his own publications in opposition to logical positivism and logical empiricism, and his views on this were famously adopted by Paul Feyerabend, Thomas Kuhn, and many other philosophers of science in the 1960s, and then became dominant throughout the sciences in the 1970s, and since that time.

Stated briefly Popper's argument is that a singular statement about a particular of fact “uses universal names (or symbols, or ideas).” (See pp. 94-95) These universal names involve theoretical commitments (See p. 95), For example, if you make a statement about a “glass of water” you're talking about “a physical body that exhibits “certain lawlike behavior,” and you can't even understand that statement unless you understand something about how “glasses” filled with “water” behave (See pp. 94-95). In short, “theoretical commitments” and assumptions pervade our descriptions/interpretations of fact, (pp. 423-424) and we can only construct the facts by making such assumptions. MMT descriptions of how the monetary system operates also involve theoretical commitments, interpretations, and assumptions. For these reasons, it is just wrong to say or imply that the parts of MMT describing monetary operations are non-theoretical, while other parts that deal with the JG are “theoretical.”

So, you can't say, I will accept one part of MMT because it's non-theoretical and reject another part because it's “theoretical” either partly or “ENTIRELY.” Instead, you always have to address the specifics of the theory in the various parts of MMT, and try to test and refute theoretical proposition you find questionable. Cullen has tried to do that in connection with the MMT hypotheses that the JG will work to create full employment with price stability. In previous posts, however, I've considered his various arguments, and given reasons why I consider his theories about this issue to be false.. My point here, however, is that both Cullen and the MMT theorists are theorizing when they write. They may agree that certain sets of propositions describe facts, the way the world really is, and so are true. But where they disagree about the descriptive aspects of MMT, both sides are disagreeing about “facts” as they are theoretically interpreted, or about factual things like the way the world works. There is nothing “factual” that is not also “theoretical.”

Cullen's attempt to separate “theory” and statements of “fact,” reminds me of the creationists' attempts to emphasize that “evolution” is just a theory, and not a fact. Evolution, is a theory, and, in fact, it may not be true. But, people have been trying to refute evolution since Darwin advanced the theory in the 19th century. All those attempts have failed, and, in addition, there is much evidence that corroborates the theory and refutes the narrative about creation in the Bible, and many other versions of creationist theory. So, as far as we know, given our best present knowledge, while evolution is a “theory” it is also a “fact,” showing again that the kind of distinction Cullen is trying to make between the “theoretical” and something else, is invalid.

Selling MMT?

Cullen objects to the views of the MMT economists by saying:

“If the MMT economists want to sell MMT and “modern money” as part of a massive government labor program then that’s fine. It’s my opinion that no one in the world needs to understand large government labor programs in order to understand modern money. Instead, I think we should focus on giving the world a better understanding of modern money by focusing on the proven factual pieces of MMT (monetary operations, monopoly supplier function, etc). . . . .”

As in many of his previous posts criticizing MMT's emphasis on the JG as part of its core, Cullen misconstrues and mis-constructs what MMTers are saying and also shows political bias in his formulation of the issues. First, When MMT writers advocate for the Job Guarantee program they are proposing part of an MMT program for recovery and for strengthening the safety net of automatic stabilizers of the economy that they think will work. Selling that prescription is a separate issue. The primary issue first, is whether their prescription will help to achieve full employment and price stability. That has to determined first -- then you worry about “selling it” or “messaging it”.

Second, MMT writers are not proposing to have “a massive Government Labor Program,” in the sense of a massive expansion of the Federal Bureaucracy, they are proposing an addition to the social safety net in the form of millions jobs that will be funded by the Federal Government but that will be performed for community non-profits, States, and local governments. Also, the size of that jobs program will vary radically with the business cycle, whose swings it will contribute to moderating and stabilizing. In calling the JG a massive Government Labor Program, Cullen is just formulating the issue as the opponents of the JG would formulate it for political purposes. He is just giving them the “framing.”

We will not do that, we will deny the frame and we will frame the unemployment buffer stock as unnecessary and inhuman, as an instrument of 1% and Wall Street control and oppression, and as just the same old trickle down that has been making the rich richer and the poor poorer for more than 40 years. I think we'll win the battle between those political frames, as we won a similar battle in the 30s and the 40s of the last century.

Third, no one is saying that everyone has to understand all the details of the JG in gaining a basic understanding of Modern Money. All the MMT writers are saying is that people need to understand is that price stability requires a buffer stock and that our current choices are mainly between an unemployed and an employed buffer stock being paid a living wage with good fringe benefits. Guess which choice the public ends up favoring if they want price stability? Guess which choice they'll favor if they want full employment? Guess which choice they'll favor is they want a return to prosperity?

Fourth, Cullen talks about the “proven facts” of MMT and teaching people about those instead of the JG. But what actually is “proven” in the sense that it is 100% certain? Is there anything about MMT that is 100% proven? Some may say that the sectoral balance model is an accounting identity, so it's “proven.” However, the sectoral balance model isn't important because it's an accounting identity, and that status doesn't mean that it's been “proven” as a model explaining and predicting “facts”.

It's important because its factual interpretation in real world terms shows that the data we gather to test it (Scott Fullwiler, please note) never refute the factual interpretation of this identity. In other words, it's not the sectoral balance accounting identity that counts. Instead it's the sectoral balance financial model, which, along with its empirical interpretations, constitutes an empirical theory about the macro-economy that counts because it's falsifiable. And that MMT theory isn't “proven” in that sense that it is certainly true, though as far as we know from the data, it isn't false, and may well be true.

On the other hand, take the JG proposal. As Cullen rightly says, the part of MMT that says that combining the JG with payroll tax cuts and State Revenue Sharing isn't proven. But it's also not been tested, and so, it too, may be true. However, facts bearing on the Job Guarantee proposal, like the direct job creation efforts here in the 30s, the Jefes program in Argentina, the current experience in Hungary, don't refute that part of MMT theory. And since the JG has never been tested in the larger context of an MMT economic program like Warren Mosler's or Randy Wray's, the MMT theory about its likely effectiveness has also never been refuted. So, the JG idea, as far as we know, is promising, especially compared to the unemployed buffer stock, whose side effects we know very well are extremely harmful to much of the population.

