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The Fiscal Summit Counter-Narrative: Part Seven, Policy Proposals for Fiscal Sustainability, the Q & A

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My last post covered the Session 5 presentations of Professors L. Randall Wray and Pavlina Tcherneva to the Fiscal Sustainability Teach-In Counter-Conference. The subject of both presentations was the MMT Job Guarantee a policy proposal at the core of out developing Fiscal Sustainability/Responsibility Counter-narrative to the story told by Peter G. Peterson's Fiscal Summits and the neoliberal ideology they exemplify. This post will cover the Q & A Session following the presentations.

SESSION 5: “Policy Proposals for Fiscal Sustainability” - Q&A

Dennis Kelleher, Rebel Capitalist, kicked off the Q & A by asking whether the Job Guarantee (JG) wage would eliminate the need for minimum wage laws because the government was setting the minimum wage. He also asked whether the minimum wage could be regionalized by basing it on a HUD index measuring the cost of housing.

Warren Mosler replied that if the political will was there the JG wage could certainly be indexed according to regional variations. Warren also added something to Pavlina's presentation. “The size of this employed buffer stock, we’d expect it to be much smaller than the pool of unemployed for a given level of price stability. So for right now, if maybe the mainstream would think maybe we needed maybe 4 or 5 percent unemployed for price stability under normal circumstances, this might be only 2 or 3 percent because it’s a much better buffer stock than unemployed because labor can actually flow back and forth and so it becomes more of a transitional job between unemployment and private sector employment than it does…there still would be elements of just a career public service job.” He then goes on to point out that benefits can be introduced from the bottom up by the Government through the JG. For example, two weeks vacation, child care, health care. If you did that then competitive markets would move those benefits up the scale. The JG “. . . . gives us a tool for that which is the American approach to things so it is a hybrid type of approach that gets rid of the moral hazard aspects of other approaches.”

Bill Mitchell added that in the South African case he used poverty lines and nutrition rates to design a minimum wage framework “. . . which would embed in the public works program we’ve been working on.” And he goes on:

”And, of course, then you find out that there’s objections from the government: 30% of private employers are paying well below what you’ve suggested as your minimum wage. And, I said this to the Treasurer of the country, that what you’ve got to decide in any nation is that aims to be a civilized, sophisticated country is what is the minimum price you want people to be able to do business at? And that minimum price has to be a wage that provides people with an inclusive capacity to interact in society, and if your private sector are paying below that then you don’t want them in your country.”

LetsGetItDone Comment: I like to say that insofar as workers are being a paid less than a living wage, the businesses paying them are getting subsidized by the workers so that those businesses can stay in business. I think it should be illegal for workers to pay such subsidies and that businesses that, in effect, ask them to do so, don't deserve to exist because they don't produce a net gain for society. I'd rather see those businesses fail, and see their workers employed in a JG program any day in the week. We don't need, and should not have such businesses in the United States.

”That’s the reality. Otherwise, you’ve got no aspirations to be a sophisticated, civilized country. And so the job guarantee wage is, you don’t do away with the minimum wage, it becomes the minimum wage. And then you can add on whatever, like Warren says in political terms, you can add on whatever, in Australia we call them social wage benefits: child care and access to all sorts of other benefits that are outside the direct employment contract. But it is the minimum wage and you have got to set it at a level that you aspire to be the actual living minimum, not some penurious sort of penalty rate.”

Roger Erickson remarked that we've described options here, but not how we can get people to explore or take up these options. “. . . The problem is scaling up to large populations. The only thing we’ve learned, I’ve learned today, is how we address this is we either have a war or a severe depression. We have to find a mechanism where a population can become self-aware enough to address this kind of…what it’s leaving on the table, short of having a major depression or a war, and the only example I can think of, of groups that have done this very large scale, are large military groups and they do what you would expect from any systems theory, they drive interaction and awareness through absolutely political or operational decisions.”

Bill Mitchell: “I mean, as Pavlina said, India’s got a bigger population than the U.S. and India has introduced the rural Job Guarantee, as a national employment guarantee, it’s employed millions of people, already . . . They did it because the growth in the Indian economy, which was urban-based in technology and construction. . . . They were faced, the motivation was that they were faced with an urban crisis because the rural poor had no option but to try to flood into the cities to enjoy the growth that was occurring there and they knew that wasn’t sustainable for housing and other reasons and so they suddenly realized that the reason this migration is occurring is the lack of jobs in the rural sector. . . . Solution: Create jobs. Who’s going to do it? The private sector isn’t going to do it, we’ve got to do it and they did it. Millions of jobs have been created in the second largest population in the world.”

Roger Erickson: ”So the hundred dollar question is what do we have to do to make the existing Congress aware of things that it has taken them years to become aware of?"

Bill Mitchell: “That’s a good question.”

Unidentified: “Well that’s a serious political question and I…it’s going to take a grass roots effort. It’s going to have to come from the grass roots because of, we’re talking about, our political system is seriously dysfunctional. To get anything, something like this out of our current political system is just unrealistic. So it will be an incredibly difficult endeavor to do something like this but it doesn’t mean we don’t undertake the effort to do it and to start advocating this on several needs, several levels.” He goes on to talk about the difficulty of breaking through media and other political screens.

