Is MMT a Workable Economic Plan, or Just a Theory
I stole this from another thread, so the topic could be discussed without further hijacking the thread it was on. I hope that was OK.
John, I am not putting forth criticisms for you to defend. I do not know enough about MMT to hold an intelligent conversation about it. I was merely pointing to contentions made by others that seemed to concur with my "gut."
(and judging from the sites and discussions I stumbled across, the participants certainly are passionately involved in their opinions.)
I had to spend almost as much time looking up acronyms and concepts, as I did reading articles - just to be able to follow the explanations. But, maybe that gives me an edge. I am not interested in becoming an economist, so maybe it is enough for me to be satisfied with my opinion if I just base it on a general understanding of the concept.
But, I really do enjoy conversations such as this, and maybe I do need to understand more to be secure in my opinion.
So far, my general understanding is that the old adage, "It looks good on paper, but... (relative to theory versus application), is a fitting summation of MMT
MMT looks right in regard to our current monetary system. MMT makes sense as an explanation of how our system works now, and could work if needed. To a point.
The statement that money and debt are not one and the same in real life transactions, vs. MMT's contention that money and debt are two names for the same thing - an accounting value, makes sense to me.
If I am right that money, as a medium of exchange must have a perceived value, and if the world outside of the U.S., and all the U.S. financial global players perceived that the government was abusing its ability to create money as needed, and lost faith in its value and began conducting all their business, (except of course in-state transactions requiring U.S. dollars), in foreign currencies, and required their counterparts to complete transactions in non-U.S. currencies - then wouldn't the dollar's value be diminished?
My perspective is that all currencies must be backed by collateral to be viable - even if that collateral is just faith in the issuer.
If that is reasonable, then is it also reasonable to see a point where the dollar has no value except in-state? An isolation that would surely doom the currency.
As mentioned, I don't know enough, (yet?), to offer counter-contentions or rebuttals, so rather then asking you to defend it, show me where I am misunderstanding it.
GaGA said: "If I am right that money, as a medium of exchange must have a perceived value, and if the world outside of the U.S., and all the U.S. financial global players perceived that the government was abusing its ability to create money as needed,...."
A lot of people, probably most people, already think that our government is abusing its ability to create dollars. What layman doesn't worry about the national debt, or doesn't think it's too big?
But the measure of money is what it can buy. If one speculator thinks that the U.S. govt. is printing up too much money, and he believes that this will lead to inflation, he will sell dollars on the FOREX market (or simply buy commodities/stocks that should rise with inflation), and another speculator, who believes he's getting a good deal on those same dollars, will buy them up. And the winner will be able to buy more goods and services with whatever currency/commodity he is holding. But no matter who perceives what, what matters is what those dollars will buy, and that will ultimately set the value. How many bags of rice can you buy with a dollar, as compared with a euro, franc, or yen?
Look at the goldbugs out there, led by Peter Schiff. That guy predicts doom for the dollar at every turn (and he gets a lot of airtime, because people enjoy hearing doom and gloom predictions for some reason). It's always a good time to buy gold, he says, because the dollar is about to become worthless. But he's wrong about the dollar almost every time, and I have seen him implore his minions to buy gold at $1700/ounce. (Anyone who did got crushed.) Point is, their perceptions of value really don't matter. The goldbugs sold their dollars, but somebody else bought them up, because they recognized that dollars still bought stuff.
If the U.S. govt. is creating too much demand (by printing and spending/distributing too many dollars), you will know it, because the economy won't be able to keep up with the new demand. And if they aren't, the dollars in your pocket will continue to buy groceries and pay the rent as always. This is what I mean when I say that perception doesn't matter - if your perception is wrong, there will always be somebody who isn't wrong, buying up your dollars and buying stuff with them.
"...and lost faith in its value and began conducting all their business, (except of course in-state transactions requiring U.S. dollars), in foreign currencies, and required their counterparts to complete transactions in non-U.S. currencies - then wouldn't the dollar's value be diminished?"
The value of the dollar on the FOREX market is determined by what it can buy, as compared with the other currencies. If the price of Russian gas goes up in Europe, the value of the euro will go down against the dollar (all else being equal). If some people/countries shun the dollar for whatever reason, some other party will recognize the value and buy them up, based on what they can actually buy.
"My perspective is that all currencies must be backed by collateral to be viable - even if that collateral is just faith in the issuer."
In the gold standard days, the dollar (and most other currencies) was backed by gold. But this didn't prevent inflation, or solve everybody's economic ills. If a country's economic production dropped, it didn't matter if their currency was backed by gold or not, their economy tanked (and gold left the country chasing foreign production). Currencies are made valuable - "backed," if you prefer - by their country's production that puts goods on the shelves.
"If that is reasonable, then is it also reasonable to see a point where the dollar has no value except in-state? An isolation that would surely doom the currency."
If you ultimately need dollars to pay your taxes, why not just conduct transactions in that currency? The only advantage one could gain by using another currency and converting to dollars only when necessary is when the dollar would be actively losing value compared to the other currency. And as I explained above, the relative values would be determined by what could be bought with each currency.
Isolation doesn't doom an economy. We could produce everything we need right here, if we needed to. There are theoretical advantages to trading with other countries, but there are plenty of pitfalls as well.Damn! I edited most of your response for brevity, and because it made too much sense.
But, it still doesn't feel right. And I don't known whether that is because I have too much ingrained "misunderstanding" of a fiat currency economy to overcome, or I just don't know enough about the topic yet to see the problem my instinct is telling me is there.
I think it is the latter, but either way, I will give it a little more effort before I declare the mountain higher than I want to climb.
I am seeing a lot of discussions about the "BIG," (as you and EA were discussing), and the "JG" (government guaranteed jobs program), components of MMT that seem problematic, but I will get back to that when I can act at least as smart as a 5th grader.
And your last statement - well, I will leave that alone so as not to get too sidetracked for now.
GA
GA wrote: "But, it still doesn't feel right. And I don't known whether that is because I have too much ingrained "misunderstanding" of a fiat currency economy to overcome, or I just don't know enough about the topic yet to see the problem my instinct is telling me is there."
Can you narrow it down some? Is it the policies that MMT suggests, or something about our present system that worries you?
The dollar is a fiat currency, and has been for over 40 years. Presently, we deficit spend. We "go into debt" by issuing bonds and exchanging them for dollars (and vice versa). The government increases the monetary base every year. They already hand money to SS recipients, welfare recipients, foreign governments, and a bunch of businesses.
But the economy is doing very well (except for spreading its wealth around). Inflation is low, interest rates are low, and the country seems to be holding together pretty well. Fiat money is obviously working.Well, I'm still digging. still looking at other pro/con discussions - to get my "sea legs" so to speak. At the moment I think it is the feeling that MMT is ignoring human nature in its certainty that only "stupid" moves could be harmful.
To this point I am impressed with the simplicity and logic of MMT's understanding of a fiat currency economy. But I am still running into the "but..." feeling. For instance; the JG component of the theory. I see a great potential for harm to human ambition and endeavor if there is always the government to fall back on.
And the real side-effects to the private sector are not attractive either. Consider... what would the government set as a base or floor wage? Given today's liberal angst to force a "livable" minimum wage, ($15 p/hr?), wouldn't that be a likely range for wages in a JG program?