So, why not teach people about the JG? Why are we doing MMT anyway? To teach people only “the facts” everyone who says they are part of MMT agree on?

What will people do with such knowledge? They will only use it anyway to go beyond that knowledge to use what they think are its policy implications in their own work and lives. Will their theories about the effects of MMT policies be better than ours? Will they be better than theories about the JG whose implications have been explored for many years by MMT economists?

Well, that's certainly a possibility. But the likelihood that these theories won't be, is very high. And the likelihood that an MMT recovery program based on payroll tax cuts, state revenue sharing, and other traditional stimulus measures, along with spending targeting productivity, will be more effective in creating full employment and price stability than Warren's, or Randy's, or Stephanie Kelton's, or Pavlina Tcherneva's MMT-based policies including the JG is also low, because such a program won't add anything to the automatic stabilizers. Of course, it may produce better results on the productivity dimension of economic change. But if that's true and we want to directly target productivity increases by including spending for that in an MMT-based recovery program, then I don't see anything in MMT that bars its inclusion.

Operational Aspects of MMT?

Cullen likes to talk about the “operational aspects of MMT” and the notion that it's policy proposals are “secondary”:

”. . . . If we offer policy proposals then that’s fine, but that’s secondary. I would expect the MMT economists to do that and it should be encouraged that they use their expertise in doing so! But the JG is a very clear case of embedding a policy proposal on top of operational aspects of MM(t) . . . .

Hmmm, “. . . embedding a policy proposal on top of operational aspects. . . .” What does that mean exactly? Well MMT provides an account of the nature of our fiat money system, how the Government relates to the banking system and actually creates and destroys money and net financial assets in the private sector, how the banks create money, but no net financial assets, how the Consolidated Government can and does control interest rates, a theory about the origin of money, a theory about the causes of business cycles, an account of Governments that are sovereign in their own currency differ from Governments that lack or have given up that currency, how all this relates to international trade, theories about how international bond markets and ratings agencies relate to national governments, both those who are currency sovereigns, and those who are just currency users. In addition, MMT economists have drawn policy implications from these theories, about how Governments with currency sovereignty can recover from the crash of 2008 and provide for full employment and price stability in the future.

Now my question is, what is the method by which I and others can tell, which parts of this mosaic are “operational” and which are not? Are all policy proposals “not operational”? If so, how about policies that are currently in place, like not allowing the Treasury to run a negative balance at the Federal Reserve? That's a current policy. Is it also not “operational”? If not, then what do we mean by “operational?” If so, then why is a policy currently in effect about “operations”, but a policy which is an alternative to that not about “operations”?

Moving along, perhaps by the “operational” aspects of MMT Cullen means to include only its narrative about monetary operations, the Government's role as a monopoly supplier of currency, and also any monetary policy that flows from this, but mean to exclude any current or future fiscal policies from the primary focus of MMT, and simply view them as secondary. While I recognize that this may be a clear distinction that could be made, I don't think he'll find broad agreement among people in the MMT movement on this sort of a distinction. Especially since most MMTers seem to think that fiscal policies are much more important than monetary policy in determining economic well-being.

In any case, my purpose in the above isn't to put words in Cullen's mouth, It is to point out that the distinction between the “operational aspects” of MMT and its other aspects is not an obvious one or easy to make. And if one can't make it coherently, then his advice about considering the “operational aspects” as primary, and other aspects as “secondary” will be impossible to talk about, much less to follow.

Next, Cullen continues his attempted distinction between the “operational” and “theoretical” or “secondary” aspects of MMT and his attack on the JG policy with this:

In this regard, it really is entirely theoretical and I appreciate and understand that the economists have built it this way. But there’s a difference between reality and theory and educators have a responsibility to very specifically differentiate between the two so as to avoid misleading those they are teaching.”

It's too bad that Cullen seems unable to take his own advice. As I argue above all of MMT, and every other economic narrative/ideology/approach/paradigm/theory, as well is “theoretical,” in the sense that it is permeated with theoretical assumptions and notions. We cannot say that any of these is ever reality. They are never reality. They are linguistic constructions of human beings.

Now, if you are a “realist” in your epistemology, you may want to claim that your linguistic construct corresponds to reality in some sense of that term. And you can certainly take parts of MMT and say some parts of the body of knowledge claims that is MMT are true, or perhaps closer to the truth, or perhaps more likely than other parts of MMT, and everyone teaching MMT does have a responsibility to do that.

The problem here is that there will be varying degrees of agreement even among MMTers about the parts that are closer to the truth and the parts that are further away from it. So, I think the best way to teach MMT is to teach all the parts of it as simply as we can. Express our individual views and the views of others about the strengths and weaknesses of various parts of it and leave it there. That's unbiased teaching. It is not biased teaching to leave out the parts of MMT that one doubts and call what remains, MMT. That is partisan, and keeps one's readers in ignorance.

One final note, if you're not an epistemological realist, then you'll make a slightly different argument from the one I just made, but there is no currently viable epistemology that will support Cullen's argument distinguishing fact from theory. The only kind that will do that is a foundationalist empiricism that few in philosophy or most of the sciences believes in anymore after the withering criticism it received over the period from the 1930s to the 1980s, and continuing to the present.

Descriptive and Prescriptive Components of MMT

In addition to the distinctions he makes between the “theoretical” and “non-theoretical” or “factual” parts of MMT, and also between the “operational” and the “secondary, ”theoretical” parts of MMT, Cullen also has something to say about the descriptive and prescriptive aspects of MMT:

“I had long been under the impression that there were two components to MMT – the descriptive and the prescriptive. Readers had always been perplexed by the name “Modern Monetary Theory” because what I taught them (by removing the JG) did not appear so theoretical at all. MMT has always been described to me as having a descriptive and the prescriptive component, but it is clear that this is not the case. There is only the “theoretical” under the MMT umbrella. And that’s great. I think it’s a fantastic theory (even though I disagree with parts of it). But there’s a big big difference between the theory and the truth. Parts of MMT are entirely factual (the operational aspects, monopoly supplier, etc) and then there are parts that are entirely theoretical (like the JG). I guess the name alone makes that clear enough (though it never occurred to this idiot)….“

In light of the comments I've made above, it should be clear that what the MMT writers are saying and also what Cullen is saying are both “theoretical.” Nor can Cullen “prove” that what he advocates is less “theoretical” than what they advocate. But there's something else about the above quote that glosses over an important distinction.

