Summary and Critique of the Warren Mosler (MMT) vs. Bob Murphy (Austrian) Debate.
As someone who is an advocate of Modern Monetary Theory (MMT), it will be obvious from the outset that when it comes to determining the winner of this debate the few people who watched it will no doubt vote for their team, as I have. Such is the reality in economics these days, it is unfortunately heavily influenced and dictated by politics and ideology. Even Bob Murphy mentioned this “team phenomena” in his opening statement of the debate, which was one of the accurate things he said, and for the most part he was honest and very respectful. So kudos to Bob Murphy for being a great representation of the Austrian school of thought, these kind of debates should be the kinds of things that bring people to a better understanding of each other, and if we’re lucky a way to compromise with each other.
The winner and loser of this debate will not be determined by MMT’ers and Austrians, but by everyone else who doesn’t fall into that category. At the end John Carney, the gracious moderator, mentioned that one day down the road millions of viewers will hopefully see this debate as a momentous occasion for economics (paraphrasing here). And I sure hope for the human race that he is right, if only MMT does come out as the public opinion choice here.
So enough of the nicities, for it is time to dissect the meat of this debate. As a courtesy, here is an edited version of the debate. The debate starts at the 22 minutes mark and goes on for about an hour and a half. I have listened to it three times and so I think I have a general sense for what both sides represent for their schools and I hope I don’t misrepresent Bob Murphy in any way here.
In the opening both Warren and Bob were asked what they would like to have seen done policy wise, right after the recession hit in 2008. Mosler was the first to reply and for those familiar with MMT it was not a surprise to hear what his policies were:
Full tax holiday on FICA
Government funded transition jobs
Health care proposal of 5k per person (4k for emergencies, 1k for general checkups) to be allotted to each US citizen yearly. If they didn’t use these funds, it would be refunded to them as a check at the end of the year. And if an emergency would cost more it would fall under Medicare coverage for all.
He did mention quite a few more policy proposals but these are the major MMT type programs that would generate aggregate demand to reboot the economy, or should I say “reduce the drag”.
When it came to Murphy’s turn, he took the odd stance of explaining what Austrianism is about (even though those watching it should know Austrianism quite well), instead of getting into great detail on what he would do. And in the end of explaining what Austrianism is, he left off with explaining how Greenspan’s low interest rate policies caused an unnecessary bubble that lead to a false economy. At 33:30 he says: “go back to the late 90’s… It was because of Greenspan fed keeping interest rates low…. Greenspan replaced the .com bubble with the housing bubble”
So in the end his solution was that the government should not have lowered interest rates in the first place to cause the recession, which is a debatable assumption on its own. So of course the typical Austrian answer was “government interference”, and in this part it was interfering with interest rates. Later in the debate he also mentioned letting the TBTF banks to just fail. Which is not really an unpopular idea among the MMT’ers as well since as Mosler stated, “the banks did fail”.
So as a summary to the opening question we get the gist that Warren wanted less government involvement in how we spend our money (by removing FICA and allowing medical expenditures to be paid by choice to the private sector) and some government intervention with a government funded transitional jobs program. And Murphy simply responded with the removal of government involvement altogether and only mentioned not messing with interest rates as a possible solution, and not going much further than that in the opening remarks. Even though setting higher interest rates in a floating exchange rate system is government interference. This beginning statement set the tone for the rest of the debate, as Mosler was very detailed and knowledgeable about our monetary system, and Murphy relied on rhetoric and Austrian theory as a way to describe what he ideologically wanted.
After the opening statement he admits that Warren’s, “Seven Deadly Innocent Frauds”, is technically correct. At 47:35: “It’s not that I think the stuff in his book is wrong…. I think its technically correct but very misleading.” How can something be technically correct, and also be misleading? MMT is a manual on how our economy functions, it is like calling a DVD manual technically right but then saying it is misleading.
Then later in the debate, at the 1:17:00 mark, says he disagrees with the book. This seems to be the typical cognitive dissonance experienced when someone has to recognize how things work but can’t shed previous beliefs to accept how things work.
Austrians are trying to use a VCR manual to determine how to use a DVD player.
In the same segment Murphy started to create an analogy of government spending and taxation (making fun in a way of MMT’s claim that spending is not constricted from printing currency), by comparing it to household budgets. He brought up the common fallacy of composition that the government ought to be run like a a household, by claiming that if a household can’t obtain currency that they ought to hold up a liquor store to get that currency, since the only constraint there is jail time. Again this is poking fun at the idea of what MMT claims that there is no financial constraint on printing money, even though we claim there is a resource constraint.
All in all I enjoyed the debate and think it is worthwhile to get into more detail on each side with further debates. What it comes down to is that Austrians want us to run our current economy in a way that doesn’t fit how it is set up. MMT’ers need to get Austrians and the politicians in office to understand this because it is harmful to our economy.
Heretical Druthers 
Murphy revealed that Austrian ‘economics’ isn’t really economics at all- it’s a moral argument. He admitted that Mosler was technically correct about several things, but ultimately framed his opposition *solely* on the basis that taxation & other manipulations are immoral.
He’s not doing economics, he’s preaching. The economics is a secondary construct, custom-built to support the moral argument couched within.
Austrian economics is not more about morality than MMT is. Murphy may have made moral arguments, because Mosler, through his arguments became subject to them by suggesting numerous time, that the government (an institution who makes use of coercion or threat thereof) should do X, Y.
If you didn’t notice Mosler seems to be on murphys side morally. He said that he didn’t particularly agree that it is a good or right system but that it is how it works under our curernt system. To me it isn’t is MMT accurate but is it a good system. Based on what I have read it is a frightening system in its implications for personal liberty.
How is lowering taxes a threat to personal liberty?
Great post. I also agree with Mike Wright’s comment.
While watching, I felt like Warren was educating the audience by stating claim, then proof. Claim, then proof. It was like he was on trial in a federal courtroom. Always brilliant. Robert, on the other hand, only gave a very general overview of his ideal world. I can’t recall a single economics argument that he attempted.
As a side note, Mike Norman was on fire as usual! Ha.
Mike Wright: “Murphy revealed that Austrian ‘economics’ isn’t really economics at all- it’s a moral argument.”
Keep in mind that Murphy is of the Mises/Rothbard/Rockwell branch (who embody a particularly strident brand of morality overall) of Austrianism. It can’t be said that he represents all ‘Austrians’ any more than Warren represents all post-Keynesians.
Whether there’s a complete Austrian macro theory is debatable, but they have produced a good deal of legitimate economic thought. But it’s almost entirely based on the assumptions of (a) fixed exchange rates and convertible currencies, and (b) the unsustainability of the alternatives (floating and inconvertible). As a result, they’ve little work on monetary systems like the one we have now.
The text of the Mosler/Murphy post is cut off on the right side of the frame SIGNIFICANTLY. I had to copy it and paste in a text editor.
I am using Safari.
I’m using Safari too, and it displays perfectly for me.
The reason MMT doesn’t gain traction is because it is not logical. The argument that “when new money is introduced into the economy, it dilutes the value of existing money” is very logical and not easily refuted. Inflation is a logical following of that argument.
It takes sophisticated thought to realize money is a credit (commonly received in exchange for performing labor, but there are many other ways to receive this credit as well). In a recession when credits are harder to obtain, a payroll tax holiday would have been a smart move so people would not have to forfeit their credits to pay the tax.
Can you be more specific about not being logical?
Inflation is pretty well understood, and isn’t as simple as printing a dollar causes devaluation. QE’s and a large stimulus have added plenty of currency to cause this supposed inflation/devaluation yet it hasn’t actually happened.
“QE’s and a large stimulus have added plenty of currency to cause this supposed inflation/devaluation yet it hasn’t actually happened.” Exactly my point. Peter Schiff is still getting on the airwaves and calling for hyperinflation and gets a lot of support, despite the fact that he’s been wrong for five year’s straight.
“The reason MMT doesn’t gain traction is because it is not logical.”
If MMT is illogical, then so is the gold standard. (In fact, very few Austrians seem to understand how/why/when gold standards worked; they instead invoke some mystical ‘staying the hand of government’ nonsense.)
“The argument that “when new money is introduced into the economy, it dilutes the value of existing money” is very logical and not easily refuted. Inflation is a logical following of that argument.”
When Austrians say this, they must also take the position that under the classical gold standard, gold mining was always and everywhere inflationary. Most of them won’t. It’s hard for me to think of such glaring inconsistencies as logical and hard to refute.
(I’m simplifying actual monetary operations significantly here, but for the purposes at hand, it works just fine.)
Austrians treat gold as if the supply is constant.
“Austrians treat gold as if the supply is constant.”
Right, which for being allegedly good historians (e.g., Rothbard) is completely asinine. The capital invested (and destroyed, including human) in adding to the gold supply in order to support nominal gold parity was immeasurable.
There are others, but I think this is the stick to beat them over the head with. There is absolutely nothing logical about it.
“The argument that “when new money is introduced into the economy, it dilutes the value of existing money” is very logical and not easily refuted. Inflation is a logical following of that argument.”
The Bank of England site has statistics that shows how much M4 has increased since 1963.
http://www.bankofengland.co.uk/boeapps/iadb/SimpleSearch.asp?Travel=NIx
The code is LPQAUYM
Compare this to the increase in prices over the same period.
“The Bank of England site has statistics that shows how much M4 has increased since 1963.
Compare this to the increase in prices over the same period.”
That is the depth to your economic reasoning? That……. That is all?
Not one Austrian or any economist of any brand any where has (to my knowledge) made any claim implying that a doubling of the supply of money results in a doubling of the price level.
The logic behind your thoughts is easily refuted. I don’t need to waste time doing so. Because you are using straw man arguments and pointing that out is sufficient. My goodness, is money (physical and digital) the only thing in existence that can’t be diluted?
How much did M4 increase?
How much did the price level increase?
The ‘Austrians’ define inflation as an increase in the money supply.
“when new money is introduced into the economy, it dilutes the value of existing money”
If that were true then the ‘price deflation’ advocated by many internet ‘austrians’ would be impossible.
According to these austrians, if productivity and output increases, but the money supply remains constant, then prices fall.
By the same logic, if productivity and output increases, and the money supply also increases, then prices remain UNCHANGED.
In fact Hayek advocated increasing the supply of money over time to maintain a stable price level, but many internet troll austrians are apparently ignorant of this fact.
Mises contradicted himself on this point. In some places he states that ‘inflation’ is simply an increase in the quantity of money, and that such increases inevitably create ‘price inflation’. In other places he states that ‘inflation’ is an increase in the supply of money not offset by an increase in the demand for money.
“when new money is introduced into the economy, it dilutes the value of existing money”
Likewise, when new goods are introduced, they “dilute the value” of existing goods, causing prices to fall. It’s the most basic laws of economics, the laws of supply and demand. There is no disagreement between MMT and Austrians.
When money is removed, it increases the value of existing money. There are removals of money from our economy every year, notably from net imports and private sector savings. These removals, or leakages, as Warren calls them, need to be offset in order to maintain prices and prevent deflation.
The way to counter this Austrian/monetarist position is to teach them about sectoral balances.
All the mainstream or Austrian theories about inflation are too simplistic and from the video is also clear that Murphy hasn’t any technical knowledge about the monetary system. Instead Mosler was always brillian (Murphy didn’t even understand him when he described how interest rate works in different monetary system).
Everyone should read these articles about inflation from John T. Harvey, another MMT economist:
http://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/
http://www.forbes.com/sites/johntharvey/2011/05/30/what-actually-causes-inflation/
Then you are trying to say it is a marketing problem, not illogical in anyway.
It’s a marketing problem, but how do you resolve it when the President makes comments that the country is broke and Social Security is going bankrupt? The S&P downgrades the debt of a sovereign country. A high percentage of economists believe that the US deficit is unsustainable. A very difficult marketing problem indeed.
Well maybe MMT needs that person, like Friedman was for Chicago, that could market things via videos that are very convincing. Cough, cough Mosler.
So it’s more than a marketing problem. Need some people to change their minds and others to pass away. These things take time. It would take less time if post-Keynesian economists could organize themselves into a movement, like supply siders in the 1980s and monetarists before that. But don’t hold your breath.
I agree with JP and Ian that marketing MMT is problematic, perhaps due to semantics (word selection that leads to an inability to understand) and the need for double-entry bookkeeping.
The words deficit and debt may mean the same thing for the private and public sectors, but their consequences differ if the public is a federal government with a non-convertible and floating currency that they can manufacture at no cost. I can’t see MMT getting much traction until they can convince the masses that a government deficit is often a good thing (leading to private sector surplus).
Shouldn’t debt that can be repaid with strokes on a keyboard (or the minting of a coin) be called something other than debt? Couldn’t net new money introduced into the private sector on a yearly basis be called something other than a deficit?
I do think better organization would help, and if we did what Mosler suggest by eliminating securities we eliminate the “debt” part of government spending and it becomes much easier for people to see government spending as an asset.
I sometimes get some traction when I refer to deficit spending as ‘equity creation’.
The best way I have found to get traction here, is to talk in terms of adding/removing money to/from the economy, and comparing that side-by-side with how banks do it:
Where banks add money into the economy through loans, government would add money through public spending; where banks take money back out of the economy through debt repayments+interest, government would take money back out through taxes.
It’s just a verbal statement of the ‘economy as bathtub’ picture that is often used as analogy, with the flow of water in being loans/government-spending, and the drain being debt-repayments+interest/taxes.
It’s very intuitive really.
I’ve been refining my narrative of this stuff for a while now (which is hard, especially as I have to ‘shoot-from-the-hip’ and learn new bits of MMT as I go), and I think I’ve progressed to the point now, where the only objection opponents (usually Austrian) have, is scaremongering about government misuse of money creation causing inflation (no actual substantive economic arguments against it).
There’s one part of Warren Mosler’s comments that I need help understanding. He commented that if the Fed didn’t artificially create interest rates through the overnight rate, there wouldn’t be any interest rates. I assume by this he means that the interbank lending rate would naturally drop to 0. However, in the public economy, we would still have interest rates, correct? By that, I mean that if the Fed allowed the overnight rate to fall to 0, a mortgage loan I would get would still have interest attached, right? Would banks and lenders simply figure out another benchmark (like LIBOR) to which to tie interest rates?
What the Fed typically sets is the risk-free, overnight interest rate. There are always premiums for additional risk, and for longer terms. Yes, your mortgage rate would still be > 0, and would depend on your credit score, loan-to-value ratio, and the term of the loan (30 year loans are higher rates than 15 year loans).
Call the new money introduced to the pvt sector a payment to the pvt sector, everybody can grasp the idea of payday. Stick with positive language like “aggregate private equity increase” or “maximizing economic potential” and deflect the use of the word debt always. Marketing mmt isn’t a case of proving it right it is a case of getting people to like it basically like a popularity contest. Promise prosperity like never seen before highest employment rates in history (notice not unemployment staying positive) unbridled opportunity for creative growth due to floating currency.
Most people use evidence of recessions or depressions to prove their point. How about using the monetary expenditures of ww2 as evidence for the prosperity of the 50s (a time most people point to as the most prosperous time in u.s. history)?
If economists want to blab on all day about failures or problems with past fixed exchange currency situations encourage it. Mmt should thrive on its optimism and use this distinction to market itself and broaden appeal. After all mmt is an accurate description using accounting principals of how our monetary system operates and the assertion that our real world economic problems can be solved with a simple understanding of how it works. The only thing stopping us from having everything we want is choice….
I’ve suggested calling the deficit “net government demand”. When it is negative, or even too small, somebody else has to make up the difference, and that can only be the foreign sector (more exports or less imports) or the private sector (more spending, funded by either more borrowing or less saving). We can’t influence the foreign sector much without annoying them and starting a trade war, and private sector deficits are unsustainable. Government must keep its net demand right-sized, to ensure that neither inflation nor unemployment is painfully high.
Net Government Demand is not such a charged term as those suggested above, and carries no connotations, positive or negative. Excessively positive terms suggest an agenda which has a negative influence on some people in the same way that “deficit” has. “Deficit” is always bad and should be eliminated. “Maximizing economic potential” or “private equity increase” is always good, and such terms suggest no practical limit, and we all know that there is a practical limit. Net government demand might be too high or too low. It is something that needs to be optimized, not eliminated or maximized.
Just emphasizing that inflation is the only limit and we can be proactive when indicators are showing excess demand by trying curb it with fiscal or monetary adjustments. I just feel that unemployment should be the paramount indicator because keeping it minimized allows everyone to participate in the real economy even when the financial sector over leverages and needs to adjust. Floating exchange governments are the only counter cyclical force capable of making the proper adjustments.
I like that term net gov demand.
How about calling deficit simply a “wealth add”? Net gov demand sounds technical, not so easy to understand and sounds like goverment is demanding something. =)
But who would be against govt increasing wealth of it citizens? Moreover it implies that this new wealth get spend by private individuals, not the government.
“How about calling deficit simply a “wealth add”?”
Seems to me that confuses the numbers on a scoreboard for the actual plays that produced them?
To add my observations of Bob Murphy, it seemed he equivocated on two key comments brought up by Warren:
1) The financial(banking) sector is too large relative to the rest of the econony. So fix it by shrinking and tightly regulate.
2) Markets aren’t clearing so price equilibrium will never be reached. That’s because there is a monopoly currency issuer who is not providing enough units of exchange (US$). His example of 25 people needing his business card to get out of the room was great. If he only provides 20, then 5 people aren’t going to get out ever unless 5 more business cards are provided by Warren to clear the market. Bob never addressed how do get those other five people out of the room.
Bob seems to always wants to throw the baby out with bathwater rather than just looking at ways to add more water.
bob tried to zero in on what he felt were specific problems and hinted at theoretical solutions but no practical plans. Warren made claims to effect change with subsequent logical explanations.
I don’t support MMT’s full FICA holiday because some of the tax relief would go to the rich.
How about if it is accompanied by the promise of the next income tax increase (whenever it may become necessary) affecting only those incomes above the former FICA earnings cap? There is no “perfect” tax policy.
The “rich’? Most people that are rich don’t earn income in the way that FICA would effect them.
While a FICA holiday is a way to address poverty, it’s not the best way. It would be preferable to increase the Earned Income Tax Credit
Can you expand on that?
Seems to me payroll tax is an effective aggregate demand lever, while poverty is best addressed through employment (FICA having only a marginal–and depending on how it’s used, temporary–impact on employment income).
Yes, my rule of thumb is that if you’re rich, you don’t have to work. Still, there are a lot of people making more than $108,000 of wages, and they are not the ones who need this tax relief, and not the ones who would help the economy the most (by spending it) if they got it.