Then what happens to the private sector when a larger and larger segment of American workers decide they can live with that - and go on cruise control for the rest of their working careers? What happens to the private sector workforce when jobs that are paying less, because they are worth less, are abandoned in favor of the JG? What happens to our initiative to invent, improve, and evolve?
Yet, it appears the JG program is a prime part of MMT's prescription to achieve the economic stability full employment and price stability.
But I must continue to caution that I am only musing from a very shallow understanding. Maybe I am right to feel this concern, or maybe I have misunderstood your/their concept of a government jobs program so badly that I am way off base.
Of the many pro/con discussions I am reading, I am seeing a lot of very knowledgeable arguments that reach economic theory levels I have no desire to learn. But I continue to leave with the feeling that MMT supporters underestimate, (or discount), the human factor in their confidence in their prescriptions for success, and that very factor seems to be the bass drum of MMT opponent's parade of criticism.
But as for your last comment - No John, the economy is not doing very well. For the top 20% life is good, but for the other 80% things are a long way from doing well. I don't see that as a reflection on MMT. I see it as a testimonial to a lot of very wrong-headed actions of the government.
But that is a different topic. MMT's description of how the government could, and did, introduce new money into the economy was spot on, it is just that the government introduced it into the wrong hands. Sure they needed to save the institutions that would have caused a financial market collapse, but then they needed to get dollars into the consumer economy. The QE efforts, in my opinion, were directed in exactly the wrong direction.
Once the imminent financial market collapse was averted, they should have let the rest of the chips fall as they may. Instead of creating dollars to make banks and investors whole again, they should have created those dollars with national infrastructure and jobs programs.
Geez, you would have thought there would have been at least one policy wonk that remembered Eisenhower.
GA
GA wrote: "Then what happens to the private sector when a larger and larger segment of American workers decide they can live with that - and go on cruise control for the rest of their working careers? What happens to the private sector workforce when jobs that are paying less, because they are worth less, are abandoned in favor of the JG? What happens to our initiative to invent, improve, and evolve?"
The Job Guarantee, as envisioned by most, is meant to be a low-level, minimum-wage job. I like to use the example of picking up roadside trash. The JG would also serve to set the wage floor. So presumably, just about any private sector job would seem attractive in comparison, either because it paid more, was more fulfilling, or both. It is also thought that merely having a job, being accustomed to getting up in the morning and doing something, would make the transition to a private sector job easier (for both employee and employer).
There would still be the same incentives that we have today - to get rich, or to do something fulfilling, something you enjoy, etc. I don't think it's a lack of initiative or drive that is causing today's unemployment. People didn't suddenly become lazier when the financial crisis cost us a bunch of jobs.
The reason we have an unemployment problem is because there isn't much demand for American labor these days. The private sector is meeting all demand pretty handily with a fraction of our available labor force. It simply does not take one worker to produce enough to support two people anymore. All the initiative in the world isn't going to provide enough jobs in the private sector unless and until there is enough demand to warrant those jobs.
"But as for your last comment - No John, the economy is not doing very well. For the top 20% life is good, but for the other 80% things are a long way from doing well. I don't see that as a reflection on MMT. I see it as a testimonial to a lot of very wrong-headed actions of the government."
No, our economy is doing very well, as a whole. I agree (as do all MMTers) that unemployment is our number one challenge. But the economy itself is humming - GDP continues to grow, companies are making record profits, and our per capita GDP is still extremely high.
Much of the reason that businesses are making record profits is because their labor costs are so low. Once you hit a point where there are significantly more than transitionally unemployed workers, labor loses its leverage to demand more of the pie. Businesses could afford to pay labor much more, but why? Labor is cheap these days. And the big reasons are increased productivity, automation, and cheap foreign labor. The government has certainly made some policy mistakes, but the lower demand for labor is really the natural evolution of things. The JG solution recognizes this, and the short- to mid- term solution is to expand the public sector to keep everybody employed and the labor market tighter.
"Once the imminent financial market collapse was averted, they should have let the rest of the chips fall as they may. Instead of creating dollars to make banks and investors whole again, they should have created those dollars with national infrastructure and jobs programs."
Most MMTers would agree with this. The best idea I heard of to deal with the crisis was to eliminate FICA taxes, which would have allowed most homeowners to make their house payments, allowed employers some relief from decreased business, and made those MBSs much less toxic. All done at a small fraction of the cost, and probably far more effective.I understand your perception and vision of the JG program, and historically speaking it sounds a lot like FDR's CCC works program. The one where the most typical anecdotal description was of 20 guys clearing a roadside ditch - 2 men working their shovels and 18 leaning on theirs and observing.
But I like the idea - until you get into the details. Which the history of the CCC shows were long-term detriments.
How long before you run out of ditches and have to "graduate" to more of a CWA-type jobs program? And how long then before a CWA programs begins cannibalizing private sector jobs?
I agree that it might be a good idea for a short term solution for a lot of, as you call them, the "transiently unemployed," but is that the majority of our unemployment problem? I don't think so. And I don't get the impression that MMT sees it as a short-term solution. It seems to be a component of the government they envision.
You see, I am back to the impression that MMT is ignoring the human factor. And still, I remain conflicted because I do think some type of JG effort - if it could be non-politically designed and administered - would be a partial solution. Which like a vicious circle brings me back to the same roadblock of theory vs. reality.
The theory that a floor wage that would help sustain body and soul while reaching for the higher wage in the private sector, and the reality that modern politics will ensure that the floor wage is an "acceptable" (read "living wage"), level - which will lessen the incentive to graduate to a private sector wage is why I think MMT's government's JG program is not a viable answer.
I don't want to seem like I am just trying to find reasons why something won't work, because I think that your comment;
"...It is also thought that merely having a job, being accustomed to getting up in the morning and doing something, would make the transition to a private sector job easier (for both employee and employer). ..." is a valid point.
I really do think a JG-type program idea is a seed that should be nurtured - but in the realm of the capitalistic private sector, not the governmental "I'll always support you" sector.
As for the promoting a lack of initiative or drive - yes, I do think there is a larger segment of the participating workforce that would be affected by the concept of government support - regardless of effort.
Aren't we seeing that today with an ever increasing segment of Americans depending on government support? I do not agree with the argument it is all because of the economy.
Anyway, I do need to look a little deeper into the JG. Maybe Wray envisions it as more controllable and immune to our political deficiencies than I do.
~~~~~
I think your last point is exactly correct. It strikes me as similar to the days of the demise of the buggy whip factories. Like our lost higher paying manufacturing jobs, folks can complain about their loss all they want, but progress has changed the ground rules. Our workforce needs to adapt. I don't say that flippantly, it is a difficult endeavor, but it is also a fact that it is a necessary one..
GaHumming along? I think my pessimism is due to my reasoning that the economy should be viewed as more than just overall financial evaluations. More than just the "big picture" of the markets.
I think the financial markets, (Wall Street, Big Business, etc.), as barometers, have become less and less valid relative to American's "Main Street" economy.
Soaring over L.A. at 40,000 feet and the sky is a beautiful blue - the financial markets.
News helicopters beating along at 2000 feet are enveloped in the city's famous smog - the American citizen's market.
Same sky, different stratospheres. Different perspectives.