Cullen starts off by mentioning the descriptive/prescriptive distinction and then denies that MMT has these two components because, he claims: ”there is only the “theoretical” under the MMT umbrella”, as if to say that economic paradigms or approaches can't have both “descriptive” and “prescriptive” aspects because they have a “theoretical” aspect. But what can this mean?

Doesn't Political Theory have a descriptive and a prescriptive aspect? Doesn't policy analysis have both of these two aspects as well as a theoretical aspect? Doesn't Cullen's work have all three aspects. I think that it's very clear from the various posts in this series that his writing does reflect all three, and that he is no different from other MMT writers in that respect.

Cullen goes on to repeat his notions that there's a difference between a theory and the truth, and that parts of MMT (“the operational aspects)” are “entirely factual” while other parts “(like the JG)” are entirely theoretical. Cullen's right that there's a big, big difference between theory and the truth, because many, maybe most of our statements are not true. But he's got the meaning of this difference wrong. It's not that “factual” statements are true, while “theories” are untrue. It's that some descriptive statements are true, and when they are they're factual, and when they're false they're not, even if they purport to be.

Also, as I said earlier, every statement about the world has “theoretical” aspects. So, in some sense every statement about the world is “a theory,” whether or not it's a universal or singular statement. So, parts of MMT may be true and descriptive, and so, factual, but this has nothing to with whether they are “operational” whatever that may mean, and it also has nothing to do with whether Cullen considers some of them (like the JG) as entirely theoretical, whatever that may mean.

“In my writing I like to stick to the facts even though I am guilty of veering from that goal at times. What you want to do with those facts is entirely up to you. It is not my job to force you to use that understanding in a certain way even though I might, at times, interject my opinion on policy. But what we need to be very clear about in the future is that MMT is in fact theoretical in its current form. I won’t spend my time shooting down MMT because I respect those involved in it far too much. But I won’t be spending my time selling it to readers as though it’s fact. It is in fact theoretical and I hope to use the parts of it that are factual to further the public’s education.”

Translation: I'm going to tell my readers about the parts of MMT that I think are true and I'll use those “to further the public's education But I won't spend my time selling those parts I think are false or don't like. Instead, I'll call them “theoretical,” which I think MMT is in its current form.

Well, Cullen that's just fine. I'm sure no one in the MMT group wants you to advocate for policies that you don't think will work or those parts of MMT you don't believe in. Just please don't label your version of MMT as “MMT,” or tell the rest of us that the JG isn't currently part of the core of MMT, because we know that it's currently essential to MMT, and its progressive prescriptive orientation, which following John Kenneth Galbraith might be called Economics for the Public Purpose, and for which a Job Guarantee with a living wage and good fringe benefits is the best policy we know of right now for enabling full employment with price stability.

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The Job Guarantee and the MMT Core: Part Thirteen, John Carney Is Full of Talking Points and That's Polite

In a piece called “More Questions About the Job Guarantee,” John Carney provides some links to the continuing debate on the Job Guarantee (JG). All the links are to posts critical of the JG idea except a link to one of my four posts critical of Carney's earlier work and supportive of the JG. The four posts are all at Daily Kos, but also at MyFDL, ourfuture.org, and correntewire.com. The correntewire.com links are here, here, here, and here.

Here's Carney's casual take on my critical efforts:

4.Over at Daily Kos, I get taken to task for "bias towards private sector employment." Well, yes. I certainly do have a bias toward that.

But, as Randall Wray's comments to Roger Mitchell make clear, so do the MMT economists. So does everyone who knows anything about economics and politics. Except, it seems, this guy at Daily Kos.

Well, thanks John, for noticing I'm out here. I'm glad you've deigned to notice. Too bad you're too busy to pay attention to a pretty comprehensive critique of your entire position, though.

But wait, I forgot that the best way for a guy like you to handle a guy like me is to throw a little ridicule my way and never, never discuss the real issues I've raised.

Your coverage here ignores all the issues I've raised in the four posts, except my charge that you're biased towards private sector employment, and it's easy for any reader who checks out the link to see that your answer to that charge is completely inadequate, considering the context of my criticism and its full detail.

I'll quote that charge with its full context of quotes from you and my replies, so everyone can plainly see how ridiculous, superficial, and inadequate your little drive-by reference is.

Does the JG Really Solve the Mismatch Problem?

”The Job Guarantee gets around one of these problems: it guarantees that anyone who comes to the government employment office ready, willing, and able to work will be able to get work for pay and benefits. The problem of mismatch is seemingly solved since the government will just supply the demand for something the unemployed can do. Direct hiring works better, in this sense, than trying to jigger the knobs of monetary policy.

But is the problem of mismatch really solved? I do not think it is.

The jobs created under the Job Guarantee are specifically not supposed to compete with the private sector, which means that they supply goods and services for which there is not a market demand. The total output of the economy might increase, but much of this output is non-productive—that is, it doesn’t actually improve our lives."

Comment: This statement really reflects John Carney's bias towards private sector employment, and is simply ridiculous and outrageous on its face! We all know that Government work produces valuable goods and/or services that improve our lot in life, everyday. We also know that a lot of Government work is valueless or produces negative real value. But we can equally well say the same things about private sector work. Much of it has zero or negative real value from the viewpoint of those of us who aren't getting paid for doing it, and I won't trouble to even provide the very obvious examples of this. There's also much private sector work that adds real value to our lives and is well worth doing.

My point is that whether JG work produces real value has nothing to do with markets or whether businesses in markets believe they can make a profit from certain kinds of activity. But it has everything to do with whether Americans are likely to and, in the event, will value the goods and services produced by JG work. Whether the output of the JG program is “productive” will be judged by the people that will or will not benefit from it, and not by the private sector market that it will not be competing with.