Marshall Auerback: says he disagrees because when he's presented this idea in speeches and conferences it “. . . actually got a lot of bipartisan support."

“Funnily enough, a lot of times I get, I’ve had objections from unions rather than from on the Right because what the unions think is that you’re trying to create a slave class of labor that’s going to undercut their wages and you have to try to explain you’re trying to fill the gap and create a full employment pool which ultimately enhances their pricing power. So, in the first instance it can be a little bit deflationary because if you have someone who’s been paid, say, $40 an hour and all of a sudden he’s lost his job and he has to go to $8 there is a once off adjustment but then the adjustment mechanism the other way which is much easier. So I actually think this is one of our winning ideas which actually could get much greater political acceptance than you think.”

Jeff Baum says that this sounds like a socialist idea, so when it's proposed all we get is a lot of noise. But if this becomes the minimum wage why won't every minimum wage worker go to work for the government because they can't be fired and why won't “private industry” charge that the JG is competing with them and will either drive wages up or private industry won't be competitive with government?

Warren Mosler replies saying:

“Look, we’re going to have active fiscal policy that keeps, for a given size government, keeps taxes low enough so that the private sector will be able to have the means to hire everybody which means they’re going to have to still have the means to pay a higher wage. So if we start off at an $8 an hour, first of all that’s not going to be disruptive. I don’t think anyone quits their private sector job for that or very few people.

“Well yeah. It’s full-time work. There are still people who are going to work baby-sitting and whatever. So — you’ll get a few and then we conduct discretionary fiscal policy so that this pool, the private sector hires these people away and maybe they’ll have to pay ten or eleven or twelve dollars so it will be some spread but then that spread will stabilize and then that will be the stabilized private sector wage, let’s say, unless we over stimulate…we have too much aggregate demand, we allow too much aggregate demand and then our pool of buffer stock workers shrinks to zero then, of course, it’s no longer a buffer stock and then you lose control of prices on the upside just like with any other buffer stock.

“But if we conduct policy to keep it at two or three percent, whereas before we had unemployment at four or five percent we’ve actually reduced the public sector because the unemployed are in the public sector. Look the thing is, and don’t forget when I told you about my cards in creating, if there’s a tax to get out of this room and of, whatever, and then I don’t hire enough, I don’t offer enough jobs so you can get the money to get out of this room, why did I do it? Something’s really wrong with my policy, I should be lowering the tax or giving you more work. Right? I should be increasing my spending or cutting my taxes. We got to get discretionary fiscal policy to the point where these people we’ve taken out of the private sector and not used in the public sector because either we don’t want them, we don’t want to spend, whatever, has got to be minimized.

“We want to minimize it but we also want to have a buffer stock as a price anchor. Now, every monetary system uses a buffer stock policy, a gold standard is a gold buffer stock, unemployment is an unemployed buffer stock. What we’re saying is an employed buffer stock is far superior to an unemployed buffer stock and far superior to a gold buffer stock. It’s larger, deeper more flexible, and most important, whatever your buffer stock is, it’s always fully employed. There’s always a bid for the buffer stock. On a gold standard, gold is always fully employed, you can always take an ounce of gold and sell it to the government and get money for it, you can always monetize it.

“In a wool buffer stock, where Bill started, there’s always a bid for wool. Sheep are fully employed. [Laughter] No, it’s true. So, right now, we use unemployment as a buffer stock, this clearly shows we don’t have any idea what we’re doing. Not only do we not understand the monetary system we don’t understand that, well that’s part of it. We don’t understand a buffer stock always anchors a monetary system. We should be using an employed buffer stock.”

LetsGetItDone Comment: The point that there's always some “buffer stock” in an economy, and that it's a matter of choosing the best one, rather than not having one became a critical point later in the debate between mainstream MMT and a group of bloggers who argued that the JG wasn't part of the MMT core. Warren argued cogently, I think, that the best “buffer stock” from the standpoint of public purpose is a fully employed one. See here for the best summary of the argument.

L. Randall Wray:

”I wanted to correct a misunderstanding because a lot of people do jump to this. We’re going to guarantee a job offer for anyone who is ready and willing to work. And then they say, oh, well then they’ll never get fired. No. We never said that.

“They don’t show up, they show up drunk, they don’t do their work, they are fired. Anything that the private employer can do, legally do to their employees, the employers in this program will do. And socialist, I think if you tell most Americans what we’re going to do, we’re going to require that people who ought to be working, define disabilities I think very narrowly, they’re going to have to work instead of welfare. And you ask them, “What would you call that system?” All Americans are going to call that, “Oh, that’s capitalism.” They wouldn’t call it socialism.”

LetsGetItDone Comment: This point also is very important. People objecting to the JG proposal often come up with the objection that it is a guaranteed job and that people who can't or won't perform still get the pay check. But, again, the JG provides a guaranteed job offer, not a guaranteed job. So, the objection is just false, provided that the JG program is well-run.

Having said that, it is important that if a JG program is passed, that it's Administration not be placed in the hands of its political enemies, because they will destroy it first, by turning JG jobs into “featherbeds” with lax performance standards and little social value, and second, by attacking the program as providing sinecures for people who are producing nothing of value.