Arturo, a full FICA tax holiday would boost aggregate demand. However, some of the tax relief would be wasted on the rich who already spend however they like.
Conversely, an expansion of EITC would be targeted at only the working poor.
Those most in need of help are not the working poor, but the non-working poor. The Job Guarantee is the best answer to poverty. Arguing FICA vs EITC is hair-splitting over which is 2nd best. Eliminating FICA may be better for the economy (it has bad effects on employer incentives as well as on incomes), while EITC may be a more effective income equalizer.
Tyler Healey said,
“While a FICA holiday is a way to address poverty, it’s not the best way. It would be preferable to increase the Earned Income Tax Credit”
This would help those poor who have a job but would do nothing for the unemployed.
Along with a permanent Job Guarantee Program, I favour shifting the tax burden off work and other productive endevours and onto income earned by privilege in the form of a tax on Economic Rents.
In my homeland of Canada, less than 1% of tax filing Canadians earn more than $250,000 per year.
An income tax policy requiring only those earning more than 250k per year to file would effectively eliminate income taxation for more than 99% of Canadians.
It seems to me that this would be an extremely popular proposal bound to garner support for any politician smart enough to endorse it.
Is your last name George??? 😉
“Net government demand” sounds good to us, but we need to make it more laymen still.
Yes, it’s a little bit wonky, but there’s a hit comedy show about quantum physics and string theory, so it can’t be that big an obstacle.
There are three sources of demand: private sector (you and me), foreign sector (negative, because we have a trade deficit), and government. If you want to control the economy, the lever is government. Government spending is demand, taxing reduces private sector demand. The goal is that total demand should equal total production capability at full employment. No more, no less.
I don’t think that is anything that the average high school economics 101 student can’t understand.
Many thanks for the helpful responses.
JP – “by eliminating securities we eliminate the ‘debt’ part of government spending” would clearly solve the problem, but I can’t see eliminating government securities in my lifetime. A winning idea on logic and solves the semantics problem, but probably not a practical solution.
Mike – “equity creation” has been a favourite of mine, but I hadn’t seen it suggested elsewhere, so thanks. I feel the private sector would get it since they know a corporation must issue new share certificates (which they can create with a keystroke) when they want to invest and increase production. Issue too many shares and the price per share collapses. Issue too few shares and the company misses opportunities (an output gap if you wish). So the question then becomes,”what’s the right amount of dollars/share to issue”?
But how can we re-name debt as equity without the public thinking sleight of hand? We’re back to JP’s solution above as an initial necessary step.
Brandon – “a payment to the private sector” while technically correct, unfortunately uses the word “payment” which is similar to “spending” and may invite the big-government profligate overspending criticism.
Golfer1john – “net government demand” gets close to a solution I think but I feel the word “demand” would be a lightning rod for those claiming that government demand is in competition with – and thus takes away from – private sector demand. That is, what the government demands, the private sector can’t have. Not suggesting that is reality, but perceived.
But your sectoral balance (private/foreign/government) zero sum Econ 101 suggestion is perhaps the key to broader understanding. Does anyone know why MMT hasn’t been a more vocal proponent of Wynne Godley’s sectoral balance equation and re-worded it slightly?
Private sector net savings = Government net equity created (dollars – taxes) + Current Account balance.
“what the government demands, the private sector can’t have.”
That IS reality. It’s the crux of the debate between big and small government. But net government demand can be increased by reducing taxes and/or increasing transfer payments, which actually increase private sector demand. It doesn’t have to be by increasing the resources consumed by government.
“’what the government demands, the private sector can’t have.’
That IS reality. It’s the crux of the debate between big and small government.”
It’s more nuanced than that though, don’t you agree? e.g.
There are things that govt is best provisioned to provide at at least a basic level–education, social security and other safety-net features, defense, R&D in the public interest (e.g., USDA), etc. If anything, those large scale assurances (and in some cases investments) support greater possibilities for private sector productivity, consumption, leisure. In other words, public purpose and the profit motive aren’t always at loggerheads.
And perhaps most important is when the govt effectively manages externalities in the private sector; e.g., govt can demand that the harm that some agents in the private sector are willing to do to others *not* occur?
Arturo,
I wasn’t attempting to argue the benefits or costs, just to point out the fact. The guy working for the USDA is not available to work at Johnson and Johnson to develop a vaccine. The concrete used to build an interstate highway is not available to build a hospital. Often, there are enough resources to do both, but not the same resources. The more resources government consumes, the greater the chance that there will not be enough of that resource to satisfy the private sector demand for it at the current price. And vice verse, of course, but the responsibility for the balance resides with government. There are, of course, widely accepted roles for government, else government (by the people, at least) would not exist at all. Some of the roles you mention are widely accepted.
Understood that you didn’t get into benefits and costs. My point was that it’s far more nuanced than your initial statement, which was pretty binary.
Running with your USDA vs vaccine example, it’s not clear that the private sector would be doing vaccine experiments if the federal govt hadn’t jumped into the R&D that gave us the Salk vacc, for example. Al Gore’s Internet, railroads, canals, the list goes on. (Also has plenty of diasters on it, e.g., relocation of large groups of people, internment camps, gerrymandering, etc.)
What I’m trying to get at is (1) govt can demand resources that are otherwise idle (think we agree on that one) and (2) govt can direct resources, directly or indirectly, in ways that are different from what the private sector left alone would do; a five-day work week, for example, and at some point in the future, the ability to obtain health coverage regardless of your medical history. Is #2 always a form of crowding out? Not always, imo. (Although the risk is probably higher when policymakers think a sovereign govt can go bankrupt.)
A lot of other dimensions to this as well. I don’t mean to get into a discussion of value judgments; just pointing out that, like relationships, govt demand is complicated.
“How can something be technically correct, and also be misleading?” I think Murphy did a pretty good job of answering this question. But I’ll try an example. Suppose I were on the board of a private corporation. I might say, “This corporations assets are exactly equal to the combination of its liabilities and its equities, which is exactly as it should be.” I would be making a technically correct point about how balance sheets are composed. As a trivial matter of accounting that will always be the case. It does NOT follow that we have just the right amount of assets in any substantive sense. Depending on the context, I might be leaving the impression that we don’t need to acquire any new assets, not should we sell any of those we have, because we have just the right amount as it is. If so, then my statement would be technically correct and misleading. And that is quite analogous to Murphy’s point about MMT in general.
I do agree with the points you made in your opening remarks. These two gentlemen were both civil and intelligent representatives of their respective points of view, and in order to define the post-Keynesian world, in order to get beyond the blind alley of Samuelson and Krugman, we ought to hope for more such exchanges.
I think the best rhetorical point that Mosler made that Murphy failed to grasp, or the biggest rhetorical failing of Mosler’s that Murphy was able to counter (depending upon your prejudices coming into the debate) was Mosler’s often repeated “business card with the gun wielding taxman at the door” analogy. I think it’s a brilliant illustration, because it really reduces down the essence of not only what state-money is, but also what taxation and government are. But from Murphy’s Austrian POV (and the libertarian or anarcho-capitalist POVs), there’s really no distinction between the gun wielding tax man and the gun wielding mugger.
When Murphy kept bringing up the Austrian trope trying to distinguish the “economics” from the “politics”, I kept rolling my eyes. His entire basis for disliking state money seems to be rooted in the *political* notion that any coercive governance and thus taxes are immoral. But Murphy’s rhetoric plays well to your right-of-center average Joe. I don’t think that’s because most conservative Americans are anarcho-capitalists, but simply because they haven’t connected the dots yet. If you accept that there is *any* proper role for government, then you must accept *some* system of taxation. Once you’ve accepted taxation as a necessary evil, then chartalist money is unavoidable, and MMT does far and away the best job of describing the mechanics of state money.
I subscribe to the notion that government should be constrained to promoting the public purpose only where that supersedes private purpose, which in some cases means a very small government and in others a slightly larger one. It is a very tricky thing to tease out the correct boundaries, but also a political determination (and irrelevant the main point of my comment). More importantly, I (and the vast majority of people on all ends of the political spectrum) do believe that there should be *some* government, and that government should be *effective* at what it is supposed to do. Now we need to persuade people that there is absolutely *no way* of having an effective government without provisioning real goods and services from the private sector, and that some sort of progressive tax system is the *most just* way of provisioning said goods and services. It sucks that tax collection has to be done with the threat of force, and it sucks that those holding the reigns of government (like *any* power structure) can pervert and corrupt that threat of force to selfish and nefarious ends. But an ineffective representative democracy doesn’t mean no government, it means that governance will be seized by the powerful (society abhors a power vacuum). So tax collection for a representative democratic government is the least sucky alternative.
If we want our debates or persuasive essays to reach the majority of Americans, we’re going to need to frame things in a way that aren’t immediate shut-down triggers for the right-of-center. Murphy’s analogy between the tax man and the mugger makes intuitive sense to a lot of Americans today, and Mosler’s gun-toting tax man plays into their fears.
Also, I have to admit that I was pleasantly surprised that Murphy didn’t once use the word “hyper-inflation” or reference Wiemar or Zimbabwe. Or did I miss it? He did hint at printing press money being inflationary, but he spent far more time talking about the importance of the “market setting the interest rates” and government interference therein. Is this different emphasis because of a distinction between Austrian vs Chicago/monetarist schools of thought?
“Is this different emphasis because of a distinction between Austrian vs Chicago/monetarist schools of thought?” I’ll try to answer this.
Yes and no. (Promising answer so far?)
Chicagoans themselves accept fiat money as a given, and in that respect are closer to Mosler. The Friedmanites do argue that sometimes the government fails to supply ENOUGH money — that was key to Milton Friedman’s view of the Great Depression. But also in their view the government can err in the opposite direction, as illustrated by Weimar etc. You would have heard that point in such a debate.
Austrians are against fiat money altogether and don’t believe there is a right way to execute it. On the other hand, there are Austrians who would have been much more eager to play the Weimar card than Murphy was. Murphy wanted to make the case for commodity money.
Some of the Moslerian responses to this debate seem me to say that Murphy was out of line in referencing the possibility of commodity money, because that’s a :”moral case” rather than an “economic case.” But of course Murphy doesn’t see that as a tenable distinction, and whether you believe he won or lost depends on whether you do.
“But from Murphy’s Austrian POV (and the libertarian or anarcho-capitalist POVs), there’s really no distinction between the gun wielding tax man and the gun wielding mugger.”
The distinction is that the tax man has the sanction of the people, and the mugger does not. Libertarians, above all, recognize this. As you say, nearly everyone – meaning everyone except anarchists – accepts that there is a legitimate role for government. Restraining the muggers is one of the most important, for libertarians at least.
But taxes created money in the first place. Without taxes there would be no universal medium of exchange and we would be reduced to barter.
So it is illogical to say we should not tax money when without tax there is no money.
“taxes created money in the first place”
Overstatement? Taxes can enforce the demand for money.
Yes, the idea that taxation “creates money” is integral to chartalism in all its forms and a weakness. Intuitively, it is clear that there would be a market for a universal medium of exchange even were there no state and no system of taxation. That is why everyone starting to study economics gets a lecture at an early stage about the “double coincidence of wants” after all.
http://www.economicshelp.org/dictionary/d/double-coincidence-wants.html
“the idea that taxation “creates money” is integral to chartalism in all its forms”
Sounds like an overstatement as well?
I watched this debate and am surprised that some folks believe Mosler won. As an Austrian, I found that Mosler did not at all address the most fundamental concepts of Austrianism; i.e. the importance of the price structure as well as the coordinating function of the rate of interest in deciding how capital/labor intensive an investment ought to be. At one point, he even denied that commodities today trade at a premium to commodities in the future– and in doing so denied that there is a natural rate of interest.
Indeed, what Mosler said is correct. He describes the financial system as it is today in a world of floating exchange rates. This in no way invalidates the Austrian Theory of the Business Cycle. It was my understanding that Mr. Mosler claimed that the business cycle is an issue inherent in capitalism– though he said the Austrian Theory was applicable during the period of fixed exchange rates (I am discussing of course Hume’s price–specie flow mechanism). While detaching a currency from the gold standard can do away with specie outflows (and the resulting monetary contraction) from the country, it does not do away with the discoordination in the capital structure created by an artificial increase in the monetary supply. If detaching the currency from a commodity standard is enough to avoid Hume’s price-specie flow mechanism which had in the past caused recessions, then why do they continue?
If MMT is unable to answer this question, then the only answer is that capitalism is an inherently flawed system, which leaves too many holes in the theory.
MMt describes how our economy functions, I don’t see how capitalism being inherently flawed leaves holes in MMT. They are entirely separate.
In regards to interest, even Murphy has explained how interest rates are purely a monetary phenomena:
“In taking a monetary theory of the interest rate, Murphy is far closer to Keynes than the views of many of his fellow Austrians, and indeed in his blog post above he cites Keynes’ remarks on interest in Chapter 13 of the General Theory with measured approval (Robert P. Murphy, “Is Keynes from Heaven or Hell,” 7 July 2011).”
http://socialdemocracy21stcentury.blogspot.com/2011/07/robert-p-murphy-on-pure-time-preference.html
Do people who adhere to MMT believe that capitalism is inherently prone to boom/bust cycles?
Now, in reference to Chapter 13 of Keynes’ General Theory– Keynes discusses the interest rate as something that is created on a micro scale and in doing so implies macro consequences. He takes into account an economic actor’s time preference (for present/future consumption), as well as the demand for a cash balance to hedge against uncertainty in future expenditures. Both of these do affect the natural rate of interest, in agreement with Austrians.
Indeed, the interest rate is easiest described as a monetary phenomenon, though in truth it is indicative of an individual’s preference for present to future commodities. While I would defend much of Keynes’ descriptions of the interest rate in Chapter 13 of The General Theory, I would not defend his prescriptions for manipulating it.
It seems to me that the MMT’s do not believe in time preference. If there is no interest rate indicating the relative price of land, labor, and capital over time, how can the capital structure be adjusted by entreprenuers such that a path to sustainable growth is realized and malinvestments do not occur?
Edward, http://moslereconomics.com/wp-content/graphs/2009/07/natural-rate-is-zero.PDF should explain Mosler’s response to your questions regarding interest rates (on reserves or treasuries). He said a reduced version of this during the debate but didn’t give it enough details or context to be persuasive, probably due to time constraints. Anyway, there would still be interest rates set for you or me or a business whenever we take out a loan, at market rates set according to time preference and risk.
I am not satisfied with any of your answers– and to say that the natural rate of interest is 0% because an issuer of fiduciary media does not need to issue bonds does nothing to counter fundamental economic arguments. If the MMTs continue to fail to address these issues they will remain outside the realm of serious debate.
Edward, did you read Mosler’s paper? In it, he says that absent Treasury sales of bonds, the interest rate on interbank short-term lending would be 0%. The only thing that drives the rate above zero is the selling pressure from the Treasury.
Since Treasury only sells bonds because the government has decided it wants to do it that way, it is not a necessary or mandatory situation, it is an interference in the free market.
“commodities today trade at a premium to commodities in the future”
That is certainly not a universal phenomenon. I’m no commodity trading expert, but I do know that there are two conditions in commodity futures markets, called contango and backwardation. One indicates a higher future price, the other a lower future price, and both are common occurrences. If I recall, contango is the more frequent condition, and it indicates a higher future price, and normally the difference is more related to the storage cost, although the interest rate also plays. But it’s some risk-adjusted interest rate, not the one on overnight interbank lending.
The business cycle is in reality a credit cycle.
The problem lies in the fact that while debt grows exponentially, the real economy does not, growing instead in an s-curve.
This means that debts always mounts up faster than the ability real economy to service them. Eventually this reaches a point where the debts cannot be paid and the only question that remains is how won’t they be paid.
The answer to this is political not economic.
No one is trying to “satisfy” you. We are just explaining how things occur. Many of us here are not satisfied with certain economic/political realities, but denying it based on it being “unsatisfactory”, borders on the delusions that Hayek supposedly suffered.
http://www.nakedcapitalism.com/2013/01/philip-pilkington-the-origins-of-neoliberalism-part-i-hayeks-delusion.html
Mosler is not just “explaining how things occur.” He is making various proposals that depend on a view of what ought to be the case. His take on “how things occur” is intertwined with various ought statements such as that there ought to be full employment, that the government ought to spend to produce this, and so forth. That is fine — I don’t believe that any really sharp distinction between is and ought is possible in the human sciences. But if your own views are infused with oughts, you cannot rule out other oughts — views on the superiority of, say, commodity money simply with the sweeping claim that they involve an ought. The proposition that the things that dissatisfy you about present economic/political realities have a lot to do with the fiat character of money, and that the fiat character is a historical choice that can be reversed: that is a proposition about how things have occurred. And one with which Mosler for the most part avoids wrestling.
http://allaboutalpha.com/blog/2013/06/19/more-on-the-post-keynesian-smackdown-subway-tokens-edition/
And ad hom, re: Hayek? — that’s rather far beneath the rather high tone of civil discussion that the debate itself displayed.
Where exactly did Mosler make any “ought” argument about interest rates? If we are talking interest rates here the fed raising interest rates is the only “intervention” that the feds can do. Keeping interest rates at “0” allows the market to freely determine interest rates.
As for the ad hom you claim:
Delusion:
“An idiosyncratic belief or impression that is firmly maintained despite being contradicted by what is generally accepted as reality,…”
I don’t see how trying to argue for commodity backed policies in a fiat economy is not a contradiction of reality.
I understand the way that Mosler views the monetary system, and how he believes it should function (and could function– albeit with dire consequences). I believe we are having two different conversations.
I am asking:
How does the MMT explain boom/bust cycles?
Does the MMT suggest that savings must necessarily precede consumption or investment?
If the interest rate on money is fixed by some entity, does this or does this not affect the inputs chosen by entreprenuers on longer, more interest rate sensitive, projects? Specifically, does the MMT suggest that the rate of interest may affect how capital/labor intensive a long term project will be?
JP– the link you offered suggests that, by the 1930s, Hayek’s economic theories had fallen apart. It seems strange that he should win the Nobel Prize in Economics in 1973 for his “Prices and Production,” which was compiled as the result of a series of lectures given in the early 1930’s.
“How does the MMT explain boom/bust cycles?”
I’ve never seen this addressed. Boom/bust cycles are an artifact of the real economy (usually – there are also bubbles that can be caused by primarily monetary phenomena, like what peaked in 2007). Absent MMT-style management of the government’s budget, the automatic stabilizers inherent in our tax system and social welfare laws tend to cause a cyclic behavior.