"Now some people will say that this is fetishizing the market. Aren’t there things that improve our lives other than what the market will pay for? I don’t want to argue that there are not. I do not think, for instance, that these days we could pay for the Sistine Chapel but our lives are greatly improved by its existence. The problem is that there is no reason at all to think that people laboring in Job Guarantee positions will supply meaningful improvements rather than holes in the ground."

Comment: I'm sorry, but the quote just before the disclaimer does “fetishize the market.” It clearly does make the a priori assumption that what the market values is much more valuable than what the political system or society or people value. And this is a generalization that John Carney cannot establish with any scientific tests or data. It is an ideological view coming out of Austrian economics and Randian ideology. It is not an assertion that should be taken at face value.

Actually, also, contrary to John's view, there is plenty of reason to think that people laboring in JG positions will add value to the economy. We know that many non-profits add value to American life. We know that New Deal project outcomes added lasting value to American life and continue to do so. We also know that many government activities add value today. But, most importantly, we have plenty of reason to believe that the people who run the JG program will be able to design it so that JG workers will be very likely to produce value. We have the years of research on the JG by MMT researchers to show that many good ideas already exist for JG projects that have value. All we have to do to assure ourselves that this is true is to read that literature.

I know that John says that he has read the MMT JG literature and that he hasn't any reason to believe that value will be produced, so he wants to be cautious before implementing the JG. But I've read that literature too, and I totally disagree with John and think his view is colored by the bias I called attention to above. He is predisposed to think that the JG cannot add value, so therefore, no examples of projects that might produce value will persuade him.

I can't say for sure whether this view of mine about John is right. To see whether it is, readers of this post should read the MMT literature themselves and decide. Don't take my word for it, and don't take John's. Decide for yourselves! I'm confident that you will decide that John's claim that “The problem is that there is no reason at all to think that people laboring in Job Guarantee positions will supply meaningful improvements rather than holes in the ground,” is just false.

"The Job Guarantee folks seem to think that there are plenty of meaningful jobs that aren’t getting done but that could be done by the unemployed. I don’t think this is correct. In fact, I cannot really think of many at all. Sometimes things like caring for the elderly or constructing bridges and roads are nominated as candidates. But these are not jobs that can be done just by anyone. They require a certain sort of person with a certain set of skills. Most jobs do."

Comment: This is the same claim as the one made above. Read the literature! Decide for yourself! It's easy to think of productive work for people to do. I'll bet you can do it for yourself. Here's one, start a JG project to provide the SEC with 50,000 new investigators to ferret out the control fraud in the private sector that led to the crash of 2008. That one will certainly add value to American life; specifically a value it is lacking now – namely the value of justice and fairness under the law. Of course, the 50,000 new investigators will need some training; but I suspect Bill Black could design a brief educational program teaching the basics of investigation that wouldn't require more than two weeks of intensive training to complete.

There's a lot more critical evaluation in the rest of that Part Five post and also in the other three that Carney chooses to ignore. But as the title of this post says, his effort to criticize the JG is full of talking points and no serious reasoning. It is highly ideological, and is simply an attempt to cut a very important plank out of the MMT policy platform. The JG policy in the context of other MMT proposals like the full payroll tax cut and State revenue sharing is intended to produce Full Employment and Price Stability in the broader context of practicing economics for the public purpose.

Carney's real problem is that he neither believes in public purpose nor in FE with PS. His attack on the JG is just a way of getting at these higher goals and objectives. John Carney wants MMT to merge with Austrian economics to create an alternative to neo-liberalism that he likes. The real problem with MMT is that if its historical values, prescriptions, and policies remain in place, then he won't be able to get that done. MMT, as it now stands is progressive economics whose normative orientation is the same as John Kenneth Galbraith's. Carney needs to change that to get his new synthesis.

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The Job Guarantee and the MMT Core: Part Fourteen, MMT Is A Holistic Knowledge Claim Network

Thread: 

The recent extensive blogosphere discussion on the JG and the MMT core began with a post by John Carney that stated his opposition to the Modern Monetary Theory (MMT) Job Guarantee proposal and claimed it either wasn't an essential component of MMT, or that if it was, then MMT was wrong. Cullen Roche, a well-known popularizer of MMT at his Pragmatic Capitalism blog then asserted:

”It’s not that I think the JG “cannot” be a component of MMT (Bill drew a very clear line in the sand saying that the JG is “central” to MMT and not “peripheral”), but that our knowledge, understanding and implementation of modern money need not involve the JG. The JG might be central to the idea the founders had when creating MMT, but that just means it’s central to the original concept of MMT as they saw it. . . .

This is true as far as it goes. But, it's also true that the JG is still part of the MMT core, because MMT is committed to Public Purpose, the MMT developers have tied Public Purpose to Full Employment (FE) and Price Stability (PS), and the best knowledge we have at this point, after years of study of the JG, is that in the context of a program also specifying full payroll tax cuts and State revenue sharing, it is the policy that is most likely to produce FE and PS.

But Cullen is proposing that the JG should no longer be considered part of the MMT core because:

. . . they have by no means proven the JG to be the optimal usage of the government’s monopoly currency supplier powers (despite substantial evidence and persuasive arguments) . . . . and in fact could come at substantial long-term cost. Instead, I think there are better options which can also lead to price stability and full employment.”

In earlier posts in this series I've criticized the specifics of Cullen's and also John Carney's arguments against the JG, and, I hope and expect, that I've shown that there is little merit to them, and that they mainly consist of pointing to low likelihood side effects of the JG, disagreements with the objectives of FE and PS, and apparent lack of concern for the overall goal of Public Purpose.

Here I'll add that MMT writers can't possibly “prove” that the JG program is “the optimal usage of the government’s monopoly currency supplier powers”, because they'd have to prove that a better policy than the JG can't be formulated, and proving this would be proving a negative, an impossibility.