So, if we ever do get enough support to get the JG passed, everyone supporting it must realize that its passage will not be the end of the fight for the JG, but will only be the beginning of an unending effort to make the JG a Federal program that works as advertised, and that contradicts the lies that those who want to return to an unemployed buffer stock so that they can pay lower wages will tell about it. They will be unremitting in their efforts to destroy a program like this because it gives the lie to everything they believe in. So, we must be unremitting in our efforts to make sure that the JG becomes an exemplar of what we can do collectively to secure the economic bill of rights that FDR envisioned for us all.

Warren Mosler also points out that the JG is not the government owning the means of production, but only providing for public infrastructure. “Public infrastructure is all the things you hire people for and then you’ve got this transition pool where you facilitate the transition from…back to the private sector and that’s what this does.” In Argentina, more than half of the people among the 2 million employed by Jefes went to private sector employment within two years, allowing the economy to expand rapidly without labor bottlenecks, unlike the normal situation in which “it takes a lot of demand pull to get that done.”

Bill Mitchell replies:

“Well as Warren said, I got the idea sitting in my fourth year at Melbourne University and I was sitting in an agricultural economics class and at that time the Australian government was running what’s called the wool price stabilization scheme. And it worked by the federal government when the private market didn’t want to buy as much wool as was put onto the market the government bought it up and stored it in big sheds. And when the markets were strong the government wanted to stabilize the price, it just released the wool out of the sheds and back into the market. And it was very successful, it was used to satisfy the rural lobby to stabilize their income so they weren’t fluctuating. It was very successful. And I remember sitting in this very cold winter day in Melbourne, in Victoria, where I grew up, thinking well I didn’t really care about…it seemed like a full employment of wool scheme. Every bit of wool that was produced was employed, either in the shed or in the private sector somewhere. And at that time Australia was just going into very high unemployment, it was 1978, and I said I don’t really care about wool so much but I care about labor and we could use a buffer stock to do that for workers.

“But the point about business is, I often give talks to the business community and they’re as right wing in Australia as they are here and I’ve given talks in the Netherlands where they are as right wing as they are in South Africa and elsewhere and its more to Warren’s point. I ask them the question, they’re all in suits and what have you, and I say where are the unemployed now? And its a question they’d never really asked I don’t think and eventually I get them to admit or understand that the unemployed are all ready in the public sector. Now you are having debates in Congress somewhere down there or up there, I’m not sure of the direction, about extending unemployment benefits. Well, that’s a recognition, and you’ll obviously do that again, given the skull and the crosses I would imagine, but in Australia we have the unemployment benefits guaranteed. But that tells you where the unemployed are, they’re in the public sector. So then I say to the assembled businessmen, typically men, I say, “Well what are they doing in the public sector?” And I can get them to chant, “Nothing.” And then I say, “Well are you happy about that?” And I can get them to say, “No. The bastards.” [Laughter]

“And I say, “Well wouldn’t you rather they’d be doing something productive in the public sector?” And they say, “Yes.” And once you go through this logic you can sneak up on them. [Laughter] And in the end they become supporters of the job guarantee doing community-based development work, doing environmental care services, doing aged care services, because they would rather, their ideologies and their prejudices would rather see them doing something than nothing. It’s very easy to persuade them.”

Unidentified: Reports his right wing friends confirm Marshall's view. They'd like people put to work so they can pay taxes.

Marshall Auerback: “By the way work-fare, work-fare with the state-administered program and one of the reasons why it didn’t work goes back to the old argument that states don’t create currency so it creates, there was an external constraint. But even at that it did reduce the welfare rolls for a time when you had employment being created, but it can be administered on the local and state level but it has to be funded at the federal level. That’s a key point.”

LetsGetItDone Comment: So there also is an argument from conservative values for the JG, as Bill, unidentified, and Marshall indicate. It wouldn't be the argument I'd find attractive. But it is important to recognize that insistence on an unemployed buffer stock and opposition to the JG, may not be based on conservative values at all, but only on the naked self-interest of people who want to keep their costs low and their profits high.

Bill Mitchell adds:

"I meant to say something about work-fare, in Australia, we call it “work for the dole.” And its nothing like a job guarantee because it’s… a job guarantee is an unconditional offer, the government sets the price and says we’ll take anybody. Work-fare and “work for the dole” are compliance programs to force people to do sort of like Shylock in the Merchant of Venice. The government wants you to do something for the pittance of welfare they offer. It’s typically not anything like a living wage. It’s a program, not an entitlement. It’s usually short term projects not doing very much at all. Whereas a job guarantee is an ongoing guarantee and people say to me, “Well what if someone wanted, liked working in the job guarantee?” And I say, “Well, what’s wrong with liking your job? It sounds to me like a good thing if you actually settled into the job guarantee for life and made it a career move. What’s wrong with that?

“Most people won’t do that but some people might. And then it’s up to the private sector to restructure their jobs, and their wages and conditions offered to make themselves competitive. What’s wrong with that, that’s going to increase productivity.”

Pavlina Tcherneva adds: “Just one final note on the work-fare. It was considered a success only because of the reduction in welfare rolls but when you look at the actual conditions of the recipients, poverty did not change and, in fact the income they received was less than if they had remained… The income through jobs was less than what they would have gotten on welfare. So it was considered a great success through the Clinton Goldilocks years, right? But now it is a whole different ballgame. And so you have also these additional issues if you would like to facilitate this transition from the public to the private sector as well, you also have to provide certain protective services if you will. You gotta provide some sort of transportation, day care services that will facilitate this transition into the private sector so there are things to do.”