“there are also bubbles that can be caused by primarily monetary phenomena”
I’ve started to doubt that explanation after writing a paper on the FCIC report. Seems to me it arose from a toxic mix of competitive pressures, credit demand, lack of oversight, excessive financial innovation, and perhaps most importantly, what Bill Black refers to as control fraud?
The “ought” criticism is fair. Mosler and a lot of other post-Keynesians start from the objective of full employment. (I would have disagreed with it until our household lost two full-time incomes in the space of less than three years for reasons that had nothing to do with performance.)
“Seems to me it arose from a toxic mix…”
Yes, Arturo, but all those are monetary (financial) or regulation and criminal enforcement issues, not issues of production in the real economy.
The traditional cycle involves rising production until capacity exceeds demand, and then falling sales, layoffs, etc., which result in rising government spending and falling tax receipts until demand bottoms out and the next upswing begins.
I don’t think MMT will end business cycles, but the JG will better mitigate the bad effects of the downturns, and be a more sensitive and effective automatic stabilizer, as well as a better barometer than the current unemployment stats. And understanding of MMT by policy makers will result in more effective policy adjustments as the cycles continue.
“Financial” works for me. Thought you were saying the Greenspan Fed being ‘too low for too long’ was the primary cause.
No, I think mortgage fraud was the primary cause, but low interest rates didn’t help, and the repeal of Glass-Steagall enabled it to spread farther than it needed to.
Arturo,
Thank you for acknowledging that my comment on “oughts” was fair. I’ll repeat it here because Mr Hochbaum may have missed my point. Either one is going to (try to) take a consistent positivist stance in economics or one isn’t. That would include being positivist, not normative, about such things as the rate of employment. The chartalists, to their credit, are not positivists. So they shouldn’t retreat behind positivism when contending with the claim that commodity-based currency is a good idea. I simply observed a tendency among some, including Mosler, to brush such claims aside with positivist slogans (as if to say: nobody here but us neutral observers of the workings of a fiat system.) Sorry, no sale.
As for ad hom., changing the subject to the charge of “delusional” third parties certainly qualifies, and I appreciate the fact that neither Mosler nor Murphy acted like that.
Here’s my source: http://www.nizkor.org/features/fallacies/ad-hominem.html
Chris,
In the context of the argument with Edward we were referring to “natural rate of interest” in a floating exchange rate, we weren’t discussing “oughts” here for policy proposals.
This is where I brought up the delusion comment, it was never in reference to you or your argument.
The Nobel Prize for economics is a farce. It is not endorsed by the Nobel family and was introduced in the 1970’s by a Swiss Central Bank in honor of the Nobels. The Nobel in Econ just gives people the ability to use the appeal to authority fallacy, in which the Swiss actually had no authority to do so.
“If the interest rate on money is fixed by some entity, does this or does this not affect the inputs chosen by entreprenuers on longer, more interest rate sensitive, projects?”
The only government intervention on interest rates is when the central banks raises rates for commercial banks to borrow. Commercial banks then determine interest rates based on market conditions. So the natural rate becomes “0”, since that is the point of the removal of government intervention on interest rates under a fiat system.
JP– not only am I unimpressed with any answer I’ve seen on this page, I am also becoming disillusioned by the Modern Monetary Theorists… I don’t know if I am talking to the wrong people? I’m looking for an educated Modern Monetary Theorist who can answer my questions.
If the “natural” rate of interest can be fixed at 0%, what “market conditions” (aside from the risk premium) would be taken into account in determining the rate of interest? Is there or is there not a scarcity of loanable funds, and if so, what determines that scarcity?
If there is a scarcity that constrains bank lending, it is the capital requirement. That is a situation unique to individual banks, and the vast majority of banks have more than sufficient capital to make loans.
The market conditions besides the creditworthiness of potential borrowers would be inflation expectations over the term of the loan.
So you guys don’t think inflation has an effect on the capital structure at all?
Unless your aim is simply to be provocative, a lot of the answers you’re looking for are readily available here: http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
And to all of you claiming a ‘natural rate,’ (which Wicksell famously called a ‘humble’ proposition when he rolled out his version, and for which Bohm-Bawerk took plenty of flak from his fellow marginalists) start with Murphy’s own opposition to the idea. Someone already linked it here.
Edward – “If the “natural” rate of interest can be fixed at 0%, what “market conditions” (aside from the risk premium) would be taken into account in determining the rate of interest? ”
I think there is some confusion about what interest rate people are referring to.
Usually people are referring either the interbank rate or the rate on government bonds.
First, there are broadly two kinds of government debt, interest bearing (various government bonds) & non-interest bearing (money, USD, CAD, etc).
For any nation that issues its own floating rate currency & denominates all its debts in that currency, there is no functional need, operational requirement or obligation to issue interest bearing debt at any rate.
Its issuance is completely optional or voluntarily imposed.
Thus Federal Government interest bearing debt & the rate at which it is issued, only exist because of intervention by the government.
It should also be noted that Federal interest bearing debts are risk-free, non-productive as well unnecessary.
The other interest rate that is often meant is the interbank rate (denominated in government money; USD/CAD).
This is rate banks lend to each other, those banks with excess reserves lend to those that are short.
If the banking system on whole has excess reserves the interbank rate will fall to zero unless the government intervenes to drain reserves.
If the banking system on whole is short reserves, it will remain short no matter how high the rate goes, unless the government, being the sole source of reserves, intervenes to provide them.
Bottom line: Both these rates exist only because of government intervention & thus make your question nonsensical.
Edward – “Is there or is there not a scarcity of loanable funds, and if so, what determines that scarcity?”
No, loanable funds model is not applicable to our current monetary system.
Banks do not loan savings. Rather loans create deposits.
There is no scarcity of loanable funds, banks can always make loans.
The government can only set price not quantity.
Banks make loan able funds scarce by their own interest rates. (Typing from iPhone sorry for short reply, will get back to this in 8 hours or so).
I finally was able to listen to the edited version in its entirety, and my main impression is that I miss William F. Buckley, Jr. I thought the moderator was weak, and did not keep the participants on point, letting them avoid answering questions and launch instead into their “party line” presentations. I guess, given what passes for “debate” today in our election process, this is not surprising.
I will say that Murphy avoided the questions more than Warren, but Warren, too, assumed too much knowledge on the part of the audience, at least in my case. The FX traders in the audience probably thought it was axiomatic when he stated that shorting the $HK would raise interest rates (presumably only in Hong Kong banks? – but that was not mentioned) , but it is not at all clear to me why that would happen, and I think it would have been very enlightening to hear Warren explain that “channel” and see what Murphy thought of it, and for the two of them to discuss why it would not happen to the yen or $US, and what that means for policy. I fault the moderator for not making that happen.
Warren asked a couple of times for Murphy to explain “channels”, and he didn’t. I’d sure like to hear Murphy explain how lower deficits and higher interest rates would help us out of our current low-growth, high unemployment situation. I’ve never before heard any economist say such a thing, and the moderator let him get away with it without explanation.
I would like to have the moderator ask much shorter and more specific questions, known in advance to the participants, perhaps some of them suggested by the participants both for themselves and for their opponent, and keep following up on them until he, at least, was able to understand and repeat the answer in 25 words or less. Questions from the audience could have been submitted during the show by text message, edited and selected by staff (speeches by audience members are most boring, almost always off-topic). All the questions could be put up on a projector, displayed at both the front of the room (for the audience) and the back (for the participants, to help keep them on topic), and the moderator should curtail any wandering comments. Knowing the questions in advance would give the participants confidence that the things they wanted to talk about would be covered, they wouldn’t have to jump off the track to address them. If they insisted, the participants could have opening and closing statements, but the body of the debate should have been to address the specific, pre-selected questions. There was certainly plenty of time.
And I get the impression that some of the most interesting discussion took place between the participants out of range of the microphone. I would have liked to hear that.
The microphones should have been clipped to their lapels, so that the sound wouldn’t disappear when Warren turned his head to look at the moderator. Maybe that’s beyond the skills of the venue and sponsor. If you could get the people from a Sunday morning talk show to do these things they wouldn’t have problems like that.
I’m hoping for another round. They both professed a willingness.
” I’d sure like to hear Murphy explain how lower deficits and higher interest rates would help us out of our current low-growth, high unemployment situation”
Pretty ignorant comment. You don’t need government to save. You don’t need government to create jobs. Increasing S-I is just playing with accounting. How can you rail against Austrian economics and seriously have asked that question? The simple answer is nothing. Did the US economy collapse in the 2nd half of the 19th century?
This is why Murphy says “Technically true, but it doesn’t mean anything”. It is true that you can increase S-I……. and? It is true that you can’t spend a Keltoni without it first being spent into the economy…… and? If I don’t go into deficit then the world. excluding me, will not acquire net financial assets. and?
It is the policy prescription that is debatable not accounting gimmicks. You want more spending whilst allowing private sector to collectively save more than they invest. Mkay? The quantity theory of money is a very simple formula. If the gov’t doubles the USD, then it has instantly taken 1/2 of the purchasing power. So why not drop the Nominal lingo and talk in real terms? If you create inflation, then the holders of the existing stock still were taxed. They still lost the ability to buy lettuce, just as a tax would have! You are arguing for the government to be in command of resources it was once not in command of. This is true when printing or taxing. The same is true(not highlighted) in the nation of Keltonia lecture.
Economies grow when the average standard of living goes up. I.E. I can now buy more stuff with my income(not necessarily per dollar). Are savings really savings as MMT defines it? no. What is MMT’s answer when we have stagflation? MMT says that Inflation is THE constraint. So what then? MMT relies on there being efficient use of purchasing power by the newly created USD. To keep inflation down, # of goods and services must increase at rapid rates. MMT admits that policy makers (congress) will vote on how to use the funds. Self-defeating?!?!
Why is it morally wrong for us to create new USD, but not the gov’t? “just because” isn’t a viable response. Everything MMT want is met by private counterfeiting . There are still inflationary controls that can be employed (consumption tax). “because MMT describes how the U.S. IS.” Why apologize for a bad system and then embrace it? You want more spending? You will get it when prices come down. You want more employment? Let wages fall to levels appropriate to clear the market.
“The quantity theory of money is a very simple formula. If the gov’t doubles the USD, then it has instantly taken 1/2 of the purchasing power.”
Except that never actually happens.
“However, this relation is not proportional. Our second finding is that this strong link between inflation and money growth is almost wholly due to the presence of high-inflation or hyperinflation countries in the sample. The relation between inflation and money growth for low-inflation countries (on average less than 10% per year over 30 years) is weak, if not absent” (De Grauwe and Polan 2005: 256).”
http://socialdemocracy21stcentury.blogspot.com/2010/07/quantity-theory-of-money-critique.html
That is because all else isn’t equal. Factually it is still true. We can see this everyday when a public company issues a forward split. This doesn’t change the distribution of purchasing power though. If a public company has 1 million shares outstanding, and it is entirely owned by the public, then a company issuing 1 million new shares for use thus takes 1/2 of the purchasing power from the existing stock of shares. Owners of the stock may approve of this so that the company can finance and hopefully use the proceeds productively. This is not to say that it didn’t have a cost.
So yes, it is correct that we never see it this cut and dry in terms of sovereigns. But that doesn’t discount the facts laid out above. The creator of the new currency is using it to use resources that it otherwise couldn’t have previously. Doubling the stock of currency overnight does not increase goods and services by 2x overnight.
If the monopoly issuer has the power to take $1 and turn it into $1.1 worth, then this is viable. Taking $1 and turning it into $.9 is not. MMT relies on the hope that policy makers will, on net, use the newly acquired purchasing power wisely. And MMT’ers will readily admit that inflation is their constraint. It is important to note that it is theoretically possible for net deflation, and net inflation to occur under their regime. It depends on how resources are employed, money velocity, etc. Net deflation still does not mean that MMT policy (in and of itself) did not decrease wealth, and the inverse is true. For me, it is easier to look at what politicians would do with MMT monetary policy. Just imagine if Krugman was deciding vote….. imagine all of the imaginary alien invasions we’d be preparing for.
Thank you for your thoughtful reply.
“So yes, it is correct that we never see it this cut and dry in terms of sovereigns. But that doesn’t discount the facts laid out above. The creator of the new currency is using it to use resources that it otherwise couldn’t have previously. Doubling the stock of currency overnight does not increase goods and services by 2x overnight.”
You are using a business, who has no ability to increase it’s goods and services overnight (without magical demand appearing) to that of a sovereign government who can purchase idle labor and produce the goods and supplies to offset currency issuance.
So if it is technically correct that it is never this cut and dry, then we should not actually say it actually exists.
” MMT relies on the hope that policy makers will, on net, use the newly acquired purchasing power wisely….For me, it is easier to look at what politicians would do with MMT monetary policy. Just imagine if Krugman was deciding vote….. imagine all of the imaginary alien invasions we’d be preparing for.”
MMT relies on the private sector, not the government sector to determine where purchases go. MMT just uses idle labor to hire them to do things (anything really) and that laborer then spends on the goods and services that the private sector offers them.
“You are using a business, who has no ability to increase it’s goods and services overnight (without magical demand appearing) to that of a sovereign government who can purchase idle labor and produce the goods and supplies to offset currency issuance.”
A business can do the same thing. The logic behind it is exactly the same. An entity now has purchasing power that it before didn’t. It can then employ this new purchasing power how it sees fit. Just as there is no difference in market capitalization in a company that issues a forward split compared to a new share issuance in which they exchange those new shares for $, or assets. What will change the market cap. is the prospects of that company. Will this decision be used to further the business model and eventually reward shareholders or not. If not (for sovereign) in worst case scenario, the owner of goods and services refuse to exchange for the currency.
I pay Frederique $10 to grow lettuce. He grows one. I pay Maria $10 to grow lettuce. She grows ten. In both cases I have employed idle labour. Society should prefer Maria. Everyone benefits except others that grow lettuce. In both cases, each recipient used that $10 to buy seeds and fertilizer. The only difference is goods produced. (We will say that 5 produced heads of lettuce is the break even for no inflationary effect.)
“MMT relies on the private sector, not the government sector to determine where purchases go. MMT just uses idle labor to hire them to do things (anything really) and that laborer then spends on the goods and services that the private sector offers them.”
Government must spend it into the private sector first, no? Then you look at what happened in Spain when large amounts of gold flooded into the market in the 17th century.
“Pretty ignorant comment.”
Nice opening. You can do better. Try to at least follow Murphy’s lead.
“You don’t need government to save. You don’t need government to create jobs. Increasing S-I is just playing with accounting. How can you rail against Austrian economics and seriously have asked that question? The simple answer is nothing. Did the US economy collapse in the 2nd half of the 19th century?”
Read up on the Long Depression and Witwatersrand 1896. Bimetallism didn’t come out of a vacuum. It was only when gold mine ‘deficits’ were finally large enough that bimetallism became a non-issue with the electorate. In fact, read up on the entire century. I know Austrians like to invoke the old time religion of purging, but fact is, many of the financial crises and depressions of the 19th century were associated with periods where new gold was in short supply.
Sovereign deficits are today’s analogue to yesteryear’s gold mine output, *except* that we don’t need to wreck entire civilizations and misallocate (malinvest???) human and other resources to bring the stuff out of the ground in order to remedy debt-fueled deflations that arise from shortages of NFAs. (Before you launch into a tirade regarding over expansion of private-sector credit, please note that a lot of post-Keynesians already agree on that basic point. What to do about it is another matter, but not all that relevant to your reference to the 19th century.)
This deflation myth has already been exploded. Look at 19th century CPI vs 20th century CPI. What looks more predictable? What is easier when entering into long term contracts? “Evil deflation” is causing Japan’s woes?
Please don’t imply correlation implies causation. I can just as easily blame its woes on monetary and fiscal policy to combat deflation. Then all of the liars claim Japan is a deflationary spiral(of less than (1% YoY delation, much less actually).
An economic downturn following a tightening of credit etc is not proof of anything. You can childishly blame a the headache on the hangover or rightfully on alcohol. Most of all of this proof from demand-siders can be used against them when looking at previous crises. Deflation is bad (except when it isn’t). Austerity is bad (except when it isn’t)
I am no apologist for crises. Every monetary system has flaws. These flaws tend to be exploited by those in power. A system of competing currencies can still fail with a federal government that remains too powerful. Just like MMT prescriptions will fail if congress is anything like it has been for hundred’s of years.
I wasn’t aware that I was “railing” against anything, except the moderator.
Please, assume no specific knowledge on my part (I don’t understand much of what you write), and explain what sort of policy changes are appropriate now, and why. For instance, should taxes be raised or lowered, and what would the effects be? (My answer is that if Romney’s tax cut were enacted – a very MMT-centric view – we’d be far better off today.)
This is a good article that summarizes, but also pushes back against austerity
http://www.financialsense.com/contributors/michael-shedlock/intellectual-dishonesty-and-insanity-on
Don’t let ANYONE tell you that Austrians claim an IMMEDIATELY prosperous economy by enacting our prescription (or lack thereof). We are long overdue for a meaningful recession. Thus, we would (simply put) cause one. It sounds evil and harsh, but just consider the POV. A penny stock hires an “pumper” to spam emails and sometimes spam physical mail, telling unknowing individuals to buy XYZ scam penny stock. The price skyrockets. It feeds on itself, the price goes up more. Spongetech etc…. A high share price is not indicative of the underlying fundamentals when there is interference. Letting spongetech (or the USA) run wild does no good for the long term prospects.
I’d link videos etc, but like MMT, it is a lot to take in.
“It sounds evil and harsh, but just consider the POV. A penny stock hires an “pumper””
So we must be talking about the Daily Reckoning/Oxford Club branch of Austrianism now?. 😉
Alfonse Bartlette – ” You don’t need government to save. You don’t need government to create jobs”
You do if you want, like most people, savings & wages in government money (USD/CAD).
“I will have you remember that everything that happens under a gold or fiat system is not due to that system”
All Gold Standards (even gold coins) are fiat systems, the price of gold being set & maintained by the government instead of by the market.
You are already free to issue your own currency. The problem is getting it accepted.
Government money gains acceptance because it imposes taxes payable only in government money.
No government should imposes taxes in another currency because of the advantages such a privilege would grant the issuer.
@Alfonse Bartlette
It seems you want the government to create & enforce the private ownership of land, resources, productive capital & its current distribution (though due it is to violence, fraud, theft, privilege, etc – which Austrians do acknowledge).
Property Rights, Corporations, wage labour, intellectual property/patents/copyrights, contracts, buying/selling, prices, markets; all exist not by nature but by government & law.
It seems Government intervention is fine as long it does only those things that you want.