Of course, it's possible to “prove” that the JG program is not optimal for its purpose, since this can be done by proposing a single policy that works better than the JG. However, my previous posts have shown that rather than come up with such a policy, Carney and Roche have offered reasons why they think the JG won't work, and then have moved on to attack the objective of Full Employment with Price Stability as less desirable than other goals, in Cullen's case the goal of “prosperity” through “full productivity,” which Carney later concurs with.

My purpose now, however, is not to rehearse my earlier critiques of the views of Carney and Roche. It is to address the more general and important issues of how the core of any approach to economics, including MMT, emerges; what is part of the MMT core right now; and how such a core ought to be evolved over time. I'll begin in this post by introducing the idea of holistic knowledge claim networks in economics and its general implications for what should be included in such networks and MMT's knowledge claim network. My next post, will present my assessment of the components of the MMT network right now, and the concluding post in the series will state my view of what's in the MMT core right now, and how MMT ought to be changed in the future.

The Knowledge Claim Networks of Economics Emerge Through Iterative, Incremental Value-impregnated Decision making

It's worthwhile to reflect a bit on how economic Knowledge Claim Networks (KCNs) -- networks of statements about the way the world is, works, ought to be, will be in the future, and how knowledge of it can be developed -- for research and policy emerge.

First, the people who form them come to the task with ideas about the differences between the world as it is and the world as they want it to be. Let's call these the social/value gaps motivating activity.

Gaps like these always exist. People meet them with action when they know how to close them. Where they think they need more knowledge to close them, they consider which social/value gaps accompanying these knowledge gaps (“problems”) they see are important enough to devote their attention to, and which aren't worth their effort to try to close.

A choice like this, the selection of a knowledge gap to be addressed and closed, requires a decision, relying on the values people hold and the importance they attach to those values. There is nothing value-free or value-neutral about a decision. If an existing social/value gap seems particularly important to people, and if they have the resources to address the knowledge gaps associated with it, then they will select those as “problems” to be solved by the KCN, they will be creating.

Once problems are selected, the people formulating a new KCN create and select the categories, conceptual frameworks, hypotheses, models, facts, data, and “theories” that they will use in creating the solutions for those problems. Some of this activity will occur in conjunction with their attempts to formulate and choose the problems they will address, or activity in this area may motivate them to return to problem formulation and selection activity.

In other words, there's no hard and fast temporal distinction between defining problems, conceptualizing and formulating categories and arriving at hypotheses, facts, models, etc that people use to solve, or try to solve, problems. The conceptual distinction between these different types of activities is important for understanding and analysis, but it doesn't indicate that distinct stages, unmarked by overlaps and feedback relations exist in the actual process of creating a KCN in economics.

It's important to notice, as well, that this process of conceptualizing categories, frameworks, theories, etc. is in no way a value-free process. Of course, it's constrained by one's ideas about what the important knowledge gaps are. So, the values affecting the problem phase of development certainly pass through to this one. But, additionally, when one considers that formulating categories, frameworks, theories, etc. always involves consideration of multiple alternatives of each of these things, then it's also clear that there are decisions in other parts of the process of inquiry that values must effect. The formulations that intrigue people, that use categories resonating with them, that seem to speak to their moral and ethical concerns, or reflect on them, will certainly effect decisions people make about what theories, models, etc will be selected for attention in later investigations and testing.

Objectivity here is about fairness -- the willingness to consider major conceptual frameworks (including value propositions), theories, and hypotheses bearing on a particular problem or problems that compete with and contradict each other, regardless of which alternatives one wants to consider. There's also a balance between the need to cut down on all the competing notions that might be considered to a set of manageable alternatives, while still emerging with a set of competing theories that is reasonably complete and doesn't exclude serious formulations that might prove to be true (from the descriptive standpoint), or legitimate (from the value standpoint).

The objective of this phase of the process is ending up with a fair comparison set of KCNs and their accompanying theories, hypotheses, data, etc. But there is never any guarantee that one has done so. It's like the idea of maximizing profits in a business. One may try do that, but one can't possibly tell whether one has failed after the fact, until others or yourself come up with counter-examples showing missed opportunities for making greater profits. On the other hand, if there are no counter-examples, that still doesn't mean one has succeeded. That, you'll never know, because nobody can exclude the possibility that the necessary counter-example won't suddenly appear.

After conceptual categories, hypotheses, models, facts, data, and “theories” get formulated then the issues of testing competing formulations arise. In an open KCN situation everything is subject to criticism and refutation including even reconsideration of the important social/value and knowledge gaps. The issue here is arriving at a KCN that has been most successful in meeting critical attempts at refutation. It's not ideological defense of it against all comers as a lawyer would defend a client that counts. Instead, what's important is subjecting it and the alternatives to it in the fair critical comparison set, to the strongest attacks possible to see if the KCN is strong enough to withstand “the slings and arrows of outrageous fortune.”

When people do that they are generating their new KCN using a fair critical comparison process. To the extent they fail to meet that standard, the resulting KCN is likely to be of lesser quality and to have less adaptability to the challenges it will inevitably face. Of course, in reality, most approaches don't emerge through a process of fair critical comparison. They deviate from this ideal in varying degrees.

But whatever the deviation, the main point is that even if the ideal of fair critical comparison is approached very closely, the process of critical evaluation still involves value judgments because decisions choosing one approach over its alternatives always involve value judgments about whether the critical grounds for preferring one alternative over all the others are strong enough, and whether the risks of selecting that alternative are low enough that one is making the best decision one can in choosing to rely on the KCN one ends up selecting.

So, there's no escaping value judgments in arriving at KCNs in economics whether or not one is trying to be objective. Not that objectivity in a meaningful sense is impossible. I'm NOT claiming that. But, I am saying that value neutrality is impossible. It is a sham that denies the reality of the need to make decisions in developing knowledge including new KCNs in economics.