Unidentified said: “Yes. I want to ask, well not a job guarantee related question. I have a friend, an Australian economist, and he told me he had to give up on his academic career because he had not mainstream views. So I want to ask did you have to hide your true views in order to advance in your, obviously you’re professors so you teach students? Did you have to initially hide your true vision in economics in order to get the jobs?”

L. Randall Wray: “I don’t think anyone here did, but we were special cases. Let’s say that our goal was to get a position at Harvard, Yale yes, you absolutely would have to hide this and wait until you had tenure and then you could finally promote this and write the kinds of things, I mean the things related to this. But none of us made that choice.

“But we know lots of people who have suffered the slings and arrows, these kinds of things. We’ve seen university departments, economics departments implode over differences between those who hold these kinds of views and those who hold the more conventional views. And I think we all know people…yeah at Notre Dame.”

Unidentified then said:

“This is more of an idea than a question but just on the question of how do we kind of implement getting this idea on to the mainstream, I think everyone knows the President’s debt commission is going on right now, I don’t know if everyone knows that since they have no budget they’re actually outsourcing their roles to the Pete Peterson Foundation, including the listening tour is actually going to be the listening tour that AmericaSpeaks is putting together that the Pete Peterson Foundation is paying for. The Foundation went to AmericaSpeaks with a bag of money to do it all themselves and they said they wouldn’t do it if it were just the Peterson so they got MacArthur to lend their name but it’s all Peterson money. We know what Peterson wants to do with it. There are twenty hearings around the country on June 26 and the thing is they’re all open to the public.

“So this is the exact type of thing that if there is a coordinated effort, if we can get people into those meetings then we can raise this and at least pull the discussion to a more balanced place than where Pete Peterson wants it and he paid millions of dollars to make sure they end up with the recommendations that he wants. So, again, the organization is AmericaSpeaks and I feel like this is something that this group could do by email and try to get folks into as many of those meetings as possible with this idea offered up as something that the people want.”

Warren Mosler: “Any bloggers in here?”

Unidentified: “One or two.”

Joe Firestone: “We got all kinds of bloggers. Not everyone is raising their hands.”

Warren Mosler: “Can’t hurt, can’t hurt.”

LetsGetItDone Comment: As it happens there were quite a few bloggers or future bloggers at the teach-In. Outside of the panelists themselves, they included: Dennis Kelleher, Darrell Dellameade, Lynn Parramore, Bryce Covert, Jason Rosenbaum, Alex Lawson, Lambert, DC Blogger, Roger Erickson, Joe Bongiovanni, Matt Franko, Ed Harrison, one fairly well-known blogger who wanted to remain anonymous, and myself.

Stephanie Kelton: “I understand, and Randy and I heard yesterday some things like you’re talking about but I understand these are very difficult to penetrate, that the groups are pre-screened. It may be even an invitation-only although it may have the appearance of being open to the public and a mix of everyday common Americans. But my impression is there is a gatekeeper and it might be pretty difficult to penetrate those meetings.

LetsGetItDone Comment:Actually, it wasn't. Later I penetrated those meetings and wrote a blog series critically evaluating the AmericaSpeaks process and content from an MMT point of view.

Joe Firestone: “Just a question. You focused really, wholly on the job guarantee with respect to the policy implications or policy considerations. Could you comment some on the health care issues and the environmental issues and some of the other policy issues where we are not attempting to meet any of our problems due to budgetary considerations? Those considerations always come in first and seem to control the agenda, they’re kind of in the background but, this is off the table because it costs too much or that is off the table because it costs too much.”

Warren Mosler: “I think you just said it all.” [Laughter]

Stephanie Kelton: “I was…”

Joe Firestone: “I’d like to hear you say it. I say it all the time but I don’t hear you say it” [inaudible].

Stephanie Kelton replies:

“I think this comes back to what we’ve been hammering at all day long which is that there are all kinds of self-imposed constraints. If you say that you’re only going to fund Social Security out of the payroll tax and you use, you establish these Trust Funds and you say the Trust Fund must have a positive balance or else we’re not going to clear the checks at the level that’s been promised then we’re only going to be able to meet 77 percent, or so, of promised benefits after some date. I was rereading, I was telling Warren yesterday, I was looking at the Trustees Report from 2009 for Social Security and Medicare and what the Trustees are projecting for the Old Age Survivors Insurance Trust Fund OASI, the Disability Insurance Trust Fund DI and you put them together and you get OASDI and you get what everyone commonly refers to in everyday language as the Social Security Trust Fund.

“Those are both projected to go bankrupt at some future date. In the 2009 Report, the day of doom is now 2037 on those two programs. Health Insurance Trust Fund, the Medicare care side is also projected to blow up. That’s supposed to go bankrupt. The Supplementary Medical Insurance Trust Fund (SMI) is projected to be solvent into the indefinite future. As far as the Trustees can see, 75 years and beyond, there is no problem with the SMI Trust Fund which is Medicare Part D and Medicare Part B. Why is there this difference? Why are the other three going broke but this one is perfectly fine? And it happens to be that the government has guaranteed to make all payments for Medicare Part D and Medicare Part B out of General Revenue and tied the payment of benefits for other Medicare payments, hospital benefits, and Social Security to the availability of the funds in the Trust Funds. And so, I mean it’s crazy, it’s right there in the Trustees Report and they say it very clearly that the reason Supplementary Medical Insurance plan is solvent as far as the eye can see is because the government says so. It’s as simple as that.”