“Property Rights, Corporations, wage labour, intellectual property/patents/copyrights, contracts, buying/selling, prices, markets; all exist not by nature but by government & law.
It seems Government intervention is fine as long it does only those things that you want.
”
Don’t get too far ahead of yourself. I wouldn’t define what the police do as “intervention” when I call for 911 and they come to my rescue.
I am not firm in my stance on I.P., patents etc, but am in terms of property rights and initiation of force. The government already does everything that I wish for it to do. I just wish it to do much less other things.
Eliminate legal tender laws and government will function better almost instantly.
“It seems Government intervention is fine as long it does only those things that you want.”
I don’t think that is the Austrian view. AFAICT, they would have a private sector agent to enforce property rights, contracts, etc. They have no need for government.
Awful straw man.
That is an An. Cap. position more or less….. not “Austrian”
It is really pathetic when you mischaracterize an economic school so childishly. That straw man is what the completely uninformed bigots use…….. You should know better.
Now what is this “constitution” thing he mentions? Gee, that was easy.
It is almost impossible to not straw man an austrian economist, they have several different viewpoints:
“(1) The Anarcho-capitalists
E.g., Murray Rothbard, Hans-Hermann Hoppe and Jörg Guido Hülsmann;
(2) The minimal state/classical liberal Austrians in the tradition of Mises
This variety often supports praxeology and utilitarianism;
(3) Hayek’s economics, with a minimal state, and with an empirical (or Popperian) approach to economic method, in place of praxeology;
(4) Moderate subjectivist Austrians
E.g., Israel Kirzner and Roger Garrison;
(5) Radical subjectivists like Ludwig M. Lachmann (1906-1990), and Austrians influenced by him.”
Maybe it would be best to pick what school you are trumpeting?
That’s just silly.
An Cap’s are not only comprised of Austrians.
“Maybe it would be best to pick what school you are trumpeting?”
The Austrian school of economics…….. I am not “trumpeting” an cap or non-an cap.
It is simply lying to claim that ZERO GOVERNMENT is an “Austrian” point of view. Ever hear of David Friedman?
Another straw man nuked.
Who has claimed that zero government is an Austrian point of view? We are fully aware that government intervention to enforce property rights is a major Austrian tenet.
look a lil bit ^
“I don’t think that is the Austrian view. AFAICT, they would have a private sector agent to enforce property rights, contracts, etc. They have no need for government.”
Which is why I asked you to tell us which type of Austrian you are?
“1) The Anarcho-capitalists
E.g., Murray Rothbard, Hans-Hermann Hoppe and Jörg Guido Hülsmann;
(2) The minimal state/classical liberal Austrians in the tradition of Mises
This variety often supports praxeology and utilitarianism;
(3) Hayek’s economics, with a minimal state, and with an empirical (or Popperian) approach to economic method, in place of praxeology;
(4) Moderate subjectivist Austrians
E.g., Israel Kirzner and Roger Garrison;
(5) Radical subjectivists like Ludwig M. Lachmann (1906-1990), and Austrians influenced by him.”
“Which is why I asked you to tell us which type of Austrian you are?”
I don’t really think it matters in respect to the point you’re trying to make. And I don’t even have a decent enough response to your question. My favorite Austrian is Jörg Guido Hülsmann, but that doesn’t mean I share all of his personal views. He writes in a fashion that even an MMT’er would understand. That isn’t meant to be an insult. (as in a language all understand)
Most of my beliefs are not firmly established yet. I continue to study economics to find contrasting views that will help shape my opinion. Every school provides real value, even to their opposition. But In general, I believe in a truly constitutionally constrained government and allowance for competing currencies. I think the rest would naturally follow. I would also be perfectly happy if there existed a single Austrian state along with 49 Mosler Economics states. Even with a constitutionally constrained government, states would grow in size. It wouldn’t be the end of welfare. It would instead offer all of us a choice.
I think the zero government position is a futile one. Not to say it doesn’t have merit. A Mosler Economics viewpoint is nearly as futile.
And it would be best to respond without using “ignorant” or “pathetic” as an actual argument.
Alfonse Bartlette – “A business can do the same thing. The logic behind it is exactly the same.”
A currency user is not the same a currency issuer.
For a currency user, income must precede spending.
But for a currency issuer spending must precede income (taxation).
The government must first create dollars, spending them into the economy before there are even any dollars to collect in taxes.
Alfonse Bartlette – “I pay Frederique $10 to grow lettuce. He grows one. I pay Maria $10 to grow lettuce. She grows ten. In both cases I have employed idle labour.”
If the dollars you are referring to are, as is the case in every modern economy, government dollars (IOUs), then the reason for their acceptance & circulation is the imposition of taxes payable only in government money, the only source of which is government spending.
The only way for the private sector to net save in government dollars (surplus) is for the public sector to run a deficit.
This is true by definition.
The Wage labour & private property assumed by your example are not universally occurring. They are creatures of law/government, existing not by nature but by law.
“A currency user is not the same a currency issuer.
For a currency user, income must precede spending.
But for a currency issuer spending must precede income (taxation).
The government must first create dollars, spending them into the economy before there are even any dollars to collect in taxes.”
I know this 🙂
Thus my problem with legal tender laws.
“The only way for the private sector to net save in government dollars (surplus) is for the public sector to run a deficit.
This is true by definition.”
Yep. But we differ in what we define as savings. +1 -1 isn’t savings. But as you defined it (private sector) it is true. I can just as honestly call that bogus. I don’t see any reason for the public sector to need + net financial assets. We can just change the frame of reference to the earth….
Debt means something.
Alfonse Bartlette – “+1 -1 isn’t savings. But as you defined it (private sector) it is true. I can just as honestly call that bogus. ”
Your problem is that you don’t understand the difference between real assets & financial assets.
Unlike real assets, every financial asset has a corresponding financial liability the sum of which MUST be zero.
This is basic macro accounting, true by definition.
The only way for a sector to attain a positive net balance is to acquire claims on another sector.
If you think this is bogus than your problem is with accounting & math not MMT
Alfonse Bartlette – “I don’t see any reason for the public sector to need + net financial assets.”
If the government spent and then immediately collected it all back in taxes, there would be no money in the economy for banks to lend, to make payments, for anything and the payment system would collapse.
“Debt means something”
Even if the private sector had 0 net financial assets, there would still be debt,
99% of people could be in massive debt (100x income) but it would be matched by the savings of the 1%., the net balance being zero.
“I pay Frederique $10 to grow lettuce. He grows one. I pay Maria $10 to grow lettuce. She grows ten. In both cases I have employed idle labour. Society should prefer Maria.”
Ah, that good old Ledgerdemain Kool-Aid, trademark Lew and Murray. (Sometimes I think Hayek and Mises would roll over in their graves when I see people regurgitate the stuff.) Yes, productivity is very good, and worth pursuing. But this example could just as well be about (most likely sub-optimal) institutional dynamics and bargaining power, for example.
Murphy recommended reading Mosler’s book. It’s a quick read, free, and worth your time, even if you find yourself retching at certain points. http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
“Government must spend it into the private sector first, no? Then you look at what happened in Spain when large amounts of gold flooded into the market in the 17th century.”
First, this argument is rendered meaningless by sampling bias (a logical fallacy often exhibited by Austrian ‘scholars’). Look at how other countries were affected as well. Do the same for 19th century precious metal discoveries, which enabled significant public (and private) investments that (just two examples) led to higher productivity and drastically lower child mortality. Surely good Austrians don’t oppose those things?
Second, look at what happened to New World people, cultures and civilizations as a result of the Old World’s need for precious metals. Would you prefer gold as the basis for a monetary system? I get that you probably want a so-called ‘free market’ monetary system. But some part of it is going to require some public administration, even if it’s just legal enforcement of contracts. What then? How would you manage the risks associated with convertible money? Fix the price and forget it, like Sir Isaac, foreign cultures be damned? Let private parties determine their own ‘exchange rates’ each time they enter into a contract, and let society bear the costs of sorting it all out legally (hardly a recipe for productivity)? The list of unresolved questions goes on and on.
And as you start to move toward something that is likely to work well, it has many of the characteristics of modern money. Sorry. I know some folks would prefer to rail at the chimerical and oppressive powers that be….
“even if you find yourself retching at certain points.”
Pretty ignorant statement. What do you think I am? Some internet troll? No I study MMT. I enjoy talking to MMT’ers to see their arguments to my thinking. It enhances my knowledge. Was I wretching at this 2 hour debate? I am no bigot. I am not afraid of other points of views.
“Do the same for 19th century precious metal discoveries, which enabled significant public (and private) investments that (just two examples) led to higher productivity and drastically lower child mortality. Surely good Austrians don’t oppose those things?”
You told me to read Mosler’s book. Ill ask you to do something simpler. Read my posts. Your statement is full of assumptions and what I dread, Implying correlation is causation.
“Second”
There is no easy fix. There is no perfect way to do things. I don’t see USD as money. It isn’t. USD let’s me buy lettuce from Maria easily. Maria can then use that same money to buy Tomatoes from me. Get it? We exchanged lettuce for tomatoes. If a fire ravages Maria’s farm, then I will be competing with others for fewer lettuce heads. The power behind USD is fully flexible. Printing money just distorts this. The fed’s mission was price stability. Hello? 19th century vs 20th century, which won in price stability? (not advocating 19th century, am highlighting 20th century failure).
The easy answer to your question. Competing currencies. If you abuse your printing press, OR the opposite (confiscatory deflation), then we can at times(or permanently) change currencies. Confiscatory deflation did not work very well in Sudamerica. Private citizens make better decisions on net than government does. Do not take our ability to do this from us.
Sorry to be so blunt, but if you think we had stable prices in the 19th century then you don’t understand what happened in the 19th century.
The period from 1919 to the Great Depression, saw wild swings in prices:
http://www.cnbc.com/id/48806186
What gold offers is “long term stability”, but it is near impossible to predict the wild swings it goes through. There were about 5-6 depressions under the gold standard that were caused by massive deflation of gold.
So let’s stop just making wild claims about how previous systems were better, when history shows previously to the federal reserve, prices were wild and erratic, and no where near stable.
“Pretty ignorant statement. What do you think I am? Some internet troll? No I study MMT. I enjoy talking to MMT’ers to see their arguments to my thinking. It enhances my knowledge. Was I wretching at this 2 hour debate? I am no bigot. I am not afraid of other points of views.”
Then why open two of your posts with the “pretty ignorant” ad hominem?
“Sorry to be so blunt, but if you think we had stable prices in the 19th century then you don’t understand what happened in the 19th century.”
19th century, not the 1900’s. But since you mentioned 1900’s, I will have you remember that everything that happens under a gold or fiat system is not due to that system.(correlation/causation) Fiat systems don’t have to produce net YoY inflation. It is the other factors, those in charge.
In the case that you didn’t make that mistake (1900’s vs 19th century)I will expound.
http://www.google.com/imgres?imgurl=http://1.bp.blogspot.com/-2rqvuJzjezg/Tvn9_mTozdI/AAAAAAAAAvA/cfrctgBmhe8/s400/CPI-1800-2011.jpg&imgrefurl=http://thesilicongraybeard.blogspot.com/2011/12/could-us-return-to-gold-standard.html&h=648&w=1152&sz=106&tbnid=vAuidbZrrEcFUM:&tbnh=73&tbnw=130&zoom=1&usg=__7tLRkGkcDmNf5HOdJAy2zd8oook=&docid=wttmwjjoM-quGM&sa=X&ei=amXTUa_JF4O8igKBpYHICg&ved=0CEAQ9QEwBA&dur=153
CPI was actually down over the course of 100 years very slightly. That is true stability. There were of course swings in between, but do consider the wars and abolishment of the previous central bank, amongst other things. I don’t necessarily advocate stable prices. We should not stabilize lettuce prices due to supply increases and decreases. Prices should reflect their fundamentals. Consider the explosive growth in creation of goods and services, yet prices are consistently higher. That is a huge amount of inflationary pressure offsetting productivity increases.(just food for thought)
Again I am not advocating 19th century monetary and fiscal policy. As another noted a reason for bimetallism. That underscores, not takes away, from my point. Why are we constrained to one unit of measurement? A doubling of gold supply would be disastrous. These are things we have to consider. There are some of the same problems associated with fiat that exist under single gold standard. Also, if a sovereign has to ABANDON a gold standard then this is proof of the constraints it imposes, not a failure therein.
If you aren’t talking about metals or gold then what are you talking about?
Also I wasn’t just referencing the 1900’s I did link the 19th century panics under the gold standard.
http://www.businessinsider.com/the-fed-under-the-gold-standard-there-were-frequent-panics-2012-3
Also under a medal standard you can’t do much to get out of a recession besides wait it out. There is little utility in having a medal as a currency because you can’t create more of it.
Arturo,
If you took offense, then I apologize. I mean no harm. I said “ignorant” because Bob Murphy and the general Austrian prescription is very easy to find. In fact, the first thing you look for is what each economic school proposes doing, no? I question why one would rail against Austrian economics and not know the Austrian answer to this statement:
“I’d sure like to hear Murphy explain how lower deficits and higher interest rates would help us out of our current low-growth, high unemployment situation”
I’ll answer it in 4 letters
ABCT
JP, my mistake.
I am referencing 19th century policy but not necessarily advocating it. Remove one system, institute another, flaws would show. Just remember that bank runs under a ‘gold standard’ does not imply causation.
My main point is that we need flexibilty, not inflexibility. You would say “aha” “mmt provides this”. I advocate a something different.
Allow me to illustrate.
If you are a lettuce farmer, and you are of a few producers of lettuce. You grow enough lettuce to earn $50,000 per year. A new supply comes online from a new competitor. Supplies of lettuce has doubled. You now make $25,000 per year. You have a choice. Wait it out (just a temporary supply shock?) or change what you produce.
In a truly free market system, one might hold gold, silver, USD, whatever. We have the technology for instant conversion into one another electronically. You could receive your earnings in heads of lettuce, metals, fiat(even a combination), and spend it with a swipe. I am still working on this theory. I don’t know if I am saying something similar to some Austrians on this subject or not(specifically), these are just my thoughts so far.
When people enter into long term contracts, they are making a lot of estimations. A 30 year mortgage is one such example. The bank is expecting to receive more purchasing power than they loaned.
So this is a very important concept to highlight even further. You sometimes pay taxes on an increase in purchasing power, and sometimes you do not. Being able to buy twice as much “stuff” is the same as 2x quantity of USD at the same exchange rate. If my income doubles, then I am taxed. If my income doubles and the value of the USD decreases by 1/2, I am still taxed at the same rates as taxes only look at quantity. If USD supply decreases by 1/2, and my income decreases by 1/2, them my taxes decrease. Taxes favor deflation. This is why I hate thinking in nominal terms. When you think in real terms, a host of flaws become readily visible. Social Security doesn’t promise $1230/mo, it promises retirees to be able to life off of it. Food stamps doesn’t promise $668 (family of 4, no income), it promises to feed a family of four.
Alfonse – “You grow enough lettuce to earn $50,000 per year. A new supply comes online from a new competitor. Supplies of lettuce has doubled. You now make $25,000 per year”
Your example makes no sense.
Where did the dollars come from to denominate the income and why is it the unit of account?
“Who has claimed that zero government is an Austrian point of view?”
Murphy himself. At https://mises.org/daily/5646/Law-without-the-State he says
“Without question, the legal system is the one facet of society that supposedly requires state provision. Even such champions of laissez-faire as Milton Friedman and Ludwig von Mises believed a government must exist to protect private property and define the “rules of the game.“
However, their arguments focused on the necessity of law itself. They simply assumed that the market is incapable of defining and protecting property rights. They were wrong.
In this essay, I argue that the elimination of the state will not lead to lawless chaos. Voluntary institutions will emerge to effectively and peacefully resolve the disputes arising in everyday life. Not only will market law be more efficient; it will also be more equitable than the government alternative.”
And in this very debate, this exchange took place:
Mosler: So there’d be no more taxes.
Murphy: No. No taxes.
. . .
Mosler: I was just wondering if there was government spending. If there’s no taxing, are they spending? How does this work?
Murphy: Again, we’re getting into Austrian economics versus what political views do most Austrians have.
And so, yeah. Many modern Austrian economists, or people who like that school of thought, do think that everything should be done in the voluntary private sector
John, you need help.
Explain why David Friedman is An Cap and NOT an Austrian?
Your quotes even debunk your straw man. Caps added to emphasize the explosion of your lies.
“And so, yeah. MANY modern Austrian economists, or people who like that school of thought, DO THINK that EVERYTHING should be done in the voluntary private sector”
(Oh, I guess he didn’t say that all Austrians believe in zero government)
“In this essay, I ARGUE that the elimination of the state will not lead to lawless chaos. Voluntary institutions will emerge to effectively and peacefully resolve the disputes arising in everyday life.”
(murphy is An Cap…… you think it is shocking that he might write an essay promoting an cap? He even wrote a book on it)
“Even such champions of laissez-faire as Milton Friedman and Ludwig von Mises believed a government must exist to protect private property and define the “rules of the game.“”
(So you quote Murphy saying that Ludwig von Mises himself believed a government must exist, and you still don’t get the lack of meat in your argument?)
Zero government isn’t “Austrian”, it is Anarcho Capitalist. It is really sad that you attack A.E. and you know diddly squat about it.
You should stop responding to people with insults if you want to remain serious here (John, you need help.)
Austrians are a school of thought that can’t agree on what level of government intervention there should be.
So there are going to be instances where one thinks zero government involvement and others who think there should be some or little.
Thus the onus is on the particular austrian to come out and declare what type they are, so to avoid any straw man.
But alas that is the austrian way in arguments like these, when they are pinned against a wall they tend to distract from the argument on hand and resort to off topic discussions of what they think austrianism is.
“Austrians are a school of thought that can’t agree on what level of government intervention there should be.”
And? Neither does any other economic school. MMT’ers can’t even agree. All Austrians believe in “less” government. And all Keynesians believe in more government (at least right now). You actually thought that your statement meant anything, even though it applies to you and those you affiliate with?
“Thus the onus is on the particular austrian to come out and declare what type they are, so to avoid any straw man.”
Wrong. Claiming that zero government = Austrian is flat out wrong. Golferjohn didn’t make a point about “the particular Austrian”. It can be said that it is a popular belief among Austrians, but what John said is ridiculous.
And if John’s point was requiring knowledge of the type of Austrian I am, then…….. he could have asked before using the straw man, no?
“But alas that is the austrian way in arguments like these, when they are pinned against a wall they tend to distract from the argument on hand and resort to off topic discussions of what they think austrianism is.”