Our real choice in describing a particular KCN is whether we want to view and evaluate it only in terms of its descriptive aspects or whether we want to view and evaluate it as a holistic knowledge claim network, a fusion of fact and value claims, including social/value gap, problems, conceptual frameworks approaches, theories, models, measurement models, data, narratives, policy prescriptions, data, and also the whole track record of criticism, evaluation, and testing of various aspects of the network. I think the growth of knowledge is better served by a holistic approach that subjects everything to continuous criticism and evaluation, rather than an approach that restricts evaluation to the descriptive aspects of a KCN, considers a portion of that aspect of the network its core, and “pins down” the rest of the network as beyond criticism, evaluation, and test because it is assumed as a given.

So, the KCNs that emerge from the interrelated sequential and sometimes iterative decision making processes that produce them, assume not only singular and universal knowledge claims about the world, but also knowledge claims about intrinsic and extrinsic value. Such KCNs also contain prescriptive knowledge claims that combine claims about value with claims about the way the way world is and works. To understand those networks we have to understand all three. The value claims, the claims about the world, and also the prescriptive claims combining the two.

So What?

I'm sorry about all the meta-theory in this post, but I think I need it to make some very important points:

First, even though one can state a purely descriptive KCN in economics, that network will be taken out of context and so will be incomplete. Specifically, it will be missing

1) the context of value assumptions accompanying selection decisions relating to social/value gaps, knowledge gaps, hypotheses, models, theories, measurement models, and data;

2) the prescriptive propositions combining the descriptive and value portions of the KCN; and

3) any narrative or historical context that isn't purely descriptive but contributes to the understanding of the KCN.

Second, one can't easily decide what parts of the descriptive aspect of the KCN are at its core, if the value, prescriptive, and sometimes even the narrative portion of the network are missing. The reason for this is that some descriptive knowledge claims may not seem central to the KCN unless one can see their relationship to the value, prescriptive and narrative components of the network. That is, the full context of the descriptive portion of the network may be necessary to assess what is important to the full network and what is not.

-- So, people having access to the descriptive portion of the network may decide to deemphasize development of parts of it that are not as interesting to them as other parts of greater theoretical interest.

-- Or they may import their own private values into decisions about the way in which the network ought to be developed.

-- Or, most importantly, they may fail to include attributes, properties, or variables in the network that are critical from the viewpoint of anticipating/measuring/evaluating side effects of private actions or public policies based on the purely descriptive “knowledge” offered by the network.

-- Or finally, people developing the descriptive part of the network by testing and selecting among theories and hypotheses, may not be able to assess the relative risk of error in accepting a hypothesis or theory in preference to its competitors.

Third, decisions about what parts of a KCN are part of the core will be heavily affected by one's value perspective on the network. In the history of science, the effort to banish values from inquiry and to isolate the descriptive aspects of science from the value and prescriptive aspects has resulted in people importing their own values into scientific processes and outcomes without being explicit about what their value knowledge claims are. These claims influence inquiry and its outcomes without having to face criticism, evaluation, and refutation.

In particular, they often result in decisions to write certain elements out of the descriptive aspect of the KCN because their implications may conflict with or expose implicit value commitments that people don't want to fight about. The result of all this is greater subjectivity in inquiry than would be the case if value knowledge claims were explicit and their relationship to prescriptive knowledge claims was easily traced. The further result of it is the growth of unbalanced KCNs whose descriptive aspects are developed in distorted ways, whose value and narrative aspects are very under-developed, and whose prescriptive aspects are very partial, ignore consideration of side effects, and are all about continued vulnerability to “black swans.”

The MMT KCN has been developed holistically by its originators. It is not focused on descriptive aspects of economics alone. It offers explicit value claims, it's normative aspect is pretty clear. Many of its practitioners, offer policy prescriptions rather than simply concentrating on the way the world is right now. In my next post we'll take a look at its components. But for now, I'll note that the social/value gap, problems, and prescriptive aspects of the MMT KCN are progressive and second New Deal oriented, and that is why many people who are persuaded by parts of the descriptive aspect of MMT want to do what they can to place these aspects into a secondary role and drive them out of the KCN altogether.

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The Job Guarantee and the MMT Core: Part Fifteen, Components of the Knowledge Claim Network

In this post I'll list the primary components of the MMT Knowledge Claim Network (KCN) classified under the major categories: the Social/Value Gaps; the Knowledge Gaps (Problems); the Descriptive Components (including Solutions); the Policy Prescriptions; and the Narratives.

The Social/Value Gaps mentioned by MMT developers

-- Failure of Economics to contribute to the Public Purpose as defined by the failure to close the other social value gaps listed below;

-- the gap between actual output and projected “full” output;

-- High involuntary unemployment vs. full employment;

-- Price stability vs. inflation or hyperinflation;

-- No right to a living wage;

-- No operative right to health care for everyone;

-- social exclusion and the loss of freedom;

-- skill deterioration due to unemployment;

-- psychological harm such as sense of identity, self-respect, and sense of empowerment;

-- much greater ill health and reduced life expectancy than necessary;

-- loss of motivation to live a full empowered life;

-- deterioration of social relations, communities, social networks, and family life;

-- increasing racial and gender inequality;

-- increasing educational inequality;

-- decreasing equality of opportunity;

-- loss of social values and sense of individual responsibility;

-- increasing economic inequality over time;

-- increasing poverty;

-- increasing crime rates including increasing use of control frauds by important economic institutions;

-- Failure to prosecute and punish people who commit control frauds;

-- The collapse of real estate values and the destruction of the wealth of working people after the crash of 2008;

-- increasing anger against economic and political elites that get more and more and more wealthy, and more and more immune to the rule of law;
-- increasing political inequality undermining political, social, and economic democracy;

-- increasing political unrest and threats of political violence both from the privileged and those seeking change.

The Knowledge Gaps/Problems Formulated and/or closed by MMT Developers

-- How do we, using Fiscal and Monetary policy, create Full employment (FE) with a living wage and Price Stability (PS) and maintain it the face of periodic business cycles?

-- How does a Government with a Sovereign Currency create and destroy high-powered vertical money?

-- How does a fractional reserve banking system create and destroy horizontal money?

-- Why is fiat money valuable?

-- What Are the Basics of Macro Accounting?

-- What Is the Sector Financial Balances Model, and what are its implications?

-- How do we design and create public sector jobs that will add value to the economy?