LetsGetItDone Comment: Stephanie blogged a good bit about this later, and so did I. But thus far to no avail. The Petersonians and the whole establishment of Washington career progressives seem to be having a great deal of difficulty in grasping the idea that a government like the United States, sovereign in its own fiat currency, can't run out of money involuntarily whatever the level of its national debt or debt-to-GDP ratio. Occasionally some members of these groups will get an inkling that this is the case. But from there, to the idea that entitlement reform need not involve any cuts in entitlement spending at all, seems to be a leap that either their preconceptions, or their self-interest will not allow them to make.

Joe Firestone: “So the whole problem with respect to Social Security and also Medicare is just to have the government say so?”

Warren Mosler: “Yes.”

Stephanie Kelton: “Exactly, it is an accounting problem, it’s not a financial problem.”

Warren Mosler: “So look, I think we also tend to agree that unemployment is a large cause of the environmental degradation. Nobody cuts the trees down when they don’t need the money and don’t need the jobs. So, so many of these things that go on are in the name of creating jobs when that shouldn’t be the case, we should be at full employment anyway, and then the pressure for that would go away.”

Bill Mitchell then added a long comment on policy:

“Here’s a snippet of policies that are current and that I’ve written about and that are on my blog. Health care, America has a crazy health care system. It’s a dysfunctional health care system and you could be very well advised to look at the Australian system, Universal Health Care. The poorest person in Australia has immediate access to first class health care whenever they want it. And nobody suffers from lack of income in relation to health care. So I think Universal Health Care is something you should aim for. The government will always be able to afford that if there’s enough real health care resources available and if there’s not, then you could redeploy people who I’m just about to be put out of jobs in the financial sector as doctors and health care professionals.

“Environment, I’ve written that, and your government is toying with the same sort of nonsense as my government. Emissions trading schemes, market-based trading schemes are ridiculous. You need rules-based schemes. That is you need to identify, in say Australia’s case, it’s the biggest coal exporter. Coal is not a viable long term industry in environmental terms. Give it twenty years and then close it down. It’s a rules-based approach. The sort of emissions trading systems that Europe has been implementing are dysfunctional and will create a worse problem.

“Financial sector, we need radical reform of the banks. Banks need to go back to being financial intermediaries, not speculators. And I would immediately outlaw almost all OTC trading and redirect those workers into other jobs that might help us solve cancer and create environmental care solutions and things like that. The only speculation I would allow is that there can be readily attached to the real sector, for example, forward markets provide a counter-party for a manufacturer who wants to hedge exchange-rate exposure on some manufacturing contract that crosses borders, that’s fine. That’s speculation that serves a real purpose. Any speculation that doesn’t should be outlawed and I would create public sector jobs to provide gambling advice to those that I’ve outlawed. [Laughter]

“So there’s some policy initiatives. I would…The future to our inter-generational challenge dependency ratio challenge is first class education at all levels and public education in my country services, by far, the greatest majority of people and I’m not so sure here but probably secondary school still does here. And I would have massive injections of public spending into education to increase their productivity. As our dependency ratios will surely rise we will be able to get more output per unit of worker and not have to worry about the real resource shortages that might arise. But as we said this morning the irony is the solution we’ve adopted is to trash our education systems and therefore we are undermining our future when we think we’re actually supporting it. So there’s a few snippet policies.”

LetsGetItDone Comment: So, Bill added a whole range of policy options to the Job Guarantee focused on by Randy and Pavlina. That provided much needed perspective, because up until that point full SS payroll tax cuts, State revenue sharing, and the JG had been the MMT policies mentioned. However, the focus of MMT on public purpose, along with its guiding notion that fiscally responsible economic policy is the kind that we think will enhance public purpose, implies that the range of MMT policies goes far beyond the three main policies discussed at the Teach-In. Again, Bill recognizes that in his comment, and more generally in his work. I've written about a bit about the range of MMT policies here, and Warren has developed policies in various areas of concern at his site.

Also, since the Teach-In Counter-Conference; MMT writers have focused to a much greater extent on the importance of policies designed to remove control and mortgage frauds from our economy. Randy has written quite a few very trenchant posts in this area, including some co-written with Bill Black. Also, Bill Black is now one of the most active bloggers at the NEP site, which is MMT central for, at least, the US. So, it's pretty clear that the pure financial, modern money, and economic aspects of MMT have now been supplemented by the idea that for the economy to respond to MMT-inspired policies as we expect, and specifically to achieve public purpose, its criminogenic aspects need to be purged to the extent possible.

Unidentified continues asking about the difficulty of spreading the MMT message: “This should be a short question. We’ve added now three countries as examples of that social unrest provided the impetus to get policy makers’ minds focused on this. We all know, most of this audience knows about different parts of the United States so, at least I’m very curious to know, is there any significant difference in the resistance of people to discussing these ideas in Australia as compared to the United States?”