On the median level, both real household income and per capita income, although up a little this year, are still down over a three year evaluation period (2011 - 2013) - three years after the depth of our recession.
Once more, yours is an evaluation that I think, appears to discount the human factor.
Your last contention that a JG program could serve to "tighten" the labor market is an interesting thought - a view that I had not considered. I think it deserves some of my attention. It might have some merit. Hmm...
GAI certainly did not expect that. And given the thought and consideration of your prior responses, I am almost afraid to address this.
Is it a trap? Are you luring me to some rash statement? Or are you introducing a new perspective I hadn't considered?
FICA is currently a little more than a third of the government's total revenue. Somewhere in the $800 - $900 billion per year range.
Are you thinking the benefits to the recipients would create an economic push that would propel a near-match increase in "other" revenues? Or are you advocating the government create/infuse the differential amount in "new" money?
Yep, I can see the headlines now. If it was a struggle getting the votes to pass a program with a $900 billion ten-year cost, getting them for a similar cost per year program should be quite a rodeo.
I am anxious to hear more about this idea.
GA
GA wrote: "I certainly did not expect that. And given the thought and consideration of your prior responses, I am almost afraid to address this.
Is it a trap? Are you luring me to some rash statement? Or are you introducing a new perspective I hadn't considered?"
I try not to trap people in debates. I think the arguments MMT makes are strong enough on their own. What is so outrageous about that idea? We had a partial payroll tax holiday for quite a while, and the government never ran out of dollars because of it. (Nor could they.)
The government spent a ton on recapitalizing banks, which was probably not necessary, and certainly not fair. They also spent quite a bit directly increasing aggregate demand. The amount spent making people whole again would be far less than either of those.
Most people lost money through no fault of their own. A lot of homeowners lost their homes or went underwater, or both. The homes lost could have been saved for the cost of a few payments, and the value of everybody's homes wouldn't have suffered nearly as much had there not been so many foreclosures. And with fewer foreclosures and a lesser drop in home values, the mortgage-backed securities that were at the heart of the problem would not have been so risky, and the banks probably would have pulled through on their own. But as it was, the government tried to fix the hole in the dike by refilling the ocean. They recapitalized the banks, increased their reserves, took risky assets off their books in exchange for dollars, and basically bent over backwards to make sure the same people that caused the crash didn't lose any money because of it. Meanwhile, almost nothing was done to help homeowners, many of whom lost a lot of money - and what little they did came way too late to help.
What mainstream economists failed to realize was that the whole economy, including everybody at the top, makes money because the people at the bottom spend money. And the people at the very bottom get much, or maybe most, of their money straight from the government. Instead of allowing dollars to flow from the poor to the rich, which is the natural flow of dollars, they still thought that dollars would trickle down from the top.
"FICA is currently a little more than a third of the government's total revenue. Somewhere in the $800 - $900 billion per year range.
Are you thinking the benefits to the recipients would create an economic push that would propel a near-match increase in "other" revenues? Or are you advocating the government create/infuse the differential amount in "new" money?"
You don't need to make up the revenues. The government does not need income from taxes in order to create and spend dollars. The only thing you have to monitor is the economy's ability to meet the demand. Assuming the govt. lost $900 billion in revenue and didn't cut spending, the economy would need to increase production to meet whatever fraction of that $900 billion that people decided to spend.
"Yep, I can see the headlines now. If it was a struggle getting the votes to pass a program with a $900 billion ten-year cost, getting them for a similar cost per year program should be quite a rodeo."
That's because voters are ignorant about the economy. I'm not about to get behind bad ideas instead of good ones just because a bunch of voters don't see things my way. That's why I'm spending my time and effort trying to educate a few people at a time.
Besides, a tax cut isn't a "cost." It's more money in the pockets of the people who spend money, especially when we are talking about the poor and middle class."Besides, a tax cut isn't a 'cost.' It's more money in the pockets of the people who spend money, especially when we are talking about the poor and middle class."
This part makes total sense to me.Yep, I agree with that too. And I clarified that my reference would have been more clear relating it as a reduction in revenue or cost of the action. But when you are talking about a magnitude that is a third of the whole pie - its implications are more than typically considered when discussing "tax cuts."
GA
I think you have you are wrong about the durability of the MBSs relative to "the cost of a few more payments."
I can agree that many homes might have been saved with the cushion of a the few extra bucks a FICA abatement would have offered. But I don't think it would have been most, much less enough to avert the popping of the housing bubble.
It is my opinion that there were just too many unqualified or borderline borrowers included in those bundles. Too many that would not have been saved by a 7% boost. The market wanted those securities, so the market facilitated their creation. And the market knew of the dangers, but because of the timeline of the money flow, (those most knowledgeable of the risks, and able to slow things down, were the first rewarded and relieved of their risk) - the music kept playing and the dancers kept dancing.
The housing bubble was well beyond the reach of a FICA lifeline. The borrowers were just too unqualified, the securities just too toxic.
So while I agree with your assessment of what could have been, I think the numbers would have been too small to alter what did happen.
As for the governments "refilling the ocean" actions - we have already agreed on that mistake. And I think we are in agreement that the money spent would have been much more helpful if directed at the home owners rather than the securities owners.
It does appear that the bottom line of this point is that I agree with your MMT solution of pumping in some new money - regardless of real or perceived dangers of an increased national debt.
That is exactly what happened wasn't it? MMT was right. But the politicians were wrong. The human factor again.
I also think your final point, (in this edit), about the economists is spot on too. Except, I don't think that most of the people "at the bottom" getting most or much of their money from the government is a good thing, nor do I think those are the people that would or could have made a difference. You need to aim a little higher, to the level of self-supporters, the semi-mythical middle class. Those are the people that I think could have made the biggest difference.
The more we discuss this, the more I am finding it to be a philosophical difference we have. I am beginning to see that MMT's explanation and descriptions are correct, but that its proposed solutions are not. I agree that our society and economy are evolving in ways that require a "new" way of looking at things. I just don't think government wielding the power of a fiat currency is the only, or right, choice available.
Just because it can do something, doesn't mean it should do that something. You have convinced me that the country going bankrupt is not a reality if non-stupid application of fiat currency powers are is used. But guess where that leaves me? Yep, back at the human factor. We just finished discussing one stupid MMT application, re. the banks rescue, and neither of us have the time to list all the other such instances that come to mind.
GATo take the last first. Yes, I understand a tax cut isn't a cost. But it is a loss of revenue due to the action. It may be semantics, but I don't think it would be misleading to call it the cost of that action.
I think the fraction of the $900 billion spent would be very large. Probably more appropriate to look at it as the fraction that would not be spent.
Although it sounds a little harsh to think of voters that don't have the same belief in MMT as you do as ignorant, where do you see the constraints of fiscal responsibility coming from if not from the concept of having to pay for the bills you run up.
MMT does believe in the need for fiscal responsibility doesn't it? Who would do the "monitoring" to ensure the economy did not overheat from the unrestricted input of new dollars?
GA
GA wrote: "Humming along? I think my pessimism is due to my reasoning that the economy should be viewed as more than just overall financial evaluations. More than just the "big picture" of the markets."
It's not the markets that I'm talking about. Businesses produced a ton of goods and services. Food, cars, heavy machinery, movies, advertising, shipping - it's all still there. It's just being done by fewer workers.