-- How do we train people for those jobs, if necessary?

-- How do we tax to avoid demand-pull inflation?

-- How do we combat and control cost-push inflation?

-- What are the causes of inflation?

-- How do we reform the money creation/destruction system to remove unnecessary Government Budget Constraints (GBCs)?

-- How can we build stock-flow consistent models of the economy?

-- How can we build valid impact models of changes in Government fiscal policy relative to the social/value gaps?

-- How can we prevent control frauds leading to extreme economic boom-bust cycles and political domination by wealthy elites and the financial sector?

-- What is the origin of money, and how has it developed over time?

-- What are the different types of money?

-- What is Government debt and how is it different from the debt of currency users?

-- What are the different kinds of Government debt?

-- What is the impact of “printing money” on inflation?

-- What would be the impact of very high profit coin seigniorage on inflation?

-- What are the key programs that can produce and maintain FE and PS?

-- How can we reform the banking system to remove its speculative aspects and orient it to public purpose rather than private gain?

-- How can we reform Wall Street to minimize the creation of real estate bubbles, commodity bubbles, and bubbles in other economic areas?

-- What are the effects of current account balances on other sectors of the economy?

-- Are Government deficits endogenously or exogenously determined?

-- What is Fiscal Sustainability and how can the Government maximize it?

-- What is Fiscal Responsibility and how can the Government achieve it?

MMT Solutions: Descriptive Components (Generalizations, Theories, Models, “Facts,” etc.) offered by the Developers Aimed at Understanding and Solving Problems

-- An account of the origin of money

-- The nature of credit money

-- The State theory of tax-driven money

-- The endogenous money approach

-- Relations between horizontal and vertical money

-- The functional finance approach

-- The theory of the Government Budget Constraint (GBC)

-- The role of the central bank in providing horizontal money and draining reserves

-- Modern money = Endogenous money + state money + credit money + functional finance

-- Heterodox approaches to money

-- The sector financial balances model of aggregate demand applied to closed and open economies

-- The State as the currency monopolist

-- Stock-flow consistent modeling

-- The Theory of a Sovereign Currency

-- The Theory of the causes of inflation

-- Theory about regulating the Financial System

-- Theory about Minimizing Control Frauds

Policy Prescriptions Offered by MMT Developers

-- Zero Interest Rate Policy (ZIRP)

-- The Job Guarantee (JG)

-- Payroll tax holidays

-- State revenue sharing

-- Banking reform proposals

-- Proposals placing the Federal Reserve Under the Treasury Department

-- Proposals for Federal deficit spending without debt issuance

-- Proposals for guaranteeing annual entitlement spending without regard to “trust fund” balances

-- Proposals about law enforcement for removing control frauds from the economy

-- Proposals for containing demand pull-inflation

-- Proposals for containing cost-push inflation

-- Proposals for regulating the Financial System

-- Proposals for Minimizing Control Frauds

-- Proposals for Reclaiming Currency Sovereignty and Exiting the Eurozone

-- Proposals for Fixing the Health Care System

-- Proposals for Ending the Energy Crisis

-- Proposals for Ending the Housing Crisis

The Narratives

-- The story of the origin and history of money

-- The story of the development of fiat money

-- The story of the development of MMT from Marx, Keynes, Veblen, the Institutionalists, the Post Keynesians, Chartalists, and Functional Finance

That's It!

I'm not certain that this list of MMT KCN components is complete. It's not intended to be authoritative, and even though I've read a lot of MMT by now, I don't have the background in its KCN that the developers or their current graduate students have. So, there's plenty of room for error in my specification of the components of MMT.

Since I'm sure that many of my readers this can improve on my list; I'd really like to "crowdsource" it. Please feel free to offer revisions/corrections, or complete reconstructions if I've made errors.

This list isn't gospel. It's a tool to try to get a broad view of the subject matter of MMT, provide some understanding of its range and scope, and prepare us to consider questions about “the core” of MMT. So, I want to sharpen it, and I hope you'll help me do that. My next and final post in this series will deal with the MMT core right now, and how it ought to change in the future.

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The Job Guarantee and the MMT Core: Part Sixteen, Conclusion

Thread: 

This is the concluding post in this Job Guarantee and Modern Monetary Theory (MMT) series. After evaluating the specifics of the posts by John Carney and Cullen Roche criticizing the MMT Job Guarantee (JG) proposal in the first 13 posts in this series; in the 14th post I introduced the concept of the MMT Knowledge Claim Network (KCN) consisting of Social/Value Gaps, Knowledge Gaps (problems), Descriptive Knowledge Claims, Prescriptions, and Narratives. I also argued that the MMT KCN was a fused fact-value network with important value commitments, that it was developed holistically by its originators. that it is not focused on descriptive aspects of economics alone, that it offers explicit value claims, and that it's normative aspect is clear. I also argued that many of its practitioners, offer policy prescriptions rather than simply concentrating on the way the world is right now. I also noted that the social/value gap, problems, and prescriptive aspects of the MMT KCN are progressive and Second New Deal oriented, and that is why many people who are persuaded by parts of the descriptive aspect of MMT want to do what they can to place these aspects into a secondary role and drive them out of the KCN altogether.

In the 15th post, I detailed my view of the current components of MMT in its five categories of knowledge claims as preparation for this post, which will answer the questions I posed at the beginning of the series; namely

-- What is part of the MMT core right now? and

-- how it ought we to change it in the future?

How Do we Tell What's Part of the MMT Core Right Now?

I think the way we do this is to read the literature produced by the founders and their students, look at their videos, presentations, graphics, listen to audios, and then make an assessment about the components that capture most of their attention. In addition, one should look at writers who've entered the field after the founders and see where they are focused. But, of necessity, their concerns will initially have less weight simply because they haven't defined the direction of the MMT movement, and will be viewed as proposals for changing it, to be evaluated by others.

So, what is the core of MMT right now? My assessment follows.

Social/Value Gaps:

-- The goal of public purpose as a general organizing ideal;

-- Closing the output gap;

-- Closing the employment gap;

-- Achieving price stability; and

-- closing the gap between the minimum wage and a living wage.