Bill Mitchell: “No. With all due respect, the dialog is more civilized in Australia. Fox News couldn’t exist in Australia.”

Unidentified: “What do you mean? He came that way.”

Bill Mitchell: “The boss exists, that’s why we got rid of him. [Laughter] But the type of journalism wouldn’t survive in Australia, we would think it was a joke. Even the, what I would call the extreme right in Australia is more civilized than Fox News. And one of, we were having a conversation with someone this morning, one of the differences might be I sense there is much more of a religious zeal here than there is in Australia. We don’t have the fundamental sort of puritanical origins. We were criminals after all. [Laughter] And I think you’ve commented, Randy, when you’ve come across, when you’ve been interviewed by our press, that you were surprised by the sort of questions the press and the way in which the public discourse and policy discourses is played out. It’s more civilized.”

L. Randall Wray: “It’s more intelligent.”

Bill Mitchell adds:

“It’s more intelligent Randy’s saying. Well I wasn’t going to sort of say it [Laughter]. But at the end of the day the neo-liberals invited us too. But our welfare state has been degraded but not destroyed. And I think that they haven’t been successful in getting rid of Universal Health Care, they haven’t been successful in getting rid of a decent minimum wage system, they haven’t been able to completely trash public education. They’ve tried all of those things, they haven’t succeeded in doing that and they never will. It’s too culturally embedded in us, in our, we’re a more collective society than the U.S., we have a more, we have this concept called mate-ship, and everybody’s a mate, even your enemy is a mate in Australia. And that’s a very strong collective tradition, goes back to the settlement, goes back to our war efforts, and our ANZAC tradition and all of that stuff. At the end of the day we will not allow a fellow worker to go without health care if they don’t have income, we won’t allow them to go without housing if they haven’t got income, it just wouldn’t happen.”

Joe Firestone: “There is one last question.”

Unidentified: “Just one. Just to follow-up on that. All my life I’ve seen the right-wingers arguing for things that are plainly destructive and you just said they were trying it in Australia and they couldn’t succeed but what are they doing it for? Why do we have so many people trying to do this kind of stuff?”

Marshall Auerback: “You know I’m Canadian and just a little anecdote. One of the reasons we almost didn’t avoid the sub-prime bubble was because AIG came up to Canada when the Harper Tory government come into power in 2006 and they argued for us to liberalize our insurance markets so they could offer programs like Credit Default Swaps that was AIG’s doing. And the Tories were no more ideologically predisposed to do this than the previous Liberal government was. Maybe they just wanted to expand their money-making machine across the world and maybe they always want to do that.”

Unidentified: “So is it just like when you have a two year old who can crawl all over you and do terrible things but the reason he does that is because he doesn’t know he can hurt you. I mean, are these guys like just children trying to get what they can and do what they want and not know that it has consequences?”

Bill Mitchell: “I don’t think there are any psychologists on the panel.” [Laughter]

Warren Mosler: “I think they do it for the funding.”

Unidentified: “It seems to me it’s somewhat for the fun. To make it more exciting, to make life more interesting.”

L. Randall Wray: “But a big part of it is, so you can step back and look at the big picture but there are little stories about each one of these, so each individual firm, each individual sector is trying to get a bigger share. And so, they’re advocating for things they see as in their own individual interest and then we can step back and we can say, “When you add all these things together it’s a disaster.” I think that’s part of it. Now, I do believe in conspiracies, too — but I don’t think you have to go there to explain why, if you’re Goldman Sachs and you’re going to be peddling Credit Default Swaps and you’re betting against your customers, you would like to see that allowed.”

Unidentified: “There used to be moral, there used to be things you wouldn’t do. . . . . Yeah, and there used to be regulation too.”

Warren Mosler: “But the other thing is you have a lot of successful people who think that it was because of their own doing and then fund organizations that support self-reliance and all these things we consider right-wing types of things, less government and that type of thing. And you’re not going to stop that, it’s just human ego.”

And then Bill Mitchell ended the conference with a great comment:

“Yeah, I think the question about regulations is important. I mean the big difference between Australia to here in the financial sector is we really kept the regulations on the banks. And not one bank went close to failing in Australia. I mean we didn’t even have a recession because the financial implications were very muted in Australia. And that’s because we still maintained most of the regulations. Like you ditched your 80/20 rule, we didn’t have an 80/20 rule we had a 75/25 rule, we didn’t ditch it. The modification we had was anybody who wanted to go without a 25 percent deposit had to insure. And the banks had to insure them. And that’s a fundamental difference.

“And the other big difference, of course, was that, and I think you’ve made this point sometimes too, Warren, is that when did the sub-prime crisis become a crisis? When did we get this sort of debt melt down? We got it when we, there was no doubt at the margin that people who should never have got loans. But when did good debt become toxic debt? When people lost their jobs. You could have avoided a whole lot of the bad debt problems if you had an earlier and more substantial fiscal intervention. Whereas in Australia we had a very early fiscal intervention and a relatively large fiscal intervention. And the deficit terrorists were saying, “This is ridiculous. What are you doing? You’re going to kill us.” But it saved us. And it stopped a lot of the good debt becoming bad debt. You didn’t do that here. And that’s cultural and, whoa, intelligence, as Randy says, I didn’t say it.