What wall am I pinned against. Golferjohn lied and I exploded his lies. Defining Austrianism is on topic, no? Especially if one claims zero government = Austrian. The colour of the sky is blue, but the ocean isn’t the sky, get it?
In the comment you are replying to, I did not define Austrianism. You know what is off topic? The type of Austrian “I” am. But that didn’t stop you.
Sorry, I didn’t know Murphy was made of straw. If Murphy is not a good representative for Austrians, maybe the debate should have been billed as MMT vs AN Cap. Or it shouldn’t have been held.
By the same logic, I can claim that Mosler represents every MMT’er.
Bob Murphy represented us just fine. And the quotes you provided disprove the very notion you brought forth. Bob Murphy never said that all Austrians are an cap. He said “many”.
Well, if Murphy represented you just fine, you should not be disagreeing with what he said. I don’t see MMTers here disagreeing with anything Mosler said. The disagreements about the economics of MMT among MMTers are quite trivial, especially compared to the issue of whether or not there should be a government. I was hoping the debate would center on what government should do to manage the economy, not whether it should exist at all. It was a great disappointment.
“Well, if Murphy represented you just fine, you should not be disagreeing with what he said.”
I don’t disagree with what he said. Many Austrians are an cap. Many are not.
“I was hoping the debate would center on what government should do to manage the economy, not whether it should exist at all. It was a great disappointment.”
I thought MMT was prescriptive, not descriptive.?!?!
Go to
http://consultingbyrpm.com/blog/2013/07/edited-mmt-debate.html
Warren posted at great length and responded to many Austrian criticisms
“Mosler: So there’d be no more taxes.
Murphy: No. No taxes.
Mosler: I was just wondering if there was government spending. If there’s no taxing, are they spending? How does this work?”
Murphy didn’t answer the question. It was at that point that he talked about there being no government.
Do you advocate government without taxes? What is the Austrian answer to Mosler’s question, other than that there is no government?
(I know, this question is about economics, not personalities. I apologize for going off track.)
I don’t see a way to respond and represent an official Austrian view.
Perhaps that is why the debate was so disappointing.
The exchange between Austrians and W. Mosler on RPM”s website should satisfy you though
I couldn’t bear to wade through it all. I read Warren’s posts and Bob’s (scarce though they were), and lots of ad hominem and generally unhelpful posts by others, some of which Warren replied to with more graciousness than I would have been able to muster. I saw nothing indicating that anyone could refute anything Warren said. Murphy didn’t try. There was lots of misunderstanding of Warren’s ideas, some of it seemingly willful.
Maybe a written exchange between Mosler and Murphy and nobody else would help. One idea at a time, no changing the subject.
You can’t “refute” many things Warren says, just like I can’t refute someone’s belief in god. There are certain things we all must/should agree on, but economics like anything else has significant room for opinion.
I.E. we can agree that too much sunlight will burn your skin, but we can disagree on whether to use sunblock or an umbrella.
There will always be those with beliefs in limited government spending and those that believe to always “do something more” to help xyz cause. It gets down to a debate between individual morals. We might be able to refute economic prescriptions once we master time travel, but……until then let’s agree on the facts.
This is why I never try to convince people to be Austrian. I just point out flaws in their thinking. They will most likely remain committed to their core beliefs, but will be armed with a better understanding of how things work. Looking at MMT greatly helped my economic knowledge. And to a greater extent, the economic debates I take part in. It has made my Austrian beliefs even stronger.
The last thing we need is willful bigotry. I’d rather know I was wrong than be accidentally right. A bigot will never “know”.
Alphonse,
I have never seen anyone in MMT advocate unlimited government spending. I think Warren says it best that “Taxes are too high for the size government we have.” He states that he advocates fixing this by reducing taxes. He has said many times that the proper size of government depends on your politics. MMT would work just as well with government limited as libertarians want to limit it as it would with limits that Progressives would prefer. Limited government is not the issue.
What do you think are the parts of MMT that Murphy, or Austrians in general, do not agree with? What elements of Austrian economics do you think MMT disagrees with (I’ve not studied Austrians in detail, so I have only a vague idea, and apparently studying only a few Austrians doesn’t help).
“What do you think are the parts of MMT that Murphy, or Austrians in general, do not agree with?”
To be fair, I have mainly looked at lectures by Mosler, Kelton and for humour Mike Norman videos. If we simply describe MMT as describing our monetary system, then I can’t think of anything (yet) that we can disagree with.
“What elements of Austrian economics do you think MMT disagrees with (I’ve not studied Austrians in detail, so I have only a vague idea, and apparently studying only a few Austrians doesn’t help).”
I guess I’d answer that one how Mosler kind of did in the debate, where he pointed out that what Bob wants isn’t what the system is now.
From all that I’ve seen thus far, every follower of MMT has advocated the use (I’d say abuse) of the monetary system. It is like a car salesman describing a Bugatti Veyron to you…. That is the descriptive, and the prescriptive would be whether to go 267 mph or obeying the posted speed limits is the wise way to get to work daily.
We think that all of this welfare isn’t a danger in the present. It is all about moral hazard. It is the modification of behavior. If there was no ill effect on behavior, then welfare might not be quite bad at all. Welfare programs (and size/scope) are what we mostly disagree on. We think it is very important to learn from our mistakes. I have made several financially disastrous mistakes in my life. Noone was there to ease my pain and/or support me financially. It has positively shaped me ever since. Now I imagine what would have happened without learning from those mistakes or not making those mistakes until much later(losing much much more as a result). I don’t see, except for 1% of the population, that isn’t capable of what I have done to succeed. But I do believe strongly in charity and volunteering. I have control of the direction of my donated funds and time.
In many ways our personalities lead us into different economic beliefs. It’d be helpful to you to begin studying Austrian economics, but like anything, it will consume many hours before you reasonably understand the general scope. My original viewpoint of MMT was considerably less favorable than it is now that I understand it and proponents of MMT better.
So, Alphonse, it is not about how much spending, but on what? How about the JG? If people are put to work, and off welfare, what is the moral hazard?
Do you believe in sectoral balances? And that the government deficit is endogenous? And that unemployment is the indicator that the deficit is too small to satisfy the savings desires of the other sectors?
Do you believe that reducing unemployment and increasing growth is a proper goal? Do you believe austerity is the proper policy today to get unemployment down and growth up?
“And that unemployment is the indicator that the deficit is too small to satisfy the savings desires of the other sectors?”
No. We believe government needs to shrink dramatically and the private sector will go through ups and downs on its own. In short, let things reach their new equilibrium in prosperous and recessionary times.
“Do you believe that reducing unemployment and increasing growth is a proper goal?”
I think it will come naturally, if left alone.
“Do you believe austerity is the proper policy today to get unemployment down and growth up?”
Yes, but we are talking about true austerity. Ron Paul’s budget only cut US spending by less than 1/3. I’d sooner see it be cut by 9/10. Let states fill in the gap if they wish.
***Important note: We explicitly note that the immediate result will be a depression. Yes, we want one. But this is to heal the imbalances that exist and put the economy on firm ground for real growth. We do not think that current policies are sustainable and do not think Mosler’s prescriptions are either. Thus our view is that in the long run, the nation will be better off once the initial depression ends. I am sure it is a hard thing to read. I can link you to a YT video or article explaining why we feel this way tonight if you request.
The obvious analogy is one of a stock pump & dump. The time to get pessimistic is when it is artificially trading at 10x its’ previous value. It can’t continue and many will get hurt. Prolonging the pump does nothing. The collapse of the p&d will come sooner or later.
“If people are put to work, and off welfare, what is the moral hazard?”
Difference between the free market finding them work vs. Mosler giving them transition jobs etc. There is a difference, and I believe there is a behaviour modifier when you give things to people and/or they expect that help.
I’m sorry, Alfonse, I’ve been misspelling your name. It was not intentional.
OK, let’s leave aside the political impossibility of 90% shrinkage of government. Paul Ryan wants to grow it at “only” 3.9%, and is hated for it. And as interesting as it would be to discuss which 10% you would retain, I won’t get into that, either.
So, let’s suppose that you shrink government by 90%, and a depression ensues. What will end the depression? The last one lasted a decade and ended only by enormously increased government spending due to a world war. If there is no war, how long will it take?
Then, suppose the depression does end, and the economy is having its ups and downs. If you balance the budget (I assume this is your budget policy prescription?) through the ups and downs, you’ll be having to raise taxes (or cut spending) during the downs (because as business goes down, taxes also go down) and lower them during the ups, in other words being pro-cyclical, making the fluctuations more severe. Is that the plan?
The “great depression” didn’t have to be great. The equilibrium was not allowed to be reached. The hangover was postponed by continuing to double down on interventionist policies.
The short answer is that, left alone, a depression would end very quickly, as in 20′-21′. Gov’t spending was DRAMATICALLY cut and the depression was very short lived. The bulk of spending cuts were in the most unproductive sector; the military.
“The last one lasted a decade and ended only by enormously increased government spending due to a world war. If there is no war, how long will it take?”
That is a very popular, but incorrect view. See why at the bottom.
“. If you balance the budget (I assume this is your budget policy prescription?)”
I see no reason why the budget shouldn’t be balanced. If the gov’t requires a tank, it must take 20 tons of steel from the private sector, thus Americans need to give up an equivalent amount of purchasing power or material to provide the government with that tank.
” you’ll be having to raise taxes (or cut spending) during the downs (because as business goes down, taxes also go down) and lower them during the ups”
I have a company credit card, the government should have the equivalent (with oversight of course). It should require a relatively similar amount of resources, or their equivalent purchasing power at all times. Spending should not need to be cut in recessions or grown in prosperity.
The problems you speak of are problems associated with maintaining the current beast.
“making the fluctuations more severe. Is that the plan?”
If a downturn comes, higher deflation would ensue. Govt’s received tax $ would be worth more, so a tax raise isn’t a given. We feel that large clusters of failures would not take place in an environment of minimal intervention or expected intervention. In any case, the price of goods would be allowed to fall to meet the new equilibrium and the price of labour would fall to meet the new labour equilibrium. Unemployment can be eliminated with an appropriately low wage rate. Prices of goods MUST be allowed to fall to allow both to align. Our prescription is to let market forces constantly adjust to remain at a sustainable equilibrium. that is to smooth out the ups and downs.
check out – Contrasting Views of the Great Depression | Robert P. Murphy on YT
Alfonse,
New thread below.
Well I would argue that you were put up against a wall, hence why you compare things to a business, which is financially constrained:
“That is because all else isn’t equal. Factually it is still true. We can see this everyday when a public company issues a forward split. This doesn’t change the distribution of purchasing power though. If a public company has 1 million shares outstanding, and it is entirely owned by the public, then a company issuing 1 million new shares for use thus takes 1/2 of the purchasing power from the existing stock of shares. Owners of the stock may approve of this so that the company can finance and hopefully use the proceeds productively. This is not to say that it didn’t have a cost.
So yes, it is correct that we never see it this cut and dry in terms of sovereigns. But that doesn’t discount the facts laid out above. The creator of the new currency is using it to use resources that it otherwise couldn’t have previously. Doubling the stock of currency overnight does not increase goods and services by 2x overnight.”
You are claiming that all else isn’t equal, which I agree with.
Then you say that “factually” increasing the currency still decreases its purchasing power, which would imply that all else is equal. This is classical cognitive dissonance.
“Well I would argue that you were put up against a wall, hence why you compare things to a business, which is financially constrained:
”
It is an analogy. Households, businesses, governments (issuer and non issuer) are all financially constrained. The difference is how they are constrained, and I have explained the difference. The typical MMT’er refuses to allow anyone to even mention the word “household” when criticizing MMT’ers.
“You are claiming that all else isn’t equal, which I agree with. Then you say that “factually” increasing the currency still decreases its purchasing power, which would imply that all else is equal. This is classical cognitive dissonance.
”
Not so fast. Of course all else isn’t equal, but when measuring the effect of an input, you have to consider the effect of it and it alone. That is to say that increasing currency decreases purchasing power lower than it would be otherwise. Consider an increase in purchasing power (and often is observed) during times of monetary inflation. This does not mean that increases in currency do not devalue existing dollars. It is obvious that increases in supply will devalue that object. In respect to USD, increases in quantity do not immediately lead to corresponding adjustments of price and velocity. There is a significant lag. Thus, there appears to be an increase in the amount of goods the total stock of USD can purchase. This is false. Imagine you are filling up a vehicle tire with air. Given that your pressure gauge indicates psi 1 minute after you told it to measure it, does this mean that there was no psi increase just because no increase was indicated?
The obvious response is always: What would have happened otherwise?
Controlled experiments are practically impossible in economics, but we should not forget why they’re so valuable in the first place.
“It is an analogy. Households, businesses, governments (issuer and non issuer) are all financially constrained. The difference is how they are constrained, and I have explained the difference. The typical MMT’er refuses to allow anyone to even mention the word “household” when criticizing MMT’ers.”
You could bring up households all you want, but if you continue to claim that monetarily sovereiegn governments are financially constrained like households, then you are 100% wrong.
“You could bring up households all you want, but if you continue to claim that monetarily sovereiegn governments are financially constrained like households, then you are 100% wrong.”
What I said and what you think I said are 2 different things. My posts here prove that.
Thus the definition of “analogy”
the similarity: that they are constrained financially
the difference: the constraint
“Not so fast. Of course all else isn’t equal, but when measuring the effect of an input, you have to consider the effect of it and it alone.”
Only if you are in macro 101, problem is those false scenarios don’t happen past the classroom doors.
“This is false. Imagine you are filling up a vehicle tire with air. Given that your pressure gauge indicates psi 1 minute after you told it to measure it, does this mean that there was no psi increase just because no increase was indicated?”
Another bad analogy. Most Austrians think that inflation is an increase in the money supply. IT used to be that way under the gold standard, but since then the definition has changed to indicate price level changes.
“Only if you are in macro 101, problem is those false scenarios don’t happen past the classroom doors.”
Huh?
It doesn’t matter whether we are talking about economics or photosynthesis. There is an effect that a single input has on the economy(or plant). Just because you can’t test it doesn’t mean this isn’t true.
“Another bad analogy. Most Austrians think that inflation is an increase in the money supply. IT used to be that way under the gold standard, but since then the definition has changed to indicate price level changes.”
Completely wrong. And it has nothing to do with the gold standard.
There is monetary inflation and price inflation. Some Austrians only consider increases in fiat supply inflation because it was an increase at no cost, whereas gold, lettuce etc has a cost to increase its supply. There really is no single definition of “inflation” amongst Austrians or any other economic school. BUT there is consensus when we see eye to eye. I.E. English vs Español
When I speak of price inflation, I speak of it in terms of it being higher or lower than it would otherwise be. I don’t care what the resulting price is. I focus on the change, and the effect of each input on prices overall.
Another analogy!
Black Friday sales
If input XYZ decreased the sale from -25% to -20% was there no price increase? The resulting price is higher than it would have otherwise been. There is your inflation.
Inflation is inflation whether the CPI increased from 15% to 20 % or remained stable at 0% when deflation of -5% would have occurred.
93% of the money supply is bank credit.
Alfonse, what is the velocity of all the reserves rusting away in Banks going nowhere? I lean Austrian on many issues but really had to reconsider some things in light of observation of the past years. Where is the inflation. By Austrian thought we should be seeing or at least feeling inflation since money supply has increased. Where is it?
Maybe stuffed into a few asset classes and conjectured relative to the unknown “other course” granted, but nothing that is anything close to an insidious or noticeable inflation. Where did we see “”inflation”” ? How ’bout in the price of gold over the time as investors actively hedged for inflation. So, in a way there is at least the freedom to escape this possible (even though unrealized to date) expectation of inflation. Who cares if they “kill the dollar” (hasn’t happened …(yet?)), just buy gold and the purchasing power is preserved.
But anyway, if that’s as far as the velocity of reserves go and I’m not paying 12 bucks for a gallon of milk, let em print all they want. New times require new thinking, new observations and new strategy. As long as currency can float and is readily fungible and I have the freedom to trade Central Banks can play their price stability game all they want.
” what changes the value of money is the value that people place on the currency, and that it is not the velocity of money that determines the value of a currency, but rather the sum of individuals’ value of the currency that determines the velocity of money.”
-Henry Hazlitt, legendary Austrian ❤
Hi, thanks for your reponse.
” Where is the inflation. By Austrian thought we should be seeing or at least feeling inflation since money supply has increased. Where is it?”
The casual observer of Austrians or a casual observer of Peter Schiff would lead to some seemingly valid criticism and questions as you have raised.
The first obvious point to raise in response is: Where is the deflation? Absent of intervention by the Gov’t and Fed and we would have had significant deflation. USD’s 10 % raise was prevented.
Secondly, inflation is never a given. It is always determined by policy makers.
And most importantly – I’ll let “Dying of Money” answer it
p.56 to 1st paragraph on p 57
Click to access Dying%20of%20Money.pdf
“Where did we see “”inflation”” ?”
Price inflation is only one measure.
Read page paragraph 2 of p64 – p65 – same book
Interesting. The effect on prices is what MMT would predict at full employment. At less than full employment, additional demand calls forth additional production, not a sustainable price increase. When the seller sees his shelves getting bare, the first thing he does is not to raise prices, it is to produce more. Only when producers in the aggregate cannot produce more is he able (in a competitive market) to raise prices and make it stick.
Correct me if I’m wrong, isn’t that the Keynesian view also? or at least similar?
I’ll be going through 7DIF today, is there a PDF of an MMT article or book that discusses the point you just raised? I want to study that in its original context.
Yes, very much. And classical economics, too. It’s in the textbook I had in 1969, Samuelson, I believe. It’s microeconomics, really, where the producer faces a flat demand curve, and customers will buy all he can produce at the market price, and nothing at any higher price.
Reserves held at the Fed are not “money” in the same way that money circulating in the economy is. They do not affect demand if they just sit there and do not get spent. They are considered “base money”, M0, but not included in M1, M2, etc., which are the measures of the money supply that are considered in the equation MV=PQ.
Excess reserves cannot cause inflation. Increases in the money supply of the private sector can come only from increased government deficits, increased bank lending, reduced private sector savings, or a trade surplus. Bank lending collapsed in the GFC, private sector savings increased, there has been a trade deficit, not a surplus, and the government deficit has been decreasing since 2009.
Here is the view that I like to use, from the Fed itself. What happens to inflation depends on the below. It will take some time before the inflationary effect of QE is known/realized. Which certainly means that no effect could ensue if excess reserves remain at current proportions to increased base money and QE is unwound.