A few years ago, my garbage collection service consisted of about 4 people and a truck. One driver, and three guys to throw the garbage into the truck. Then, they bought new trucks and distributed new garbage receptacles to their customers. The new trucks have an arm that picks up the cans and empties them into the truck. One driver now does the job of four men. And they raised our prices a little bit. The company's labor costs went down considerably, yet they are making more money than ever. That's the new economy. The private sector simply does not need all of the workers that want jobs. And that trend isn't going to change.
"On the median level, both real household income and per capita income, although up a little this year, are still down over a three year evaluation period (2011 - 2013) - three years after the depth of our recession."
I'm sure by now that you have read about how much of our economy's gains have been captured by the top 1%, or the top 0.1% - just about all of them. That has been the trend for the past 30+ years. I completely understand that unemployment is high and the middle class is not thriving. But my point was that the dollars are still there, stuck way at the top.
"Once more, yours is an evaluation that I think, appears to discount the human factor."
I think you are wrong on this. What is it about our present way of thinking that doesn't discount the "human factor," whatever that is? Welfare? Unemployment? Today's economists are all about helping business succeed, then expecting business to save the day and hire all of our unemployed and pay a bunch of taxes. MMT is all about helping people get on their feet, letting them earn some money to spend, and enjoying a bit of security in the form of a job guarantee. We understand that business needs little help in extracting all available dollars from our pockets, and businesses thrive wherever there are paying customers. And most importantly, we understand that it is not business' goal to hire everybody they can - their goal is to make as much money as possible, and that includes minimizing their labor costs.Once more, I agree that changing labor needs are a big part of the trend of lost jobs. And that those jobs will not be coming back.
And with the 1% or .o1% stuff. But what happened 30 years ago that could of started or sustained that trend? I contend it was a change of the rules that reduced most of the constraint on the financial market's ability to take risks. How does MMT explain it? Am I to understand that MMT's solution would be to step in with some type of JG and money infusion program? Or that if we were operating under MMT it would not have happened or the wealth distribution spread would not be as drastic as it is?
Even if they sound like challenge questions, they are seriously posed.
* the human factor I refer to is the managers of the system. The politicians. The decision makers. Not the human factor of those affected by the policies.
GA
GA wrote: "I really do think a JG-type program idea is a seed that should be nurtured - but in the realm of the capitalistic private sector, not the governmental "I'll always support you" sector."
Here's the problem with that - the private sector already meets all demand. You cannot just tell them to build more cars and hire the people to do it, because nobody is going to buy them. And if you prefer that the government buys up all the production necessary to employ everybody in the private sector, you are going to spend far more than the employee is going to earn, while filling the pockets of the already-rich even further.
I can see you have bought into the "lazy people sucking at the government teat" line of reasoning. My short-term argument against that is, did all of the people that recently lost their jobs because of the recession suddenly become lazy? Or are they good people who lost their jobs because the economy is changing? I believe that, in a labor market where workers are still in demand, people prefer to work. My long-term argument against that thinking is this: in the future, when even more work is automated and the need for labor is far less than it is today, what are you going to do when unemployment hits 50% or higher? Are you still going to see unemployment as a problem for the private sector to solve? At some point, the government is going to have to play a larger role, because our present system is lousy at distributing the fruits of our economy when the labor market is weak.
Now, I understand that that concept is a lot for a traditional guy to chew on, but you seem to be stuck on the prospect of the government hiring people, so the subject has to be broached. The private sector isn't the solution to every problem, but it has been fashionable, at least since the Reagan days, to pretend that it is, and blame all of our ills on government (who should just get out of the way!). But I see no evidence that this is true.
"As for the promoting a lack of initiative or drive - yes, I do think there is a larger segment of the participating workforce that would be affected by the concept of government support - regardless of effort.
Aren't we seeing that today with an ever increasing segment of Americans depending on government support? I do not agree with the argument it is all because of the economy."
Well, your two alternatives are a) welfare and other safety nets, or b) letting people starve. The only initiative driven by a lack of jobs is the initiative necessary to get up and rob a liquor store.
"I think your last point is exactly correct. It strikes me as similar to the days of the demise of the buggy whip factories. Like our lost higher paying manufacturing jobs, folks can complain about their loss all they want, but progress has changed the ground rules. Our workforce needs to adapt. I don't say that flippantly, it is a difficult endeavor, but it is also a fact that it is a necessary one.."
How does a workforce adapt to a lack of jobs?
Not so long ago, the majority of our labor force worked on farms, because that was necessary to produce enough food. Now, we produce a large surplus of food using less than 2% of our labor force. The best car factories are highly automated. Gas stations that used to employ pumpers and cashiers to man a few pumps now have more pumps manned by one or two employees. Do you know any secretaries anymore? Nobody needs them, because we have computers. And when is the last time you went into a department store and could find someone to help you buy clothes? Jobs aren't just changing - jobs are disappearing. And the private sector couldn't be happier, because their labor costs are going down with every advancement.The bureaucracy that is our government increases the need for secretaries in schools. We used to have one secretary, before constant paperwork was a necessity. With greater federal red tape, we've had two add two more. Now, we have three secretaries who all have computers and a massive overflow of work. That's one of my primary concerns with the government, bureaucratic inefficiency. It's hard for me to buy into MMT, because it necessitates a belief that our government will make solid monetary choices. Businesses must make wise monetary choices or risk bankruptcy. MMT puts the power in the hands of politicians rather than businesspeople. I don't trust politicians; I really don't trust politicians who might feel that they have unlimited, print-and-spend funds.
EA, that is my perspective also. But my problem in dismissing it is that MMT seems so logically correct... if we could just trust the fiscal integrity of its implementers. A major hurdle for me.
GAI don't know enough about MMT to either dismiss it or embrace it. I'm merely pointing out potential problems that I don't see anybody mentioning in the MMT blogs and articles that I read.
Putting additional power and money in the hands of Washington's politicians isn't a great answer. The response from MMT supporters seems to be an attack on businesses. Something seems inherently wrong with that. Neither government nor business is the sole savior of our economy, yet MMT seems to heavily favor the government.
Wellll... Although I do see a problem with more and more folks dependent on the government for support, and I do see segments of our society that I think are handicapped by a "welfare mindset", I hope that hasn't blinded me to the point of fitting your description of a "government teat" bemoaner.
Yes, considering MMT's "the government can do it" solutions are a lot for a traditional guy to chew on.
As for the workforce adapting, that was poor phrasing on my part. Society adapting to changing workforce needs would have been better.
I do understand that what we are seeing now is only a shadow of the workforce changes that will the reality of 50 years from now. If I had the answers to your questions I would be as enthusiastic about getting them out as you are about promoting MMT.
I am beginning to see that MMT might be the direction of one solution, I am not convinced it is the right solution - or the only one.
And as a traditional guy, I do see JFK and Reagan's perspectives as a better choice of directions, but I don't blame all our problems on the government. Our capitalistic system, (my preferred system), also bears a share of responsibility.
GA
EA wrote: "The bureaucracy that is our government increases the need for secretaries in schools. We used to have one secretary, before constant paperwork was a necessity. With greater federal red tape, we've had two add two more. Now, we have three secretaries who all have computers and a massive overflow of work. That's one of my primary concerns with the government, bureaucratic inefficiency. It's hard for me to buy into MMT, because it necessitates a belief that our government will make solid monetary choices. Businesses must make wise monetary choices or risk bankruptcy. MMT puts the power in the hands of politicians rather than businesspeople. I don't trust politicians; I really don't trust politicians who might feel that they have unlimited, print-and-spend funds.