LetsGetItDone Comment: And we would have been saved too, if President Obama hadn't turned fiscal policy over to neoliberals like Geithner and Summers and instead had followed MMT policies. A few days ago, the Fed announced that “. . . the median net worth of families plunged by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010.” Most of this loss could have been headed off if the Government had taken the banks into resolution, investigated and prosecuted the control frauds, written down the principals on homes to their real market value, and put through the MMT economic programs dicussed above. Instead, the Government decided to implement neo-liberal fairy tales and then play footsy with austerity when the US needed an MMT-based Green New Deal.

In my next post I'll end this series with a summary of the Petersonian narrative and the MMT counter-narrative, and with more discussion of where policy ought to go now.

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mtngun's picture
Submitted by mtngun on

Wish I could have been there.

Keep up the MMT blogging. It may not seem that way now, but one of these days the spread of MMT will reach a tipping point.

letsgetitdone's picture
Submitted by letsgetitdone on

I won't stop! My priorities are two right now, as you know. Other readers, please see here.

Submitted by Hugh on

Thanks, quite informative to read this kind of MMT discussion. Of course, it rather confirms for me why I am not an MMTer. What was missing was an overall view of what kind of a society we want to have, but also of the society we have. The society we have is a kleptocracy. Once you understand that, it shifts the discussion completely. It is not businesspeople behaving badly, or legitimately but without awareness of what the aggregate effects of their actions are. They are looting. It is immaterial how they seek to justify or defend their actions. It is immaterial what they believe. They are acting in bad faith. As I have said before, believing in something does not absolve one from bad faith. The SS officer conducting mass murder is not absolved of bad faith simply because he believed in what he was doing. He is acting in bad faith because he should have known better, period. The bar of this knowledge is not high, abstruse or arcane. It is general, basic, and everyday.

Our elites work for the looters and/or loot themselves. Their pretension to expert knowledge used to justify their system of privileges precludes their invoking ignorance or misinformation. However they wish to call it or rationalize it, they loot. And by the very fact that they claim to be experts, they should know they loot. They are acting in bad faith. Consequently, we should not expect to convince them or reform them. We can only remove them from power and it will not be until then that real change will be possible. We will still have need of experts and expert knowledge, but if we are wise, we will not turn them into elites.

About the society we want to have, I outlined my ideas on that in the thread to your previous post. The kind of society we wish to have determines the kind of jobs guarantee we wish to have. The society that I was discussing would put the focus on the worker and what his/her needs are. A living wage is an integral part of that. All this talk about buffer stocks comes across as what it is, neoliberal-lite.

I realize I am jumping around a bit but I am addressing those things which struck me the most. The last is the comment by Bill Mitchell at the end:

when did good [mortgage] debt become toxic debt? When people lost their jobs.

This is wrong. Again a broader perspective is more useful. It was a bubble. It was all bad debt. The housing bubble burst in August 2007 and the recession began in December 2007. Housing prices were going to fall because that is what happens when a bubble bursts. And recessions and people becoming unemployed are also what happens. But these in and of themselves did not cause the meltdown in September 2008, just as the dot com bubble did not spark a meltdown in 2000-2001. As Yves has pointed out, it was the combination of made-to-fail CDOs and the synthetic CDOs purposefully written against them, as well as the reckless sale of CDS by units like AIGFP based on the notion that they were no risk, pure profit instruments (for AIGFP and AIG) that blew up the world's financial system and turned a bad situation into a catastrophe. It was not unemployment that made the debt bad. It was the bad debt and the way it blew up that made the unemployment, and then this created a positive feedback loop.

Also Mitchell's confidence in Australia was misplaced because it has undergone its own housing bubble, and although I do not follow the Australian economy closely, I think Australia is likely to have a commodities bubble going as well.

letsgetitdone's picture
Submitted by letsgetitdone on

and its practitioners disagree on the kind of society they'd like to have. On the other hand, they do agree on the general notion that "public purpose" is primary and that what we mean by "public purpose" should be decided democratically. Having said that, it's also true that many MMTers seem to agree on as a vision for the kind of society we'd like to see is embodied in FDR's second bill of rights plus removal of the criminogenic aspects in capitalism. Above, I commented on the integration of Bill Black and his point of view into MMT, and Bill's collaboration with Randy, and his frequent appearances on the NEP blog, most recently on June 11. Bill also appears at MMT Conferences identified as one of the MMT "all-stars." Btw, Randy Wray, here, and Michael Hudson here, and here have referred to the present system as "kleptocracy."

On Bill's comment above, there certainly was a housing bubble and it was a major factor in the banking crisis when housing crashed in 2007. But that's not what made all those mortgage toxic assets. The system could have survived a major value adjustment without the assets being "toxic." What made them toxic is the inability of so many to pay their mortgages because they lost their jobs and had nowhere to turn.

On Australia's bubbles, they certainly are happening, and there's no telling how Australia will respond to them ease the deflation that will surely follow; but that doesn't change the fact that Australia has done much better than the us at responding to the crash of 2008, and that it's labor market is in better shape than ours.