“What is usually meant by “monetizing the debt,” however, is the use of money creation as a permanent source of financing for government spending. Thus, to ascertain whether the Fed has in fact monetized its purchases of $1.2 trillion in government bonds since 2008, we have to know what the Fed intends to do with its portfolio of assets over time.2
If the recent rapid accumulation of Treasury debt on the Fed’s balance sheet constitutes a permanent acquisition, then the corresponding supply of new money would be expected to remain in the economy (as either cash in circulation or bank reserves) permanently as well. As the interest earned on securities held by the Fed is remitted to the Treasury, the government essentially can borrow and spend this money for free. If, on the other hand, the recent increase in Fed Treasury debt holdings is only temporary (an unusually large acquisition in response to an unusually large recession), then the public must expect that the monetary base at some point will return to a more normal level (through sales of securities or by letting the securities mature without replacing them). Under this latter scenario, the Fed is not monetizing government debt—it is simply managing the supply of the monetary base in accordance with the goals set by its dual mandate. Some means other than money creation will be needed to finance the Treasury debt returned to the public through open market sales.”
I can’t believe you just brought up Peter Schiff. The guy is a baffoon, if you are relying on him for accurate economic analysis, I would just give up typing here, for it aint worth responding to.
I didn’t mention him to endorse him, but to say that a casual observer would wrongly conclude things based on what he says. He has some value, but I do wish he’d stop talking.
Just like any person that uses shadowstats figures….. I instantly write them off. Or anyone that claims of a massive conspiracy against gold, etc.
Lots of MMT’ers claim that Austrians don’t get that our gov’t can’t be forced to default. Mike Norman et. al constantly attack us by bringing this “fact”. The response by us is always “And? (SMH)”
Just to push back a little bit……. From 2002, J.G.H. “Deflation and Liberty” p. 11-12
“The link between the paper dollar and the exponential
expansion of public debt is well known. From
the point of view of the creditors, the federal government
controls the Federal Reserve—the monopoly producer
of paper dollars—and it can therefore never go
bankrupt. If necessary, the federal government can
have any quantity of dollars printed to pay back its
–
debt. Buying government bonds is thus backed up
with a security that no other debtor can offer. And the
federal government can constantly expand its activities
and finance them through additional debt even if there
is no prospect at all that these debts will ever be paid
back out of tax revenues. The result is seemingly
unchecked growth of those governments that control
the production of paper money.”
This is one reason why J.G. Hulsmann is my favorite Austrian. But It is very easy to find countless statements from other Austrians making the same point.
We often make the point that you can’t in real terms make good on the promises that exist, but per above you can meet them nominally.
http://mises.org/daily/6159/
Gary North is another one of my favorite Austrians, and as you will see, he is no inflationista. Simply put, the goods and services attached to the existing promises made by gov’t (we feel) can not be honoured. Being able to meet the promise nominally means absolutely nothing in our view.
Mosler believes that his economic prescriptions will enable the economy to function better than an Austrian led economy (or current path) would. Mosler believes that his prescriptions would thus be able to honour the promises made in *real terms*, at least better than otherwise. THIS is where we disagree.
I doubt that QE will be inflationary in anyway, from Mosler:
“(Note, for example, that this means QE does not alter base money as thus defined, which further fits the observation that QE in today’s context is nothing more than a tax that removes interest income from the economy.)”
If you are going to admit being ok with depressions, then you are also admitting to being ok with it’s consequences: higher suicide rates, 20% less in lifetime earnings for those unemployed, reduced life expectancy, children of unemployed parents earn less and become malnourished, higher depression rates and other illnesses, losing friends and self respect, and the list of horrible things go on and on.
And this is done for the morality of a free market and inflation fears, both man made institutions that we should have no fear of interjecting in.
Sorry but that is just completely immoral.
I think that Alfonse believes that in the long run there will be lower suicide rates, higher lifetime earnings, increased life expectancy, etc., etc. if the economy is put on sounder footing. I don’t think he wishes for the bad effects of the depression, he believes that the good effects will outweigh the bad. These bad effects are occurring today. The disagreement is about how to achieve the good effects. Let’s keep it to economics, not morality. If you believe he is evil, then you are wasting your time trying to change him.
Great response John.
And yes, you will not be able to change me, nor I change you on your basic beliefs. In essence, we were born this way.
Given a time machine, we would be able to test which of our policy prescriptions do, in the long run, have the most net benefits.
BUT, I guarantee that either of us would go against our core beliefs in the favor of the view that ultimately does provide the most benefits if provided concrete evidence(such evidence may never be able to be provided).
I don’t consider economics one of my basic beliefs. When I first started reading about MMT, I thought many were just nutty Progressives (but not Mosler). I still think that of some of them, but I’ve come to see that the economics makes sense. The sectoral balance informs everything else. The concept of Monetary Sovereignty is key. Politicians that say we’re “broke” or that deficits are “unsustainable” — ones that I had agreed with before, and voted for — just don’t understand.
I think the evidence is there in the statistics. When the deficit gets too low, recession follows. Increases in the deficit bring us out of the recession. With a trade deficit, a budget deficit is not only not bad, it is mandatory, and necessary, if the private sector is to thrive.
There is no need to implement Progressive political proposals. You can do MMT with tax cuts exclusively.
“I think the evidence is there in the statistics. When the deficit gets too low, recession follows. Increases in the deficit bring us out of the recession. With a trade deficit, a budget deficit is not only not bad, it is mandatory, and necessary, if the private sector is to thrive. ”
That is true when confusing causation with correlation. Again we can go back to the alcohol analogy. Alcohol is both the cause of the hangover and the temporary cure for it. There are other observable results than what you have shown.
It isn’t immoral.
You think that current policies are keeping a depression from happening. We think that those and other policies CAUSED the imbalances that necessitate a depression.
Again, see the pump and dump analogy. Perpetuating the pump and dump and continuing to prop it up doesn’t change the fact that the underlying company is a fraud and will fail.
It is the same exact thing. Our view is that US policy created an artificial boom.
http://www.lostoutputclock.com/
MMT’ers think that the artificial boom was sustainable and COULD BE sustained.
When you consume great quantities of alcohol, you receive a hangover. Austrians say, allow the hangover. The analogous MMT response is to consume more alcohol to eliminate the bad effects of the hangover. Now you’re addicted to alcohol and it takes hospitalization to get off of alcohol, whereas the original imbalance was easily solved if allowed early on.
” then you are also admitting to being ok with it’s consequences: higher suicide rates, 20% less in lifetime earnings for those unemployed, reduced life expectancy, children of unemployed parents earn less and become malnourished, higher depression rates and other illnesses, losing friends and self respect, and the list of horrible things go on and on.”
So what caused the conditions necessitating a depression? Blame the alcohol, not the hangover.
I agree, it is awful, but the whole point is to have long-run prosperity, not short term avoidance of pain. There should have been no housing bubble in the first place. There should never have been the conditions in place that could cause a great depression. The only way we can get to an Austrian type of government would be an initial collapse. We feel that some sort of crisis IS INEVITABLE. Thus, would you rather deal with a headache now or the life threatening dependence on alcohol (deadly withdrawal symptoms) later? What are suicide rates going to be if we have a total collapse of the economy, compared to a short and swift 20-21 style depression?
I would urge you to drop the moral grandstanding and consider that we simply differ on the effectiveness of various policies. Just as some parents feel it is appropriate to spoil their children, and some feel it right to reward good behaviour and constructively criticize bad behaviour.
Let’s start a new thread with this one:
““If people are put to work, and off welfare, what is the moral hazard?”
Difference between the free market finding them work vs. Mosler giving them transition jobs etc. There is a difference, and I believe there is a behaviour modifier when you give things to people and/or they expect that help.”
What is the difference, in this respect, for any government worker? If I do programming, for instance, for the Department of Defense vs. for IBM, has the DOD “given” me that job, whereas IBM has not? Does the DOD worker behave differently? Does he not think he is earning his pay, just as the IBM employee does?
Why would things change if the worker were hired under the JG rather than “normal” government hiring? He still has to work to earn his pay, nothing is being given away. In fact, the pay scale would be by definition the bottom of the barrel (private sector would have to offer more in order to attract workers), and the work would not be something in which one would usually aspire to have a career.
I don’t have a good response to that. If you remember, in RPM’s site (link given) , mosler talks about idle labour, I think in his first replies. Consider the contrasting Austrian view.
But in brief, what does someone do when he knows he has unemployment to back him up? our view is that he saves less now, and is less afraid of losing his job, and is a worse employee now than he should be. And once on unemployment, many use it as their job to avoid seeking work.
Unemployment compensation doesn’t last very long, and is hardly a substitute for a living wage. Under JG, if someone really doesn’t want to work, he doesn’t have to, but he won’t get paid. JG eliminates the moral hazard of unemployment insurance, to the extent that there is one.
My view is that as sponsor of the system, government has the responsibility to manage it properly and mitigate its bad effects. The private sector can never achieve full employment with price stability on its own, as long as people want to save. Putting the unemployed to useful work for an income is far better for all of us than leaving them unemployed, whether with or without unemployment insurance.
It is an austrian myth that the 1920’s had a depression, and that there wasn’t rampant government intervention:
“1) The recession lasted from January 1920 to July 1921, or for a period of 18 months. This was a long recession by the standards of the post-1945 US business cycle, where the average duration of US recessions was just 11 months. The average duration of recessions in peacetime from 1854 to 1919 was 22 months, and the average duration of recessions from 1919 to 1945 was 18 months (Knoop 2010: 13). Therefore the recession of 1920–1921 was not even short by contemporary standards: it was of average length.
(2) The period of 1920–1921 was not a depression (a downturn where real GDP contracted by 10% or more): it was mild to moderate recession, with positive supply shocks. Christina Romer argues that actual decline in real GNP was only about 1% between 1919 and 1920 and 2% between 1920 and 1921 (Romer 1988: 109). So in fact real output moved very little, and the “growth path of output was hardly impeded by the recession” (Romer 1988: 108–112). The positive supply shocks that resulted from the resumption in international trade after WWI actually benefited certain sectors of the economy (Romer 1988: 111).
(3) there was no large collapsing asset bubble in 1920/1921, of the type that burst in 1929, which was funded by excessive private-sector debt;
(4) Because of (3) the economy was not gripped by the death agony of severe debt deflation in 1920-1921;
(5) There was no financial and banking crisis, as in 1929–1933;
(6) The US economy in fact had significant government intervention in 1921: it had a central bank changing interest rates. The Fed lowered rates and had a role in ending this recession: in April and May 1921, Federal Reserve member banks dropped their rates to 6.5% or 6%. In November 1921, there were further falls in discount rates: rates fell to 4.5% in the Boston, Philadelphia, New York, and to 5% or 5.5% in other reserve banks (D’Arista 1994: 62). By June 1922, the discount rate was lowered again to 4%, and the recovery gained momentum.”
Hrmm, never seen anyone not call the 20-21 period a depression. Ill have to look into that.
But…….. 20-21 isn’t an Austrian dream, but is close-ish. There wasn’t anywhere near “rampant” intervention. And most interventions were either being considered or took place near the end or at the end of the downturn.
“Because of (3) the economy was not gripped by the death agony of severe debt deflation in 1920-1921;”
Did you see the CPI from 20-21?
“The country’s tariffs were raised in 1921 specifically to defend U.S. producers against the prospect of Germany and other countries depreciating their currencies under pressure of their foreign debts.19 In May of that year prices began their collapse in the United States, following the drying up of European markets that had been supported by U.S. War and Victory loans. An emergency tariff on agricultural imports was levied, followed in 1922 by the Fordney Tariff which restored the high level of import duties set by the Payne-Aldrich Act of 1909. Tariffs on dutiable imports were raised to an average 38 per cent, compared to 16 per cent in 1920.
Even more devastating to international trade, the American Selling Price features of
the 1909 act were also restored as the “equalized cost of production” principle and applied it
to a number of commodity categories. This meant that tariffs were levied not according to
the value of imports as charged by foreign suppliers, but according to the value of similar
goods produced in the United States. This legislation made it virtually impossible for other
economies to undersell U.S. producers in the American market. The President was
authorized to raise tariffs wherever existing duties were insufficient to neutralize the
comparative advantage of production costs enjoyed by other countries.”
Click to access superimperialism.pdf
MMT’ers think that the artificial boom was sustainable and COULD BE sustained.
That is false, MMT’ers were calling the crash years before it happened saying we should raise interest rates, slow down the boom etc…
They were against teh bank bailouts…
Then why does that blue line continue in a straight line?
http://www.lostoutputclock.com/
The blue line is potential output, if everyone were working. It goes up fairly consistently because of working-age population increase and productivity increase.
As you can see, the red line was above the blue line prior to the crash. Having the red line above the blue line is unsustainable, as it means people are spending more than their incomes, and they can’t continue doing that for very long. Thus the predictions that it would not continue.
My point is that that chart doesn’t account for a boom. And the red line closely follows the blue line prior to 2008.
Maybe Kelton could redraw the chart to more accurately reflect this?
It is more a chart to symbolize what we could be producing, I doubt it would be possible to produce sans a boom at that level.
If you follow the link to the 20-page rundown, and scroll down, there is another lost output graph that goes back a little farther, to 2000. You can see the tail end of the dot-com bubble, the recession of 2001-2, and the housing bubble from 2003-7. We haven’t had unemployment anywhere near as high as 2008-9 since 1981 or so, so I would expect the lines to be much closer together in 2000-2007 than after 2008.
I’ve tried to follow that link multiple times over the past few months and it always opens a blank page.
It works for me. The url it links to is
http://www.austeritysux.dreamhosters.com/TheCaseForFiscalStimulusDRAFT.html
that link works, ill take a look
“I have a company credit card, the government should have the equivalent (with oversight of course). It should require a relatively similar amount of resources, or their equivalent purchasing power at all times. Spending should not need to be cut in recessions or grown in prosperity.”
Ah, but taxes will rise and fall with the economy. As you maintain, prices respond only with a lag. So if the economy turns down, and tax receipts turn down, and government continues to purchase the same real resources for the same prices, it will have a deficit.
Likewise, in the upturn, tax receipts will increase, but prices will not increase immediately, perhaps not for several years. During that time, if government continues its spending level, it will have a surplus unless taxes are cut.
Do you still want to balance the budget through these cycles?
Hard to answer it as I haven’t put that much thought into it yet. But if the gov’t needs 1 tank per year, then it at all times should take 20 tons of steel from the private sector per year. There is no reason I see to have a deficit or surplus, but again, this is admittedly too brief. How to get to this system has not occurred to me yet.
And I don’t know where to point you to get you a better Austrian answer than this.
Alfonse,
“I see no reason why the budget shouldn’t be balanced. If the gov’t requires a tank, it must take 20 tons of steel from the private sector, thus Americans need to give up an equivalent amount of purchasing power or material to provide the government with that tank.”
The private sector does indeed trade real resources for money when government spends. In that sense, they are giving up that steel and their labor in exchange for money. Nothing wrong with that.
However, here is the reason that the tank should (today, anyway – maybe not always) be purchased with deficit spending: if there are unutilized resources in the economy, that tank can be had by employing resources that would otherwise be unproductive. If the government also taxes the value of that tank, then demand for other things will go down, and other people (who don’t make tanks) will become unemployed.
But buying more tanks is not the right policy lever. Taxes are. Given the need for a certain number of tanks, government should not tax to offset that spending unless the spending would cause aggregate demand to exceed the economy’s capacity. The only reason Americans should give up the purchasing power is if their purchasing power is greater than the things to be purchased.
Alfonse,
“I see no reason why the budget shouldn’t be balanced.”
Consider an economy with no government and no external trade. Somehow it has money, though.
All the people are employed making widgets, they spend their entire incomes on widgets, and all the widgets are sold. Equilibrium reigns, and everyone is happy.
Now the people decide to save some money for their retirements. They save 10% of their income each week. The unsold widgets accumulate on the shelves, and the head widget maker has two choices: reduce everyone’s wages by 10%, or lay off 10% of the workers.
If the wages are reduced, the people will buy even fewer widgets, unless the price of widgets is also reduced by the same amount. Widgets would cost 90% of what they used to cost, incomes would be 90% of what they used to be, and everyone would still be employed. But the problem is not solved: the factory is still making the same number of widgets, and still selling only 90% of them, and the inventory of unsold widgets continues to build up. The head widget maker could reduce his price even further, but if he does not also reduce wages he will be operating at a loss.
Layoffs seem the only answer. With 10% fewer workers, he makes 10% fewer widgets, equal to the new demand for widgets. But, with 10% of the people having no income and thus buying no widgets, his sales fall off again and the cycle starts over. Not until the people (those who are still employed) feel they have saved enough money do they resume spending all of their incomes on widgets, and equilibrium will be restored. Only when some of the people begin dipping into their savings to buy more widgets, spending more than their incomes, will the economy grow. But the people cannot spend more than their incomes forever. They run out of savings, or they spend their savings down to a point where they wish to begin saving again.
This economy is doomed to have some level of unemployment, as long as the people desire to save.
Where does the money come from? Whoever supplies the money to this economy could fix the problem, simply by buying 10% of the widgets. Or by buying 20% of the widgets, and somehow forcing the people to give him 10% of their paychecks. As long as the people desire to save some of the money, the money-supplier can prevent unemployment and maintain equilibrium by (net) buying up widgets in the exact amount of the people’s savings. If he does not do that, the result will be unemployed widget-makers.
So, the question to you is, if the money-supplier balances his budget, and the people save some of their incomes, how can the economy ever get to full employment?
If gov’t devalues currency by 10 percent, then holders of existing currency are losing 10 percent of the PP per dollar. unemployment can be achieved in this fashion, of course. But it does cost money holders.
Savings are only deferred spending. Savings can be defined as low velocity money. So really, the only difference is the money turnover rate. This lower velocity confers an ability for consumers to buy more with their spent dollars.
I don’t see any reason for a need to net save. It is an individual decision and the normal process is to net save and later net spend. There is a personal equilibrium if you consider 10 dollars earned and later 10 dollars spent.
The only ability for the US private sector to net save is to then run a trade surplus. This is unnecessary and needs not be mandated. Instead, there should be periods of surplus, followed by deficit, just as there are between sectors in the US economy. And again, we can always just change the frame of reference to the Earth as a whole and note that there is no net savings of financial assets, just pockets of + and pockets of – that constantly flow and periodically exchange.
I need to apply more thought to this for sure, but these exchanges are very helpful.