The LAST entity I want in charge of my well-being is for-profit business. Picture life without government regulation: you would be refused health insurance if you were sick or old, or dropped when you became unprofitable; factories polluting the environment just to save a few bucks; cars built for style but not safety; leaded gas; the list goes on and on. There is a large difference between being efficient and doing things with the public good in mind. This trust in Big Business to solve all of our problems is a fairly recent phenomenon - do you even recognize it as such?
There will always be problems with politicians acting foolishly. We have that problem today. But do you think that we are better off not understanding our own economic system than we would be if most people understood it? Because right now, ignorance is keeping spending down for fear of deficits, but it's also keeping many millions of people unemployed, with all of the other problems that high unemployment leads to - poverty, crime, slums, etc.
There aren't many economic systems out there that don't involve government. The Euro effectively took currency creation as a fiscal policy tool out of the hands of governments, and that's not working out for them at all.There is a need for government. We both agree on that. I hold the same disdain for government and politicians that you seem to hold for businesses. MMT puts a lot more power in the hands of the politician. I see that as a problem. Washington is riddled with corrupt, inept politicians on both sides of the aisle. Putting more power and money in their hands isn't something I relish. That doesn't mean that I believe there should be no government or no regulation. It means that there should be a "balance" between government and business. MMT shifts that balance too far in one direction, towards the government, the least efficient, bureaucratic entity.
Yes, I agree that the public should understand our economic system better. The public should understand a lot of things it largely doesn't understand. I understand that you are a big supporter of MMT, but that doesn't necessarily mean that MMT is totally correct or that it couldn't be abused by corrupt politicians. With all due respect, it is a theory, right? We do have a lot of corruption in Washington, right?
On a different note, I sure wish I could go back and correct typos in my previous posts. I can't stand it when I see an error that can't be corrected. Two or to. . . .
GA wrote: "We just finished discussing one stupid MMT application, re. the banks rescue, and neither of us have the time to list all the other such instances that come to mind."
Don't pin the bank bailouts on MMT. You seem to be equating every instance of government spending with MMT, and that is completely off-base.
Governments create (save for Eurozone nations) and spend money; they always have. You can do it from a standpoint of ignorance, worrying about deficits and misunderstanding the causes of inflation, like we do now, or you can spend it with a solid understanding of the effects that your spending is likely to have. And unless I am misunderstanding your "human factor" worries, you seem to be advocating that we remain ignorant, and live with the devil we know.
Fiat currency economics and their particular rules have been in effect since we went off the gold standard, but our various administrations have been under the sway of a number of different economic schools of thought. We have been making mistakes for over 40 years. They aren't fatal, but they are causing a lot of unnecessary pain for a lot of people. It's time to see what we can do when we aren't in the dark.Yes, that was a mistake to imply it was an MMT error. I meant to describe one particular action using MMT's concept that a government can arbitrarily create new money as the "stupid" mistake.
And, Yes, you are misunderstanding my "human factor" references, but I hope my previous response cleared that up.
GA
GA wrote: "To take the last first. Yes, I understand a tax cut isn't a cost. But it is a loss of revenue due to the action. It may be semantics, but I don't think it would be misleading to call it the cost of that action."
Well, that is because you are still thinking (like most) that government spending "costs" something, like debt, so any addition to the deficit is a "cost." But the real cost would be to the people, who are the ones paying $900 billion in taxes. Try to instead think of government spending/taxation as reaching a balance. Like pushing on the gas pedal enough to go fast, but not so fast as to be unsafe.
I think the fraction of the $900 billion spent would be very large. Probably more appropriate to look at it as the fraction that would not be spent.
In the last stimulus, we were disappointed by the small amount of new money that people actually spent. Much of it was used to deleverage private debt, which had been rising.
Although it sounds a little harsh to think of voters that don't have the same belief in MMT as you do as ignorant, where do you see the constraints of fiscal responsibility coming from if not from the concept of having to pay for the bills you run up.
First of all, knowledge of how things work is not a belief, it is simply knowledge. The policy parts may constitute a "belief," but I would be very happy if people just got to the point where they understood that a country sovereign in its own currency does not owe anybody anything by creating that currency. From there, they can make up their own minds about whether or not the government should spend more or less. Second, what is your definition of "financial responsibility"? Once you know that a government does not go into real debt to create money, is it more responsible to not spend money for the benefit of your citizens, or is it less responsible?
MMT does believe in the need for fiscal responsibility doesn't it? Who would do the "monitoring" to ensure the economy did not overheat from the unrestricted input of new dollars?
You are worried about inflation more than you are worried about our millions of unemployed and underemployed, our crumbling infrastructure, our student debt, and all of our other problems that are caused by a reluctance to deficit spend. That's fine, that's a political choice on your part. But why worry about theoretical problems when you have actual problems to deal with? Inflation is its own indicator - you will know when we are spending too much if and when we get significant demand-pull inflation.John, your responses and explanations have been very helpful, and I do understand a lot more about MMT, or as you mentioned - Fiat Currency Economics. Thanks.
However, this new understanding has not erased my "buts...," it has just given me a new insight into why I have them.
I don't think I will have a problem with a changed understanding that technically, (barring the extremes), we will not, or cannot, go bankrupt as an nation with a fiat currency. And that technically our debt, (I know MMT says it isn't a debt), isn't something our grandchildren will have to pay.
I also think that this new understanding will expand my considerations of new possible actions leading to needed solutions.
Now for my "buts..."
I think the perception of "debt" relative to this topic is necessary as a "fiscal restraint" on our government's actions - a sort of of guard rail to keep us on the road of responsible actions. I think a mindset of "unlimited money," with only the concern of inflation as a brake, would lead to potentially disastrous fiscal irresponsibility by our politicians. You have much more faith in them than I do. History may not give us the solutions we need for our future, but it sure as hell gives us plenty of examples of what we don't want. ie. unlimited monetary power. Which is what I see as the result of adopting MMT's "no such thing as debt" position.
Even if it isn't true debt, as MMT explains, I think the perception there is - is very necessary.
I think both the politician's and the public's perception that borrowed money, (in the government sector), has a cost and must be repaid is a very necessary bridle on the politician's ambitions and the public's acceptance of both their everyday M.O,s and their grand schemes.
You say the U.S. has misunderstood the real workings of our fiat economy for 40+ years, and, if I understood him correctly, Wray has inferred a similar general misunderstanding of "government" money since the beginning of currency use - 4000 years ago. Maybe there is a deeper reason an MMT Eureka! moment hasn't happened - yet.
So, right or wrong, ignorant or obstinate, I still to think our solutions need to continue to come from primarily private sector endeavors. But....
I have one last but... Given my newly acquired "semi-enlightened" status, I am beginning to see an expanded importance of considering more public/private partnership efforts. Both have something to offer, and each has something the other needs.
Yep, I am still a booster for the individualism of Americans rather than the beneficence of government, but I see now that a government partner doesn't have to be a bad thing.
For instance your/MMT's JG concept... that I will open-mindedly discuss further.