Submitted by Hugh on

Kleptocracy is central. It informs everything else. Occasional mentions of it aren't enough. As I have said in the past, it is like discussing the military history of 1939-1945 without any mention or just a few mentions to World War II. Nothing would make any sense absent that context. Consider how different the above Q&A would have been if seen through the lens of kleptocracy.

Two other things: Isn't the economic system presupposed by the labor buffer stock really nothing different thant neoliberalism-lite? And while you say that public purposes are integral to MMT, others, including myself, have pointed out that the 1% has been using MMT principles for years to fund their bailouts, tax cuts, and wars. So it isn't clear that public purpose is integral to MMT.

letsgetitdone's picture
Submitted by letsgetitdone on

First, I think Bill Black's writing certainly reflects the view that criminally is endemic to the US political and financial systems right. How can one conclude anything else from reading his stuff and Randy's?

Second, isn't the economic system presupposed by the labor buffer stock really nothing different thant neoliberalism-lite?

I think the buffer stock argument is used when arguing with neo-liberals who want to use an unemployed buffer stock. It's a legitimate argument, but not a moral argument. MMTers also make the moral argument however, in terms of FDR's economic bill of rights. I've seen Randy, Marshall, and Stephanie all do that, and even in the above Post, this language of Warren's

"This economic 'torture chamber' of mass unemployment . . .

certainly indicates a concern motivated by the immorality of the whole thing.

Finally, this:

"And while you say that public purposes are integral to MMT, others, including myself, have pointed out that the 1% has been using MMT principles for years to fund their bailouts, tax cuts, and wars. So it isn't clear that public purpose is integral to MMT."

is just way off-base. What MMT principles justify deficit spending for bailouts, tax cuts and wars? I don't know any. All MMT-based fiscal policy is supposed to be evaluated relative to a coherent idea of PP. The bailouts, tax cuts, and wars were all in conflict with PP. And the people who supported them constantly preach the need for austerity from others while they enjoy the benefits to themselves of those three things. So, how is MMT implicated in that nonsense?

Submitted by Hugh on

The three great issues of our times are kleptocracy, wealth inequality, and class war. For me, MMT relates only partly to one of these, kleptocracy, in showing how the 1% and the elites finance their own operations. I have learned a lot from MMT, but I find it limited. It is about money and finance whereas my approach to economics is about society and resources with money simply used to move resources about.

I think my approach is infinitely more accessible and comprehensible to most people who do not know a lot about economics. But with regard to MMT, why is it that we must always read things into it? Why can't its practitioners simply state some of these things outright? As I said, kleptocracy is central. Yet only one kind of economist, Bill Black, focuses on criminality, and even he stops short of kleptocracy. It is precisely because they, including Black, don't think we have a kleptocracy that they continue to push the line that explaining things better to Obama and the Democrats or putting "pressure" on them will somehow result in better policy. If any of these guys actually thought we had a kleptocracy, they would know that such actions are pointless, a waste of time, and a diversion.

If most MMTers favored a living wage, they could just say so. But they mostly talk about a minimum wage. And in the jobs guarantee, they talk about those employed in it as a buffer stock for private industry instead of government using this pool of labor to fulfill societal benefitting goals. You say this is all to argue with neoliberals on their own terms, but why in the world should anyone do so? Why are there no warnings that this is being done? Again we are supposed to read into it that this is what is being done. But even for those of us who keep up with this kind of stuff, that sounds pretty unconvincing. And if you come upon it cold, it sounds straight up neoliberal. Let's face it that's because it is.

And if MMT casts itself in neoliberal terms, it is not much of a stretch to see how it lends itself to kleptocracy. Public purpose is supposed to save it from this. But the criticism is that the public purpose is an add-on. This view is bolstered both by the neoliberal terminology used by various MMTers and by the focus of MMT which is on money, not public purpose. If you took a society resources approach, you would not have this problem. The public purpose, what society, the 99%, wants, flows straight out of it. Money is simply how resources get distributed to execute it. The society resources approach also focuses on kleptocracy, wealth inequality, and class war because these are one outcome for what happens when the public purpose gets hijacked.

I cite my society resources approach not to persuade you of it, but to show that there are other and more coherent ways of addressing the issues that face us. MMT has been cobbled together. It is not philosophically coherent and it shows, and it is appropriately criticized for it. Nor does it focus on the great issues of kleptocracy, wealth inequality, and class war. It is not enough, indeed vastly insufficient, to say we, non-MMTers, must read into MMT to fill any lacunae that we find in it. You can not claim that MMT is not a theory of everything and then cavil at just how much not a theory of everything it is for many of us. Nor can you tell us that if it walks like a neoliberal duck and talks like a neoliberal duck, it is not a neoliberal duck. If kleptocracy is central to MMT, then it needs to be treated as central to it. If the public purpose is central to the theory, then it needs to be given a central place in the theory. It is contradictory, and unconvincing, to say something is central and then spend all of your time talking about other things or to only bring up these issues occasionally. You can not call them central and then not treat them as central. My advice is to recast MMT to make it philosophically coherent. If public purpose is central, stop treating it like a deus ex machina. Cast all discussion in terms of it. It is as I said about World War II. If you are going to discuss the Second World War, then you need to cast you discussion in terms of it. It serves no useful purpose to discuss its battles and its politics as if they were unconnected to it or to each other.