“Devalues” refers to some sort of fixed exchange rate system, such as the gold standard. We don’t do that anymore. What exactly do you mean, in the current world monetary system? As you maintain, there are three factors, not just the amount of money, but also the amount of real goods and the velocity. If people save, and velocity decreases, should government not supply more money? Not just enough to maintain MV, but to accommodate growth (increasing Q)?
(MMTers are typically quite derisive of the Quantity Theory of Money, aka Monetarism, aka Milton Friedman and Chicago School. My view is that there is not much difference between them, except for the way in which they believe government changes the relevant amount of money. For QTM, it is the Fed “monetizing” the debt, and for MMT it is the deficit itself, with the Fed having little effect on quantity no matter what open market operations it pursues, and except that interest rates have the opposite effect of what the Fed thinks they do.)
It’s true, many people have an “accumulation” period of their lives, followed by a period of spending down their savings. But this equality over a lifetime means nothing to the macro economy. If people in the aggregate save today, and GDP growth slows because of it, and government takes no offsetting action (a deficit), there is no way to recover the lost output later. It is lost forever. We cannot produce 110% of potential output in the future to make up for doing 90% today.
Assumptions in economics are often troublesome, no matter how necessary. There are things we just can’t know, so we have to assume some likely result. The assumption that prices will adjust downward smoothly and easily is just not very likely. When they do go down, except for commodities that are traded globally like oil and grains, it is only under severe pressure and with extreme pain. There are institutional inhibitors to decreasing prices, and especially to decreasing wages. Without the ability to decrease wages, a business has little ability to decrease prices when demand falls. Instead they cut back production. It’s a very bad economy when workers, especially unionized workers, are willing (or forced) to take a pay cut. So assuming that prices and wages will adjust downward smoothly and easily when demand falls is just not valid in today’s world.
Yes, a trade surplus is a source of money for the private economy, just as a government deficit is. And it’s true the whole world cannot run a surplus at the same time, it has to net to zero. Just as the government cannot run a surplus (or even a balanced budget) when the private sector and the foreign sector are both running a surplus.
I’ve often wondered what would happen if the whole world adopted MMT, with a JG and no worries about deficits in sovereign currencies. Mercantilism would die, even though there would be countries with trade deficits and others with trade surpluses. MMT-led policy would prefer the deficit, but would take no action to try to create one. The monetarily sovereign countries with trade surpluses would not pursue a policy of accumulating foreign currencies in an effort to suppress the exchange rate for their own currency. That would make for smaller trade and budget deficits in the countries with trade deficits, and the end to manipulation of exchange rates would probably lead to more stability and more trade. Maybe even an adjustment of exchange rates that would tend to nearly eliminate trade surpluses and deficits, at least among developed countries. There would be more people employed worldwide. Since the JG is a more effective automatic stabilizer, there would be fewer and less severe contractions in the business cycle, perhaps no contractions at all, though I would not expect no slowdowns. Even when government wants to do the right thing, so much of what it does turns out to be pro-cyclical anyway, because of the time it takes to conceive of and agree on a policy, more so than to implement it. If the system were automatically more strongly counter-cyclical, because of the JG, that would help, and require less conscious action by government. JG would tend to act as an anchor for wages and prices, tending to reduce inflation, since there would always be some JG workers available for hire at the same low rate.
As for saving, there would be of course no net saving world-wide, but there would be net saving by private sectors worldwide, and net dissaving by monetarily sovereign governments. Which is completely sustainable for them. Probably smaller in the US than what anyone would consider troublesome, given the higher employment, higher growth, and lower trade deficits.
Being the only one to adopt MMT would confer an advantage, but one which would not be dissipated as others adopted it.
““Devalues” refers to some sort of fixed exchange rate system, such as the gold standard. We don’t do that anymore.”
If I multiply gold supplies by 10x, then prices will decrease. If I do the same with the dollar, the usd will decrease. Same thing, but maybe you define it with different words.
“If people save, and velocity decreases, should government not supply more money? Not just enough to maintain MV, but to accommodate growth (increasing Q)?”
No, I think it should be what ever naturally occurs. A decreasing velocity at a fixed quantity produces a purchasing power increase for those still purchasing. I don’t see a reason that 10 trillion dollars functions any better than 15 trillion dollars. Against a quantity of goods, the dollar price is the only thing that changes. That in itself is meaningless. A money supply has to be sufficiently large, but not too large. Government creating USD redistributes wealth ( cantillon effects). I wouldn’t mind increased quantities if it was distributed by adding a zero to existing dollars.
“There are institutional inhibitors to decreasing prices, and especially to decreasing wages. Without the ability to decrease wages, a business has little ability to decrease prices when demand falls”
It is hard to decrease wages. It is also hard to increase prices. There is a natural (psychological?) barrier to changes in prices + and -.
“So assuming that prices and wages will adjust downward smoothly and easily when demand falls is just not valid in today’s world.”
For this, I need to study the 19th century. I think we are looking at how things work today instead of how they have worked without central banks, massive gov’ts, fractional reserve etc. I do think small changes in price levels and wage levels are able to be made up and down. I just don’t think this can happen in today’s environment.
I do think MMT is technically possible to outdo any other economic school in terms of growing the economy……..but that comes with a heavy caveat. We have absolute buffoons in charge. I don’t even “like” Ron Paul because at the end of the day……..he is still a politician, and he still was a spendthrift when he could be. Now what I ultimjately mean is that it is possible to issue new currency and send those dollars to the most productive uses of resources. This is how public companies operate ALL THE TIME. They issue new shares for cash, and use that cash for growing their company.. The good business models succeed. Their DILUTION of stock ended up producing a successful company that in the long term, produced a benefit on the stock and stock holders. Sov’s are exactly the same. But they have clowns saying where those new dollars get to go, and the private sector has proven to be better at resource management than the gov’t. Until we have an all knowing algorithm in charge, I see no reason to let the government manage resources. This also raises serious issues with Democracy. The majority can always vote themselves more and more and more. While I still favor some government, I don’t know what type of government can fix the problems of democracy without the problems of a dictatorship.
I think we are doomed no matter what. I do think an MMT empowered US government would create absolute havoc on the economy, and I do think the status quo has at most 5-10 years before a serious crisis ensues (japan first). And Austrians trying to defeat the welfare state will always alienate 90 percent of the population. Status quo forever…….
“If I multiply gold supplies by 10x, then prices will decrease. If I do the same with the dollar, the usd will decrease.”
Not if you also multiply production by 10x. MMT acknowledges that increasing money by more than you are able to increase goods is inflationary. MMT does not advocate that.
“A decreasing velocity at a fixed quantity produces a purchasing power increase for those still purchasing.”
Really? We had a major collapse of velocity in 2008-9, and a barely noticeable increase in purchasing power for those who still had any.
“It is hard to decrease wages. It is also hard to increase prices. There is a natural (psychological?) barrier to changes in prices + and -.”
Not so much to rising prices. Increases are built into many contracts to occur regardless of the CPI, and many more to occur according to increases in CPI. Not just government programs, but private contracts. Very few reductions occur that way.
MMT’s explanation of the inflation of the 1970’s is that the oil cartel exercised their monopoly powers to raise the price of oil, and the unique nature of oil is such that it fed cost increases into every other product, because nearly all of them are transported using refined oil products. Not to mention direct use of oil for heating, electric generation, lubrication and other things. I had been trained that if the Fed had not accommodated and validated the increase in oil it would have been only a relative change in prices, not an inflation of all prices. That seems unlikely, since oil is a component of the cost of nearly everything.
It seems to me that land is another such commodity. As the population increases, more and more land is needed, but there is no production of land. The quantity is fixed, and more can be brought into use only at greater expense than the prior increment. Land is also, like oil, a component of the cost of almost everything else. There is no land cartel, but there does not need to be one to make its price increase almost continuously; first, relative to other prices, and then spreading to other prices, since it is, like oil, a component of the cost of nearly everything.
Labor, likewise, is a component of nearly every other cost and price. The “wage-price spiral” is a well-known phenomenon. That is why anchoring a JG wage at a fixed level can act as resistance to other wage and price increases.
This is not to say that there cannot be inflation caused by excessive money growth, but that maybe the Fed’s target of 2% inflation is perhaps the lowest that we can expect, consistent with economic growth.
There were periodic quite severe bouts of both inflation and deflation during the 19th century. According to http://oregonstate.edu/cla/polisci/sites/default/files/faculty-research/sahr/inflation-conversion/pdf/cv2010.pdf the CPI started at .043 (2010 dollars) and ended at .045, an increase of only about 4%. Along the way, it hit .081 in 1814, .034 in 1843, .075 in 1865, and .038 in 1897. To get to even prices had approximately halved twice and approximately doubled twice, a terrifying roller coaster ride, and not the enviable record that is implied by the endpoints. Guaranteeing to exchange dollars for gold or silver at a fixed price puts the money supply at the mercy of the gold and silver supplies, which are by nature volatile in both directions, according to the fortunes of the miners. That’s what “naturally occurs”.
“Not if you also multiply production by 10x. MMT acknowledges that increasing money by more than you are able to increase goods is inflationary. MMT does not advocate that.”
Agree completely.
“Really? We had a major collapse of velocity in 2008-9, and a barely noticeable increase in purchasing power for those who still had any.”
I said at a fixed quantity, that is “all else being equal” 08 and 09 was no such thing. There were forces to partially offset the velocity change, which remains quite low.
“Not so much to rising prices. Increases are built into many contracts to occur regardless of the CPI, and many more to occur according to increases in CPI. Not just government programs, but private contracts. Very few reductions occur that way.”
I’d say that this environment expects higher prices more than expects lower prices.
“That’s what “naturally occurs”.”
No. Our previous monetary standards all had flaws and 19th century was far from perfect in terms of government and bank policy. The only benefit of a gold standard is the limit imposed on the government. Having to abandon gold standards to fund wars proves this. But again, we need competition in currencies.
“Along the way, it hit .081 in 1814”
“.034 in 1843”
“.075 in 1865”
EXCELLENT, your data proves my point! What were the major events in the highly inflationary periods in the 19th century? Wars.
Alfonse Bartlette – “I don’t see any reason for a need to net save. It is an individual decision and the normal process is to net save and later net spend.”
The problem you fail to see is that every individual within the private sector cannot simultaneously decide to save.
One person can only decide to save if another decides to goes into debt.
“This increase in money supply [under gold standard] was not done for free as in fiat.”
I don’t think you have any idea what a gold standard is.
Any gold standard is an example of government price fixing where the government sets the price of gold not the market.
It is still fiat money, the government still spends by crediting bank accounts.
So, contrary to your assertion, increases in the money the supply under a gold standard WAS done “for free”.
Here’s what deflation is like
http://www.patheos.com/blogs/geneveith/2011/07/the-19th-century-depression-2/
For 65 straight months, the U.S. economy shrank — the longest such stretch in U.S. history. America’s industrial base ground to a near halt: By 1876, half of the nation’s railroads had declared bankruptcy, almost half of the country’s iron furnaces were shut and coal production collapsed. Until the 1930s, it would be known as the Great Depression.
In the face of economic calamity and skyrocketing unemployment, the government did, well, nothing. No federal unemployment insurance eased families’ suffering and kept a floor on demand. No central bank existed to fight deflation. Large-scale government stimulus was a thing of the distant future.
As demand collapsed, businesses slashed payrolls and reduced wages, and a ruinous period of deflation began. By 1879, wholesale prices had declined 30 percent. The consequences were catastrophic for the nation’s many debtors and set off a vicious economic cycle. When economic growth eventually began, progress was slow, with periodic crises plaguing the economy through the end of the century.
Seems to me your medicine is worse than the disease.
Again, you confuse correlation with causation.
I agree that a cursory observation makes it seem that I am entirely wrong.
My medicine isn’t “deflation”. The medicine is letting things clear out after imbalances. The medicine should continue daily to AVOID the business cycle altogether.
Now by te same cursory observation we can conclude that Unprecidented intervention didn’t lead to a short and swift depression. To the contrary, Hoover and FDR prolonged the Great Depression. Or could say that Hoover made it “great”.
I don’t endorse the 19th century. I endorse what was typically less intervention. Andrew Jackson did the right thing by defeating the central bank. That thug was holding our economy hostage, and explicitly made statements to that effect. It was far from painless, but It would have been painless had the central bank not interfered in the first place.
In short, I completely agree that a Dictator W. Mosler could end the current slump immediately. But morphine isn’t the correct medicine for an amputated arm in a worker. Sure he immediately goes back to work, but the original problem is only being masked.
Unfortunately for Austrians, the empirical data doesn’t favor us. But when we look at the fallibility of it, those observations are meaningless. A scientific test would disprove the cursory observations favoring intervention.
I don’t understand the “confusion” part. I pointed to a description of an episode of deflation. With what do you think I am confusing it?
I guess what I’m missing is the theory, the math, the model behind your solution. MMT adheres strictly to accounting identities and traditional economic equations. That’s appealing to me.
Anyway, austerity is being tried in Greece, Spain, Italy now. The more they cut spending, the higher the deficit gets, and the worse the poverty and unemployment. The ECB bails out the banks who buy the government debt, but the people suffer anyway. We’ll see how it all turns out. In time, I hope, to prevent the same thing here.
“I guess what I’m missing is the theory, the math, the model behind your solution.”
Don’t you know the answer to this already? Human behavior is based on subjective judgments which cannot be mathematically modeled. Therefore, Austrians can’t be bothered with numbers of models at all, much less ones that can be closed. Instead, they cherry pick the hell out of the historical and biographical records. You end up with a truckload of BS, but it’s YOUR BS, and there’s something comforting about that.
The ones that try to a little empirical a/o theoretical objectivity (e.g., Garrison, and even Murphy to some extent) end up in places that start to resemble something other than hardcore Austrianism; which means they end up with a lot less ‘air time’ on Uncle Lew’s and the Greaves Estate’s websites.
Not sure why you guys keep responding to this silliness. You’re being trolled, hard.
“I don’t understand the “confusion” part. I pointed to a description of an episode of deflation. With what do you think I am confusing it?”
Right here
“Anyway, austerity is being tried in Greece, Spain, Italy now. The more they cut spending, the higher the deficit gets, and the worse the poverty and unemployment. The ECB bails out the banks who buy the government debt, but the people suffer anyway. We’ll see how it all turns out. In time, I hope, to prevent the same thing here.”
The E.U is doing THE WRONG THING. No Austrian economist endorses what they are doing. That should give you pause.
read this
http://www.financialsense.com/contributors/michael-shedlock/intellectual-dishonesty-and-insanity-on
My short response is that Austrians and MMT’ers don’t necessarily disagree on deficits and Federal debt. It won’t be “paid” back and shouldn’t be paid back.
There are many ways to cut a deficit(on paper)
-You cut spending
-You increase tax revenue
The above link gets to the point quickly, and I can elaborate further if you need.
“The medicine is letting things clear out after imbalances. The medicine should continue daily to AVOID the business cycle altogether.”
Do you have any idea how moronic this sounds? Probably not…
We disagree on what the cure for the disease is. The unhampered market is OUR medicine. Saying that isn’t “moronic”. We feel that the unhampered market would not have created a housing bubble in the first place. We feel that the unhampered market would not have created an 08′ financial crisis. Our “medicine” only exists to cure the addiction to cheap money that uncle Ben and Greenspan caused. Under our policies, there would be periodic failures, instead of clusters of failures all at once.
Your response was purely ad hominem and ignores the fact that Austrian economics lays this out. Simply repeating it isn’t by itself “moronic”. Nowhere here before did you call A.E. moronic. In short, very lousy response and sad that you had to take it there.
AGAIN, we feel that you are giving the alcoholic a shot of Jack Daniels to “cure” his hangover. Our response is to either do nothing, or give an ibuprofen. What caused something surely can’t be the cure.
I suspect many Austrians would agree that saying that an “unhampered market” means no more business cycles is moronic. Amateur hour’s over, son. Do your homework.
You’re the one making the mistake, not I. We define the business cycle as artificial boom followed by the bust. Just as a penny stock pump and dump. There are underlying fundamentals +/-. It doesn’t mean an end to ups and downs.
Do your homework, because you have no idea what you’re talking about and you’re making ad hominem attacks based on your lack of knowledge.
“When Austrians say this, they must also take the position that under the classical gold standard, gold mining was always and everywhere inflationary. Most of them won’t. It’s hard for me to think of such glaring inconsistencies as logical and hard to refute. ”
This lie shows that you have not studied Austrian economics AT ALL and simply attack the elegant straw man you erect.
An increase in a money supply…….. is an increase in money supply. Anyone that actually saw our point of view (at least once) would have noticed that we call this acceptable inflation. This increase in money supply was not done for free as in fiat. There are monetary and non-monetary uses for gold under a gold standard. AN INCREASE is expected and warranted. But the free market will take care of that.
“In short, I completely agree that a Dictator W. Mosler could end the current slump immediately. But morphine isn’t the correct medicine for an amputated arm in a worker. Sure he immediately goes back to work, but the original problem is only being masked.
Unfortunately for Austrians, the empirical data doesn’t favor us. But when we look at the fallibility of it, those observations are meaningless. A scientific test would disprove the cursory observations favoring intervention.”
This statement here is beyond comprehension. Mosler wouldn’t be dictator so stop with that nonsense. Any JG bill would be community based. The analogy is again horrible. A correct analogy would be using stem cells to regrow an amputate arm cut off by the free market for being useless to them.
If the empirical data doesn’t favor you then maybe it is time to realize that Austrianism isn’t favored by science and should hence not be referred to as a science but as a religion
“maybe it is time to realize that Austrianism isn’t favored by science and should hence not be referred to as a science but as a religion”
That’s a little too harsh, imo. It began primarily as marginalism, which is still a very powerful concept. It got a little weird after Bohm-Bawerk took Wicksell’s thoughts on interest rates to an extreme. And unfortunately, it went almost completely off the rails after it showed itself so wanting during the ‘Cambridge debates’ and ensuing decades of counter-cyclical policy, becoming much more of a politically-focused school (aren’t they all though?), almost entirely about philosophy rather than social science. But it’s not *entirely* devoid of meangingful insights into economics.
“This statement here is beyond comprehension. Mosler wouldn’t be dictator so stop with that nonsense”
I didnt say that he would be. It was stated as a condition. That is the only way for Mosler’s policies to be enacted. Stop reading into things that weren’t implied.
” The analogy is horrible. A correct analogy would be using stem cells to regrow an amputate arm cut off by the free market for being useless to them.”
Seriously? I know you are better than this. WE DISAGREE on what your medicine will do and what my medicine will do. THUS the analogy only serves to illustrate my point of view. As stated it(mine) is a perfect analogy. As stated your analogy is perfect, per your beliefs.