GA
GA wrote: "Once more, I agree that changing labor needs are a big part of the trend of lost jobs. And that those jobs will not be coming back.
And with the 1% or .o1% stuff. But what happened 30 years ago that could of started or sustained that trend? I contend it was a change of the rules that reduced most of the constraint on the financial market's ability to take risks. How does MMT explain it? Am I to understand that MMT's solution would be to step in with some type of JG and money infusion program? Or that if we were operating under MMT it would not have happened or the wealth distribution spread would not be as drastic as it is?"
I'm sure there were some bad rule changes and political mistakes that contributed, but I put more of the blame on the declining demand for American labor. For thousands of years, distribution of wealth and income had been based upon labor's ability to pry money away from those who owned the land, and later the factories. And for thousands of years, there had been a shortage of labor, relative to demand, so things were workable. But the trend has been increased productivity, and if you graphed it out, there would be a meteoric rise in productivity starting with the industrial revolution and still increasing today. So much so that we (in this country) have the capability to produce more than we can consume. And that leaves a lot of labor with nothing to do.
The (main) MMT solution (there is some disagreement among the ranks as to the best way to attack unemployment) is the job guarantee, which simply increases public sector jobs as a palatable way to distribute money and keep everybody fed and sheltered.
"* the human factor I refer to is the managers of the system. The politicians. The decision makers. Not the human factor of those affected by the policies. "
As I said before, the human factor is always going to be there, whether they understand economics or not. I would much rather take my chances with a body of politicians that actually understand what they are doing. And a body of voters that don't completely misunderstand economics, too. The ignorance is choking the economy. People are voting themselves into unnecessary austerity."I would much rather take my chances with a body of politicians that actually understand what they are doing. "
If I knew of a body of politicians who actually knew what they were doing, I might agree. You talk about having an informed public, electorate. We don't have an informed leadership either. Do you believe that the average person in Congress understands MMT?
GA wrote: "As for the workforce adapting, that was poor phrasing on my part. Society adapting to changing workforce needs would have been better."
Well, the way I see it, the problem is spreading the wealth around (fixing unemployment). The private sector is very good at generating wealth, so I'm certainly not suggesting that we dispose of capitalism or anything like that - but they are also lousy at spreading that wealth around . So I don't envision a private sector solution. I know you guys don't trust the government, and that's not uncommon these days (although I think much of that movement is politically driven in itself, by the Right), but I would like to see what an informed government, with an informed electorate, could come up with. Because I have already seen what business does with money.EA wrote [i/"...MMT puts a lot more power in the hands of the politician...."[/i]
Whoa. How does MMT do that? We aren't changing the rules of the game here. I am only proposing that our politicians (and our voters) get educated on fiat currency economics. That our country does not go into debt when it deficit spends is not theory, it is fact. There are some pretty obvious policy prescriptions that naturally follow from that insight, and (like all schools of thought) we have put forth some suggestions as to what should be done, but understanding MMT (or, fiat currency economics) isn't an "all or nothing" proposition. One can certainly share our understanding of deficits, debt, and inflation while not agreeing on the policies we suggest.
I have no disdain for business. I just see it for what it is (a very efficient money-making operation) and what it isn't (a social instutution designed for the benefit of all citizens). It is a tool, not the carpenter. And it is certainly not the check on government that you suggest when you said that there should be a balance. When government and business get together, we get big money and lobbyists running everything. It's not you, me and GA who own Washington.
"Yes, I agree that the public should understand our economic system better. The public should understand a lot of things it largely doesn't understand. I understand that you are a big supporter of MMT, but that doesn't necessarily mean that MMT is totally correct or that it couldn't be abused by corrupt politicians. With all due respect, it is a theory, right?"
No, that's just an unfortunate name that was applied by somebody a while back that stuck. I would prefer "fiat currency economics," but the name MMT seems to be here to stay.
Most things in economics are theories. The Law of Supply and Demand (in capitals for no good reason) is something that makes some sense in the classroom, but is so misapplied in real life that it does more harm than good. Monetarism is another school of thought that has great equations on a chalkboard that don't apply in the real world. MMT has accounting identities at its base. These do apply in the real world. It is also based on understanding Reserve banking operations, which are not theory. So a lot of what we do is simply point out how those things work. Some other things, like why we think inflation happens, is theory, because (like all other theories of inflation) it is not really testable.
"We do have a lot of corruption in Washington, right?"
Yes... but why? Don't you think that voters' ignorance has some (large) role in that? Ask 100 voters what they think of deficits, and at least 99 of them will say they are bad and should be lowered. They can't correctly explain why this is so, but they are adamant on that point. Believe me, I have tried many times in many forums to debate this very point, and the response is absolutely rabid denial, and anything from immediate dismissal to downright hatred toward me and my message. (I should probably never have this debate face-to-face, because i would risk a punch in the nose. It's people like me who are ruining this country by spending.)
Also, as I said above, it's business, not people, who hire the lobbyists. Corruption (in this country) is all about getting re-elected, and that means taking "contributions." Our politicians all manage to get rich by positioning themselves and having the inside scoop, but I don't think we are a country where our politicians simply line their pockets with government money straight from the till."We aren't changing the rules of the game here."
Among other things, you've talked about total employment, government-provided employment. That's a pretty big game changer. I would prefer to see the government take this "newfound money" and offer incentives to the employed, making employment a more favorable option. If the government offered five thousand dollars, as a tax-free incentive or a tax break, to full-time employees and three thousand to part-time employees, you'd accomplish a great deal. First off, this would benefit the poor and the middle class to a greater degree, providing a step up. It would encourage people to get a job. It would appease those of us who are frustrated with the welfare system. It would stimulate the economy, promote GDP growth, and help businesses. I prefer this idea over giving government jobs to people.
"Don't you think that voters' ignorance has some (large) role in that (Washington corruption)? "
Yes, I agree that both ignorance and apathy are part of the problem.
EA wrote: "Do you believe that the average person in Congress understands MMT?
No, I don't, even though some of our economists have given talks to Congress.
The closest thing I ever heard a politician say that demonstrated an understanding of fiat currency economics was when Cheney flippantly said, "Deficits don't matter." And I don't know what was behind that statement; an understanding of bond operations, or just a disdain for anybody who tried to rein in the Bush Administration's spending.
Even if a politician understood that we needed more deficit spending, he/she would be cutting their own throat by saying so publicly. After 30+ years of hearing about how our deficit spending is going to doom our economy, voters are not ready for that message.EA wrote: "Among other things, you've talked about total employment, government-provided employment. That's a pretty big game changer. I would prefer to see the government take this "newfound money" and offer incentives to the employed, making employment a more favorable option. If the government offered five thousand dollars, as a tax-free incentive or a tax break, to full-time employees and three thousand to part-time employees, you'd accomplish a great deal. First off, this would benefit the poor and the middle class to a greater degree, providing a step up. It would encourage people to get a job. It would appease those of us who are frustrated with the welfare system. It would stimulate the economy, promote GDP growth, and help businesses. I prefer this idea over giving government jobs to people."
But none of that will solve the big problem - the private sector can no longer provide enough jobs for everybody that wants one. I have been trying to make this point for some time now.