I think these goals are part of the core because of their intrinsic value. And also because, if we reach them the MMT founders think the other social/value gaps will be greatly alleviated.

Knowledge Gaps/Problems: All the problems listed have solutions relating to the core social/value gaps, so all of them are part of the core.

Descriptive Components: All of these either are, or contribute to, solutions of the problems listed earlier, which, in turn, are related to the core social/value gaps.

Policy Prescriptions: Most of the policy prescriptions offered by MMT founders are core to MMT because they are closely related to the goals of Full Employment (FE) at a living wage, at least, along with Price Stability (PS). According to MMT, moving the Fed under the Treasury isn't essential to FE/PS, or to getting around monetary constraints imposed by Congress. Proof Platinum Coin Seigniorage (PPCS) can be used to get around constraints on debt limits. It can also be argued that ending debt issuance isn't essential even if PPCS isn't used, as long as Congress gets rid of statutory debt limit constraints.

We can also say that: fixing the health care system, the energy crisis, and the housing crisis, are not, in themselves part of the MMT core because FE with a living wage and PS don't require these proposals. However, a counter-argument to this is that all three categories of proposals are essential elements of Public Purpose, that they are part of the MMT core for that reason. This line of argument also suggests that such items could easily be added to the core if MMT writers start paying more attention than they have so far to these three issues.

Narratives: All of the narratives named in Part Fifteen are part of the MMT core, because they set the context for MMT's descriptive components about how the financial system relates to Government fiscal and monetary policy.

How Should the MMT Core Change Over Time?

The posts by John Carney and Cullen Roche calling out the MMT Job Guarantee proposal raised the issue of what's in the core of MMT, and also the issue of change in MMT's knowledge claim network. How should MMT change over time?

Carney and Roche both delivered criticisms suggesting that the JG wouldn't create FE and PS, but suggested that various unanticipated side effects would make the program unsuccessful. I replied to those criticisms in earlier posts in this series. But the significant point here, is that the first line of attack was to question whether the JG would be effective in meeting the MMT objectives. So, their objective was to move the JG out of the MMT core by refuting it through argument.

This is a THE BEST way of attempting to change the MMT knowledge claim network, but one has to present evidence that really calls the JG or any other conjecture one is trying to refute into question.

Carney and Roche, also tried to question Full Employment and Price Stability as appropriate goals for MMT. In doing this, they never mentioned Public Purpose but instead asserted that “prosperity” should be a primary social value that should be realized through attaining “full productivity” (in Cullen's words). Cullen also claimed that the continued existence of the possibility of unemployment was needed as an incentive to reach “full productivity.”

Without arguing against this view here, it's pretty clear that this goes after the JG program, by going after the higher level goals that make it desirable. It's not a criticism of the truth of the proposition that the JG will facilitate FE and PS, but a criticism of whether FE is a desirable goal. Judging from the absence of any mention of public purpose, along with the assertion that “prosperity” should be the higher level goal justifying possibilities that would support the continued existence of an unemployment buffer stock, it also seems to be a proposal to replace “Public Purpose” with “prosperity” as the highest level goal in the MMT fact-value knowledge claim network.

Again, there's nothing wrong with an attempt to change MMT this way from my point of view, since I think that MMT goals and objectives should be just as subject to criticism as its causal or prescriptive statements or designations of problems. However, in raising such questions, critics should be very direct in what they're doing and should explain why they think that “public purpose” should be subordinate to some other high level goal such as “prosperity” and why prosperity is better served by an unemployed buffer stock rather than a fully employed one. Also, if they still consider “public purpose” the highest level goal in the system, and also think that “prosperity” is a better way to achieve it than FE with PS, then I think that they have to explain why that is and subject their views to critical attempts at refutation.

In his post on the difference between “theory” and “fact.” Cullen Roche says:

“. . . . we should focus on giving the world a better understanding of modern money by focusing on the proven factual pieces of MMT (monetary operations, monopoly supplier function, etc). If we offer policy proposals then that’s fine, but that’s secondary. I would expect the MMT economists to do that and it should be encouraged that they use their expertise in doing so! . . . ”

I think Cullen is here on the point of suggesting that MMT should restrict its core to those components in its descriptive category that he considers to be “fact.” John Carney also seemed to be suggesting something similar in his posts on MMT. He likes MMT's description of fiat monetary operations, but he doesn't like its policy proposals. So, he'd like to broker closer relations between Austrians and MMTers. But to do that he'd like to change MMT by restricting its core to its description of monetary operations, and ignore its social/value gap, knowledge gap, descriptive theoretical, and policy components. So, he wants to change MMT by cutting most of its core components out, so that Austrians and MMTers can agree on something.

This, however, isn't a legitimate way to evolve MMT, while still retaining its identity. You can't take a KCN, eliminate its social/value gap, problem, much of its descriptive theoretical, and also its policy context, and still claim that it is the same system, simply evolved over time.

For better or worse, MMT has a core that cross-cuts all of its categories of components. It can be changed, while maintaining its identity, by refuting claims in any of its five categories of components. But if one changes it by eliminating whole categories of components, or by changing the core aspects of its social/value gap or problem components, or the core aspects of its descriptive and policy components, then it is simply not the same KCN, framework, or approach, anymore

When Cullen Roche and John Carney critically evaluate the JG on grounds that it will not work, the kind of change implied by that kind of criticism is the right way of “evolving” MMT. Even their criticisms of Full Employment and “Public Purpose,” though more far-reaching in their implications for MMT's KCN and its identity, may, perhaps, still not be so significant as to change its essential character. But at some point, a pile of sand grains becomes a heap, and likewise, a proposal about how to evolve MMT becomes not a proposal for its evolution, but a proposal for its replacement by something entirely different.

This is the case with the proposal that MMT be restricted to a core of descriptive propositions that Roche and Carney think are “facts.” Such a proposal simply rips MMT out of its entire developmental context, as well as the heart out of MMT, and the resulting network is no longer Modern Monetary Theory at all, but something offering an entirely different understanding of the world and how we ought to act in it.

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