“If the empirical data doesn’t favor you then maybe it is time to realize that Austrianism isn’t favored by science and should hence not be referred to as a science but as a religion”
That was a cheap shot. I was very careful in wording my statements so it couldn’t be confused. Empiricism is incredibly fallible. It is not scientific.
Drink a case of beer.
You get drunk.
You get a hangover.
You consume a case of beer to feel better.(and do)
The empirical data here is completely misleading. The test is flawed. Your empirical test is flawed. WW2 ending the great depression is a perfect example.
Results and are only valuable if the test itself was. This is why Austrian economics is based on logic, not empiricism. If the same flawed data did favor us, then it would still be meaningless.
“Results and are only valuable if the test itself was. This is why Austrian economics is based on logic, not empiricism. If the same flawed data did favor us, then it would still be meaningless.”
Austrian principles have been tested over and over again in real life policies and have failed over and over again. It has been tested in the lab setting of numerous economies, This is why I call it a religion, and not a science. When the empirical data proves it wrong (like creationism) they question the results and the methodology without actually saying why the results or methodology are in fact wrong.
“Austrian principles have been tested over and over again in real life policies and have failed over and over again.”
Absolutely incorrect.
” It has been tested in the lab setting of numerous economies”
Absolutely incorrect.
We are constantly blamed for failures in the E.U. Very wrongly so. Anyone with more than one brain cell would pause for a moment and notice this. The E.U. is trying to cut deficits, and Austrians take the blame…….. so find me a single Austrian economist that said what they need to do is dramatically increase taxes, which they in fact did. Cutting of a deficit isn’t “Austrian”. Look at their insane regulatory climate… Austrian? Look at their insanely large government sector…… Austrian? The E.U. in no way resembles Austrian economics.
I can use your same attacks against you…… if lower deficits = Austrian, then surely MMT = Zimbabwe. You will quickly say but this, and but that, and it isn’t the same because of xyz………
To which I respond…… EXACTLY MY POINT!!!!
“When the empirical data proves it wrong (like creationism) they question the results and the methodology without actually saying why the results or methodology are in fact wrong.”
Absolutely incorrect. and I EXPLICITLY have stated why the results from the empirical studies are in fact wrong.
I can also observe why running the printing press IS THE WRONG THING TO DO. There is empirical data on that too you know? There is empirical data on increased government expenditures and poor economic growth. There is empirical data on the inefficiency of government spending. There is empirical data that can just as easily disprove your prescriptions. That said, those tests are not in fact scientific. That is where logic comes in.
EVERYTHING Mosler wants the government to do relies on the government doing the right thing, employing resources productively. That is why I stated it being theoretically possible that his prescriptions could grow the economy, just as any public traded company can grow a business by first diluting existing stock. Logic says the government will do the wrong thing. Logic says MMT will fail.
Your empirical test “disproving” Austrian economics goes back to my alcohol analogy.
Consuming alcohol to prevent or eliminate a hangover isn’t proof that Alcohol is the right medicine. An Austrian coming in and letting the hangover happen isn’t proof that our prescriptions are wrong. ****We didn’t cause the hangover.****
We are allowing the person to only have to deal with a hangover and not alcohol addiction.
Using the same analogy, Mosler has a medicine that cures the hangover, doesn’t cause side effects and increases the person’s IQ in the process. The only problem is…….. that it doesn’t work on everyone. Those it doesn’t work on instead makes them worse off. …….. It is only theoretically possible and not in reality possible. Government will not efficiently manage resources. It will in fact harm the economy in the long run. Mosler’s prescriptions come with an incredibly large caveat.
I believe in things that have been tried and tested. Personal responsibility works. The private sector does work. Governments have proven time and time again to destroy currencies and the economy in the process. Governments have proven to become increasingly more corrupt and self-serving.
You call A.E. a religion, some call it a cult. You believe that government would take the keys to the Lamborghini and not crash it. Now THAT is religion. I’d rather see them in a golf cart.
“EVERYTHING Mosler wants the government to do relies on the government doing the right thing, employing resources productively.”
No. His first proposal, and most urgent, is to end FICA. That requires no change in government use of resources.
Good correction on my statement.
“Those it doesn’t work on instead makes them worse off.”
I don’t understand. Who is made worse off by the end of the FICA tax? And how?
I could have elaborated, but didn’t.
I’d propose returning the federal government to (generally) how it was pre-income tax. There is a lot of common ground shared by Mosler and Austrians but in a few areas we disagree strongly.
My main beef with MMT/Mosler is the ability to acquire resources by printing money and saying that it won’t be inflationary. My analogy targets this criticism, saying that government is inherently wasteful and corrupt.
I said that Mosler wants to give gov’t the keys to the Lamborghini…… restated slightly……. let them drive the lamborghini but in golf kart mode and clueless how to access the full power of the engine. Politicians are wrong on how the monetary system works, but i am glad they don’t know how it works.
How do you define “printing money”? And why has it not caused inflation yet? If it’s just “waiting”, will it not be influenced by the “unprinting” that will occur when the economy recovers?
The government put a fucking man on the moon.
The government gave us the internet.
Do I have to go on?
“government is inherently wasteful and corrupt.”
The point of public infrastructure is not to make a profit but to lower the cost of doing business by supply it at or below cost.
One of the reasons it is cheaper to make cars in Canada is because of public health care. Canadian automakers don’t have to pay cost of basic healthcare, like their US counterparts, and thus have a lower cost of production & price.
Alfonse,
There have been numerous occasions where Austrian economics has been tried and failed. Here is one from the US:
“An important point is that 1890s America had no central bank, government spending was a very small percentage of GDP (it fluctuated between 2.55% and 3.62% in the 1890s), and governments tended to pursue austerity in times of recession. In fact, US federal government spending fell from 1893 to 1896 and fell from $465.1 million in 1893 to $443.1 million by 1896, which was obviously contractionary fiscal policy. Yet the culmination of the fiscal contraction in 1896 saw the economy in recession again.
Above all – and I wish to emphasise this – the fiscal contraction from 1893-1896 is correlated with rising unemployment in both the unemployment estimates of Romer and Vernon. Even by Vernon’s figures unemployment remained at nearly 8% until 1898. In Lebergott’s original estimates, unemployment soared from 1892-1894, went down in 1895, but then surged again in 1896 and stayed at 14.5% in 1897. No estimates of unemployment give any support to the view that austerity returns a shocked economy to high employment quickly. Curiously, a quick look at the data on
US federal government spending shows that spending rose from 1897 to 1899, and that this is also correlated with falling unemployment in the estimates from 1897 to 1899.”
http://socialdemocracy21stcentury.blogspot.com/2012/01/us-unemployment-in-1890s.html
All one has to do is look at our own history, not Europe or any other.
Most dishonesty…….
And you quote someone that uses the same confused correlation vs causation that plagues economics.
A government that cuts spending isn’t “austrian”. Protectionism is “austrian”? Gov’t as a share of GDP was much smaller under A. Lincoln, surely he was Austrian? Starting to sound like everything is Austrian.
Alll you’ve done is look at every down turn, find something that the government did during that time period….. find something Austrians said and blame us for everything, even if the means for reducing deficits is tax increases (which we vehemently are against). You are casting a net, but your qualifiers are so broad that it traps everyone but MMT, but you fail to mention that.
So Austerity is cutting gov’t spending…… and that is “Austrian”
And the inverse is the right thing to do, right? So I can easily disprove MMT by finding countries that employed this tactic and it led to economic failure(correlation)?
Clearly WW2 got us out of the depression, right? ( why did it last so long despite anti-austerity measures anyways?) So you agree that private spending dramatically decreasing and government spending dramatically increasing is the ticket to prosperity!
Heads/ Tails you win. Adios.
“Clearly WW2 got us out of the depression, right? ( why did it last so long despite anti-austerity measures anyways?)”
It was the massive government spending on WWII that got the US out of the GD.
You asked for a specific period where Austrian economics was being firmly planted. You can’t just dismiss it when it actually happens. This is why I call Austrianism a religion, you will believe that it is true no matter what evidence is presented.
If Keynesians and Austrians were horticulturists:
———————-
Keynesian: “Sir, the plants need water!”
Austrian: “Pssh! If we give them too much water, they’d die!”
Keynesian: “Sir, that’s only true when they have enough water – I don’t think you get that they aren’t getting enough water right now and they run the risk of dying.”
Austrian: “You obviously do not get water inflation like me!”
Keynesian: “Sir, no one is arguing that we should give them too much water – just enough to keep it from dying in this heat wave!”
Austrian: “How do you know plants need water? We’ve never lived in a world where we took water away – how can you tell they’d die in a water-less world if we don’t?”
Keynesian: “Sir, we have multiple examples of how flowers do poorly when they lack the proper amount of water, and –“
Austrian: “That’s positivist propaganda created by people who support all this water spending. By giving plants water, you create a dependency on water. (Who ever heard that plants need water to live, anyway?)In fact, I believe we should go back to the rain system.”
Keynesian: “Why?”
Austrian: “You see, water is worthless when it comes from the Hose Reserve – we need to wait for the sky to give us rain, because of value and shit. Why would plants do better with a hose, when they could use rain water? You see? It’s better because it’s natural.”
Keynesian: “Why does it matter if it came from the Hose? What if there isn’t enough rain for all the plants?”
Austrian: “Then they should die, because a lack of rain obviously means there were too many plants.”
Keynesian: “What – what?”
Austrian: “You just don’t get plants like me – have you read Rothbard?”
I like this. And I think the Austrian gets the better of the argument as portrayed.
After all, the dialog above inevitably reminds us of certain horticultural facts. the human species has an unfortunate tendency to bring high-consumption plants into areas where water is scarce. Someone who lived in New England all his working life might move to Arizona after retirement. When there, he might well try to recreate the sort of lawn he considered natural and proper back home. A big expanse of water-dependent grass.
In Phoenix, this sort of behavior is a resource misuse. So “bravo” to the Austrian for reprimanding our newly retired Keynesian.
But this also raises a question: where does MMT fit into the horticultural debate? In economics it is clearly distinct from either Murphy or Krugman. That was the premise of the debate, after all. So in horticulture? Is there anybody who maintains that the hose itself creates water nowadays? Or that evaporation is a demand management system?
So, the unemployed are like the wrong plants in the wrong place, and should just be eliminated, not watered?
Various snappy answers occur to me, but I’ll offer a serious one whilst I wait for an equally serious answer to the questions in my final paragraph above.
The answer to your question is “no.” As I’m using the analogy anyway, the “plants” are capital investments of various sorts. So some investments succeed (grow and bloom), some investments fail (shrivel and die). Any investment should be allowed to fail. There should be no guaranteed successes in these matters.
And yes, sometimes an investment that produces a loss will be quite analogous to a high-water-use garden planted in a foolhardy way outside of Phoenix.
The hose doesn’t create water. It only redistributes water.
Does that help?
As I read the original colloquy, water was money going from government to the private sector, and the plants were the private sector: the people.
The people are wilting now from high unemployment due to low aggregate demand (the drought).
I don’t see anything about investment.
I don’t know what the hose would be. Treasury? Yes, it creates as well as delivers the water.
Evaporation (taxes) ought to be the demand management system, yes. There are leakages as well, that must be overcome by delivery of more water than what evaporates.
Golferjohn, I don’t know “what the hose would be” either, except on the remarkable assumption that we’re talking about a hose that creates water. Which helps show why the Austrian wins the horticultural argument in the terms described.
The hose is a technology like fiat currency. It allows currency/water ot be distributed anywhere at any time. That’s all it is.
There are four problems here. First, I’m not sure under what definition of “technology” fiat currency counts. The first definition in the World English Dictionary is “the application of practical science to industry or commerce.” A sovereign or its pet bank simply declaring that certain prop desks at certain banks have now “sold” it bonds and thus, poff!, have more wealth doesn’t sound like practical science. It sounds like droit du seigneur. Was that a “technology” too?
Second, hydraulics of course IS a science, and its practical application goes back to the ancient times, Roman aqueducts and all that, so I do buy the hose as a “technology.” But that hurts rather than helps the analogy.
Third, I think for the analogy to make any sense the water has to stand for wealth generally considered. Money is a measure of wealth, not the real fact of wealth. A “pascal” is a unit used (in the metric system) in measuring water pressure. So we might say that the actual water is wealth, though people in our hypothesis talk about it as if it were the transfer of pascals.
Now, a sovereign can by fiat change the unit in which water pressure, or water volume, or whatever, is measured., But that doesn’t increase wealth at all. It might well have the effect of redistributing wealth, as the Fed does when it declares prop desks wealthier in order to increase the money supply, and as any misguided government would be doing if it by fiat took water away from Maine to send it to Arizona to save farms that somebody had been so misguided as to plant there. Saving them on “too big to fail” grounds is still saving them, is still done at the expense of Maine, and is still misguided.
Finally, “There is no constraint except resources.” Is that an empirical statement, or an accounting identity, where “constraint” and “resources” are simply used as synonyms?
The Austrian horticulturist wins. .
First off stop claiming a win, it sounds like a 4th grade argument on the playground, it is silly.
Technology is the application of knowledge, and currency is a technology that works as grease on an engine that makes trade operate smoother.
Money is a creation of man, not a natural object. The analogy is that water is to plants as money is to the economy. The analogy does not require that money have all the same properties as water, nor that the economy have the properties of a plant. Water, as a natural object, occurs in limited quantity. Money, as a creation of man, does not. Man can create more money whenever he desires. And, in fact, as economies have grown, money has been created to accommodate that growth. Sometimes too much, other times (like now) too little. The “Hose Reserve” is the analog to the Federal Reserve. If you want to criticize the analogy because more water cannot be created, that’s fine, but to say that because of this analogy the government cannot create more money is just silly.
I think I’ve found the problem:
“Third, I think for the analogy to make any sense the water has to stand for wealth generally considered.”
No, water stands for money, not real wealth, and hose water is additional money supplied by the government deficit.
If water is real wealth, then what is “water inflation”?
“Money is a measure of wealth, not the real fact of wealth.”
Almost. Real wealth is denominated in the unit of account, but one house remains one house – the real wealth is the same, no matter how its price goes up and down, or whether the changes are due to fluctuations in the real estate market or changes in the value of money.
Government’s duty as sponsor of our economic system is to supply just the right amount of water for the plants to thrive: not too much, and not too little. Right now there is a drought – too little rain water, and rather than making up for the lack of rain government is cutting back on the hose water, too.
“If water is real wealth, then what is ‘water inflation’?”
I suspect that if you had thought that through a bit you would have anticipated this answer. The concept of inflation as applied to water would refer to a situation in which the government changes the units in which water is measured by fiat, as a matter of “engineering,” perhaps for example by saying that what used to be considered half a liter of water will hereafter be called and considered a full liter.
You can probably imagine situations in which that would have a stimulative effect on the use of water, the growth of grass, etc.
I’ll leave you to it.
“How many legs does a dog have, if you count the tail as a leg”?
Calling 1/2 liter a liter does not change the amount of real wealth. It only changes the unit of account, the money.
You can’t “inflate” a real resource. You can only inflate money and prices. “Water inflation” only has meaning if water is the analog for money, not if water is the analog for real wealth.
“But this also raises a question: where does MMT fit into the horticultural debate?”
MMT says we are not rain constrained.
And that doesn’t strike you as wildly implausible? The amount of vegetation on the planet is not rain constrained? You can believe what you want of course but you chose an analogy that doesn’t seem to help you at all.
Not implausible in any way. Do you think there is not enough water? There may be areas like Arizona, but it doesn’t mean that the rain is constrained, just not easily available there. Lucky for us humans we have this thing called technology that allows us to bring water anywhere.
“Do you think there is not enough water?”
For what? There is (almost) exactly as much water as there has ever been. Hydrogen and oxygen are elements, and they bond with each other very readily to make water, it takes a good deal of energy to separate them and destroy water. For practical purposes, then, I submit that you can treat water as a quasi-element (and gold, on the other side of our analogy, is an element).
There is as much water now as there was a million years ago and as much as there will be a million years from now. Technology doesn’t change that. There is not enough water to do anything that would require more water than the planet has.
Further, using technology to get water from Maine to Arizona so people can grow nice Maine-style lawns will certainly begger somebody. It won’t be free.
If water is money, and rain is the “natural” source of water from within the private sector (bank loans), yes, it is not a constraint. The amount of vegetation on the planet is limited by land, minerals, CO2 and nitrogen (real resources) not water (financial resources). In the analogy, money is not a real resource, it is a financial resource, and financial resources for the private sector can be created by government at no cost and with no limit, and the plants can grow until there are no more real resources for them to consume. (Not that the ecologists would like it, but those are the economic facts.)
“First off stop claiming a win, it sounds like a 4th grade argument on the playground, it is silly.”
Using phrases like, “the other side displayed typical cognitive dissonance” is simply “claiming a win” in more high-falutin’ terms.
I claim a win for the Austrians within the context of this specific horticultural analogy because it could only have been invoked as a pro-Mosler thing by somebody who hadn’t thought it through.
http://www.treehugger.com/lawn-garden/case-against-lawns-drought-bees.html
That URL will bring you to a fuller elaboration of is the Austrian horticultural case in quite literal terms given the analogy.
“Technology is the application of knowledge, and currency is a technology that works as grease on an engine that makes trade operate smoother.”
Intriguing shift in analogy there. From nature (water, plants,, etc.) to mechanisms with cogs that need grease.
Currency is a measurement of wealth that has arisen spontaneously numerous times quite naturally. :Like water, it isn’t something decreed by the hose or the human wielder of the hose.
To the extent that it can also be used as a grease, it ceases to be a valuable measuring-rod. Ever measure anything with grease?
“Using phrases like, “the other side displayed typical cognitive dissonance” is simply “claiming a win” in more high-falutin’ terms.
I claim a win for the Austrians within the context of this specific horticultural analogy because it could only have been invoked as a pro-Mosler thing by somebody who hadn’t thought it through.”
Please reread it then the analogy is fine. Because it was pro Keynesian, not Mosler. And no one on Moslers side claimed a win. IN fact I said this same thing in my second paragraph:
“The winner and loser of this debate will not be determined by MMT’ers and Austrians, but by everyone else who doesn’t fall into that category.”
So I clearly default on calling myself a winner, by saying that no one really wins, just the people who read this and interpret a certain way.
“Currency is a measurement of wealth that has arisen spontaneously numerous times quite naturally”
Currency is only financial wealth, no one here is claiming anything different. And like financial wealth it can be created at will by issuer.
No one is saying it will be free. But fiat is a technology as is delivering water from one place to another. There is no constraint except resources.