There is only one way to spur the private sector to create more jobs, and that is to increase aggregate demand. You can do this organically to some level by lowering taxes, allowing people to spend more on their own, and MMT is all for that. You can do it by implementing a BIG. And you can do it artificially by having the government spend more on goods and services, but if they are buying more than they need, it's a bit of a waste. Plus, if you are trying to create one $20,000/year job, you are going to have to spend far more than that on goods or services, because you have to allow for costs and profits. So it's far more efficient for the government to just pay somebody $20,000/year to dig ditches. (All of these methods, btw, increase the federal deficit. That is where new demand must come from.)
(Please don't make a big deal out of my choice of numbers here. $20,000 is just a nice, round number.)
You have to remember that the private sector is incredibly efficient at making us hand over our dollars. (Don't you find it hard to save when there is so much stuff to buy?) If there was any more demand out there, the private sector would be all over it. And if they can make a profit by creating a new job, they do so. But the extra demand simply is not there. Poor people already spend all of their money just to get by, and rich people have already bought everything they want to buy. There is no slack in that relationship. It's a mistake to think that you can incentivize the unemployed to get up and get jobs, because there are not nearly enough jobs to be had. Likewise, you can't incentivize businesses by giving them tax cuts, because that doesn't increase demand for their products. It just increases their profit margin."But none of that will solve the big problem - the private sector can no longer provide enough jobs for everybody that wants one. I have been trying to make this point for some time now."
I fully understand what you are saying about the job market. Even with an economy that isn't booming like it could/should, there are a lot of unfilled jobs available. My district has fifty-two job openings right now. Do available jobs outnumber unemployed people? No. Would there be more jobs available if employed people had thousands of extra dollars in their wallets? Yes. These new jobs would provide an additional stimulus to the economy, thus producing even more jobs.
We need to give incentives for people to work, not government-provided jobs. "Good enough for government work" isn't a great way to go.
"Poor people already spend all of their money just to get by, and rich people have already bought everything they want to buy."
By giving a tax-free stimulus to employed people, a lot of these poor people would benefit the most, proportionately. They'd have more money to put food on the table, pay rent, or perhaps even have a small luxury here or there. What's wrong with that? Rewarding poor people who work hard seems to be a win-win situation. The poor person benefits, and the economy grows. The same is true for the struggling middle class.
"Likewise, you can't incentivize businesses by giving them tax cuts, because that doesn't increase demand for their products. It just increases their profit margin."
By giving greater tax incentives to corporations, we can keep some from leaving the country and draw more corporations to our country. Don't we have the second highest corporate tax rate in the world, greater than any other industrialized nation? Keeping and attracting corporations means jobs. Jobs mean greater economic growth. Greater economic growth means greater demand for products, because people have more money. Further, we live in a global economy. The demand for products doesn't have to come from America. We can just as easily export goods to countries with great demand.
As you said, poor people can't afford more products. This isn't true if you put more money in their pockets. Putting more money in consumers' pockets would result in greater demand for products which results in massive job growth; this, in turn, increases demand for products and spurs further job creation.
EA wrote: "I fully understand what you are saying about the job market. Even with an economy that isn't booming like it could/should, there are a lot of unfilled jobs available. My district has fifty-two job openings right now. Do available jobs outnumber unemployed people? No. Would there be more jobs available if employed people had thousands of extra dollars in their wallets? Yes. These new jobs would provide an additional stimulus to the economy, thus producing even more jobs."
I would guess that there are WAY more than 52 unemployed people in your district. Jobs don't get filled instantly - there are always a few openings. That does not mean that everybody is choosing to sit on their couch instead of applying for jobs.
"We need to give incentives for people to work, not government-provided jobs. "Good enough for government work" isn't a great way to go."
Again - incentives don't create jobs, demand does. And it's not even close to being dollar-for-dollar, either. A business will always try to increase production without hiring new employees, if possible.
"By giving a tax-free stimulus to employed people, a lot of these poor people would benefit the most, proportionately. They'd have more money to put food on the table, pay rent, or perhaps even have a small luxury here or there. What's wrong with that? Rewarding poor people who work hard seems to be a win-win situation. The poor person benefits, and the economy grows. The same is true for the struggling middle class."
There is nothing wrong with that, except for the fact that you are excluding the unemployed. A "tax-free stimulus" is basically the same thing as a BIG. But again, you can't incentivize jobs into existence, and by excluding the unemployed for something that is out of their control, it seems like you are blaming the unemployed for the job shortage.
"By giving greater tax incentives to corporations, we can keep some from leaving the country and draw more corporations to our country. Don't we have the second highest corporate tax rate in the world, greater than any other industrialized nation? Keeping and attracting corporations means jobs. Jobs mean greater economic growth. Greater economic growth means greater demand for products, because people have more money. Further, we live in a global economy. The demand for products doesn't have to come from America. We can just as easily export goods to countries with great demand."
We don't have a big problem with corporations leaving the country. We do have a problem with those corporations outsourcing labor, because lowering labor costs increases profit margins without necessitating increased sales. Tax incentives do not change that math.
I would add that we already try our best to export to foreign markets. The important factor there is our relatively high labor costs, not our tax structure. Taxes don't come into play until after the fact. There is no reason to think that we could flick a switch and increase our exports unless our domestic labor costs go down significantly. We have no control over foreign demand.
"As you said, poor people can't afford more products. This isn't true if you put more money in their pockets. Putting more money in consumers' pockets would result in greater demand for products which results in massive job growth; this, in turn, increases demand for products and spurs further job creation."
Yes, putting more money in people's pockets will result in greater demand. But it won't be "massive," and it would not increase demand enough for the private sector to hire everybody that needs a job. Almost everybody today has some income, from unemployment benefits, welfare, food stamps, etc. Switching that to a minimum-wage job would help, giving them more money and a lot more stability, but it would not be the huge, job-creating boost to the private sector that you envision. And it wouldn't reverse the effects of automation or cheap foreign labor, either.
Here's some back-of-the-napkin math: Let's say a jobs program results in 50 million people making $10,000 more, each. (Those are pretty generous estimates, I think.) That's $500 billion more being spent. Let's assume some residual effects of that new spending and double effective spending activity to an even $1 trillion. That is a 6.7% increase (16/15), which would be terrific growth for us, but I really doubt it would serve to provide everybody with a full-time private sector job. I could be wrong, but we have a lot more unemployed and underemployed people than the official number being put forth. I think we are always going to need a lot of public sector jobs from here on out."We do have a problem with those corporations outsourcing labor, because lowering labor costs increases profit margins without necessitating increased sales."
This still results in fewer jobs. Companies outsource jobs for many reasons. One of the reasons is because of a high tax rate. Doesn't Mosler, a leading advocate of MMT, support tax cuts? Cutting taxes would result in more jobs in America. More jobs means more money for some. More money means greater demand.
Giving jobs to people doesn't really help those who already have jobs. Giving tax incentives to those who are employed means more cash for poor people who are struggling.
"That does not mean that everybody is choosing to sit on their couch instead of applying for jobs."
Not all do that, but many do. You eluded this when you said, "I could be wrong, but we have a lot more unemployed and underemployed people than the official number being put forth." Giving an incentive to work means that many of these people would become more interested in working.
"Again - incentives don't create jobs, demand does. "
The demand for goods is greater than the supply of cash for most poor people and middle-class families. If I had more money, I would spend more money. If the government gave a tax incentive for working, I'd have more money.
The global demand for goods is enormous. Demand doesn't have to come from America. We can export goods.
"But it won't be "massive," and it would not increase demand enough for the private sector to hire everybody that needs a job."
Not all people want a job, especially the kind of job that you've proposed. Giving an incentive for working would increase the number of applicants.
EA wrote: "This still results in fewer jobs. Companies outsource jobs for many reasons. One of the reasons is because of a high tax rate. Doesn't Mosler, a leading advocate of MMT, support tax cuts? Cutting taxes would result in more jobs in America. More jobs means more money for some. More money means greater demand."
Yes, we all advocate lower taxes, especially on the poor and the middle class, because those dollars will almost certainly get spent. But if you cut Bill Gates' taxes, do you think it would change his spending habits at all? You have to think about where tax cuts go and what effect it will have - not all tax cuts are equal. If you manufacture, say, bicycles, and you sell 1000/year at $100, the market does not care what your tax rate is. The demand for your bikes, at that price, is 1000/year, whether your profit margin is $2/bike or $50/bike. Giving your business a tax cut will increase your profit margin, but there is no reason you would pay your labor more, or hire more workers. The whole tax cut would go to ownership, who, generally, is already pretty well off. And rich people save a good portion of their income, which does the economy no good. This is why it is misguided policy to think that lowering tax rates on businesses will result in significantly more jobs.
"Giving jobs to people doesn't really help those who already have jobs."
Well, those people don't need as much help. They already have jobs. Besides, it does help them, because it tightens up the labor market, making them more valuable. If everybody is employed, a decent employee is no longer as disposable as he is when there is tons of labor clamoring for his job at reduced rates.
"Giving tax incentives to those who are employed means more cash for poor people who are struggling."
That is true. But why not just give BIGs to all people below a certain threshold, and not just the already-employed? Or why not guarantee jobs to everyone? I'm all for tax cuts on the lower end. There is no theoretical reason to tax anybody that spends all of their money, unless we reach our productive capacity.
"Not all do that, but many do. You eluded this when you said, "I could be wrong, but we have a lot more unemployed and underemployed people than the official number being put forth." Giving an incentive to work means that many of these people would become more interested in working."
I wasn't trying to elude anything. The way the number is counted, the long-term unemployed don't show up. But we both agree that there are not nearly enough full-time jobs for everybody that wants one, right? How is an incentive aimed at the unemployed going to result in more jobs being created? Not everybody is an entrepreneur, after all.
The point is, that you can't just roust 10 million+ people off of their couches and create 10+ million jobs just by them running around looking for them.
"The demand for goods is greater than the supply of cash for most poor people and middle-class families. If I had more money, I would spend more money. If the government gave a tax incentive for working, I'd have more money."
Yes, more money = more demand. But you keep leaving out the unemployed. A tax incentive for working doesn't do them a bit of good when there are no jobs to be had, just as tax cuts don't do anything for the unemployed.
"The global demand for goods is enormous. Demand doesn't have to come from America. We can export goods."
We already export goods. It's not nearly enough. You can't just produce more and declare that worldwide demand is going to buy up your products. Don't you think that American manufacturers are already doing everything in their power to export everything they can?
"Not all people want a job, especially the kind of job that you've proposed. Giving an incentive for working would increase the number of applicants."
A paycheck is the incentive to work. There is already plenty of incentive for people to work. There just aren't nearly enough jobs.
We keep coming back to the same problem here. You seem to be under the impression that if the 10+ million unemployed just got off the couch and looked for a job, they would all find one, and that's just incorrect. You are aiming all incentives toward the working poor, but not toward the unemployed, and you are ignoring the public sector as a possibility. The problem with this is that the private sector is not a perpetual motion machine.
On a chalkboard, we can have a fixed amount of money and a fixed number of people, and they can go on making and selling widgets to each other ad infinitum. In real life, dollars leave the system when they are lost to (effectively permanent) savings. In real life, ownership takes as much profit as possible and doesn't spend it all back into the economy. Dollars move from the poor to the rich, and the continued operation of the economy depends upon dollars circulating. When labor was in demand, they could better manage to pry some dollars away from ownership, but dollars still left the system. It is government deficit spending (along with some redistribution via taxation) that has always kept the economy from contracting due to a shortage of dollars, because the government replenishes those lost dollars, and they do it primarily at the bottom. The private sector, left to its own devices, fails to do this, and so it pushes itself into deflationary spirals."But if you cut Bill Gates' taxes, do you think it would change his spending habits at all?"
No.
"Giving your business a tax cut will increase your profit margin, but there is no reason you would pay your labor more, or hire more workers.
I agree that profits would increase and that labor prices would probably stay the same. However, more jobs would be kept in or attracted to America. More jobs means more money being spent, and that leads to greater demand for goods. This, in turn, leads to more jobs.
"Well, those people don't need as much help."
Employed people don't need as much help, so we get little or nothing? Great.
But we both agree that there are not nearly enough full-time jobs for everybody that wants one, right?
There aren't enough jobs but there could be more. You've advocated government jobs for blue-collar tasks that require physical exertion. I'm certain you don't propose top-dollar salaries for these kinds of jobs, do you? How many illegal aliens are in our country doing jobs that the Left claims Americans won't do? How are these jobs any different than the government-funded jobs you are proposing? If Americans won't do hard labor for little pay in farms, why would they do it elsewhere? If Americans will do these jobs, we don't need green cards, and we don't need government-provided jobs.
A tax incentive for working doesn't do them a bit of good when there are no jobs to be had.
It doesn't allow for an immediate answer, true. It does grow the economy and produce more jobs though. It's true that I'm not advocating immediate, total employment. I believe that there is no immediate, quick fix to the job market problems we face. What is the quality level of the government jobs you propose? The jobs you propose are hard jobs with a low pay, so I don't really see that as a great alternative.
"The private sector, left to its own devices, fails to do this, and so it pushes itself into deflationary spirals.
The government, left to its own devices, can't even function half of the time.
GA wrote: "Now for my "buts..."
I think the perception of "debt" relative to this topic is necessary as a "fiscal restraint" on our government's actions - a sort of of guard rail to keep us on the road of responsible actions. I think a mindset of "unlimited money," with only the concern of inflation as a brake, would lead to potentially disastrous fiscal irresponsibility by our politicians. You have much more faith in them than I do. History may not give us the solutions we need for our future, but it sure as hell gives us plenty of examples of what we don't want. ie. unlimited monetary power. Which is what I see as the result of adopting MMT's "no such thing as debt" position.
Even if it isn't true debt, as MMT explains, I think the perception there is - is very necessary.'
I'll be honest with you, GA - this is the kind of response that makes me want to bang my head against a wall.
It is akin to saying, "We shouldn't eradicate polio, even though we can do so, because polio is a check against kids running too fast and pulling a hamstring."
To me, it is far more irresponsible to keep millions of people impoverished when we have such an abundance of resources available. But, that's your choice. There are a lot of political choices out there that I don't agree with, and some that I don't understand. But that's democracy, I guess. I hope that you use this knowledge to at least temper your views on debt and deficits. Thanks for hearing me out.Sorry for the headache John. I don't think your Polio analogy is a good one, but I do think you are right about the abundance of political choices out there.
GA
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