The public sector and free information are essential for collective well-being

I have been in Sydney today for Day 1 of the Australian Society of Heterodox Economists’ (SHE) Conference. I always go down as a solidaristic gesture but I admit to not being fully engaged in some of the topics given there is an underlying hostility among many heterodox economist to getting the macroeconomics right before you delve into various microeconomics topics. I do not find it appealing to analysing demographic cohorts distinguished by sexuality, gender, race as if they are “independent” and can be understood without recourse to acknowledging their relationship to capital and without understanding the macroeconomic constraints that bear upon their decision-making environment. But during the day I was thinking about why societies voluntarily go along with state imposed restrictions on their freedoms which clearly entrench the disadvantage of individual members within these societies. I was thinking of this within the context of the choice nations have to exit the euro and the pressure being put on such nations to remain within the zone even though the status quo is devastating private well-being. I was also thinking about the forces that are working within the US to misrepresent the true nature of the financial crisis and allow government support for the elites who have committed gross fraud to override basic job creation support for the unemployed. I was also thinking about this in the context of the debate about the morality of WikiLeaks and the growing government attacks on that organisation.

As I am typing this, an announcement just came over the train PA system that we are going to be stuck indefinitely at Epping Station (heading north) because of a police operation in Hornsby (a bit further north) – rumoured to be a bomb scare. Hmm, later home than I wanted to be. Patience called for. Fortunately, the delay was only about 45 minutes and movement resumed and no bombs were discovered. As an aside, I was able to learn about the reasons for the delay etc by sending out a Twitter question. The normal news channels available on-line were not helpful.

Anyway, so many issues have been raised by the WikiLeaks information release. I thought about the “western outrage” about how the “free world” was scandalised by the Chinese government’s censorship of Google (and other information access that its citizens might enjoy and benefit from). Yet as soon as things turning embarrassing for the US government and all the other governments it has been dealing with – the situation changed. Suddenly, the suppression of our access to information on the Internet has become a a matter of defending our national security and this has justified blocking access to WikiLeaks servers in our so-called “free nations”.

This is just hypocrisy writ large. Censorship is never a demonstration of our freedom. It is a denial of our freedom to gain access to information that might allow us to make different decisions about what is best for us. Governments are our agents not our masters. The WikiLeaks revelations demonstrate that our governments lie and manipulate us to advance their own agendas which do not necessarily coincide with the agendas that maximise social welfare.

I am not making any judgements about whether the WikiLeaks organisation is consistent in its morality (apparently some are saying that Assange is inconsistent because he won’t publish all the private E-mails that he has etc). The issue transcends the personalities involved.

I am of the opinion that we would be better off knowing about the devious ways in which foreign diplomacy is conducted. I do not share the view that Iran or China or anyone else has become “knowledgeable” as a result of the leaks. They probably already know all this stuff as a result of their own covert operations.

Rather, the group that is more informed and who would have remained ignorant if the leaks had not occurred is us – the voters – the workers. We now know things about our governments that they didn’t want us to know and in some cases lied point blank to us about.

Whether much of the information that has been released is all that important as yet is moot. The general point is that we should all be encouraging whistle-blowers and leakers en masse to provide us with this sort of information so we can better discipline the political process and force our governments to adopt more direct ways of operating. Widespread dissemination of “damaging” information is the only way we will ever be able to judge whether our governments are working in our interest. Under this sort of “new” paradigm of information sharing the governments would have to work out better ways of communicating with us.

In this vein, I have to say that I applaud the conservative British government’s decision to make the expenditure data more transparent. They are using it as a political stunt but as a general principal I think all information should be available to the public.

There was an interesting article in the Economist magazine (December 2, 2010) – Breaking up the euro area – How to resign from the club – which speculated about the sorts of costs and benefits that would accompany a decision by an individual state to leave the EMU.

The article notes that the rhetoric that accompanied the creation of the monetary union – immunity from speculative attack – convergence of government-bond yields – etc has been laid bear by the crisis. The article does not make the obvious point that the crisis has been the first time that EMU has faced a serious demand shock and that the so-called stability prior to the crisis was just an illusion. The basic design flaws in the monetary union were there from the state and were always going to lead to the dynamics that are now unfolding once a shock of this size hit the zone.

But I think it is interesting that the mainstream economics media is now laying out narratives about the possibility of countries leaving the zone in pursuit of better outcomes for their citizens.

The Economist said:

The idea of breaking up the currency zone raises at least three questions. First, why would a country choose to leave? Second, how would a country manage the switch to a new currency? Third—and perhaps most important—would leavers be better off outside the euro than inside it?

Please read my blog – Exiting the Euro?- for my ideas on this issue (written in February 2010).

The Economist said that the “main reason why a country might choose to leave the euro is to regain the monetary independence it sacrificed on joining and to set monetary policy to suit its own economic conditions”. They define monetary independence as restoring the capacity to set a separate interest rate (from the ECB rate) and implicitly eschew the fiscal aspects that would accompany a restoration of sovereignty.

From a Modern Monetary Theory (MMT) perspective it is the restoration of fiscal capacity uninhibited by the “anti-people” Maastricht and Lisbon rules that is the most attractive features of the exit option.

Further, which is consistent with MMT, the Economist noted that leaving “the euro would allow Italy, Spain and the rest to devalue and bring their wage costs into line with workers’ productivity” without harsh cuts in nominal wages which only further exposes the economies (and households) to default risk on mortgages etc.

The Economist article outlines some of the consequences of exiting would elicit and I won’t cover them here. They include – the need to “impose caps on bank withdrawals, other forms of capital controls, and perhaps even restrictions on foreign travel”. They suggest that in the short-run foreign credit would be withdrawn and trade would suffer. They suggest that the nation would be tied up in legal challenges from loss-making parties – including foreign banks and pension funds which hold “euro-denominated government bonds”.

They acknowledge that the defaulting sovereign would probably win all these legal battles because it could change the relevant laws as it undertook the exit. The point is that sovereignty is all powerful within a national border. The legal framework could be changed to override the primacy of European law.

The Economist then reveals its biases. They say:

All the while a government seeking to replace the euro with a devalued currency could scarcely rely on bond sales to finance its operations. But such a country would have long been cut off from capital markets anyway. The prospect of monetary independence would give it new options. In the run-up to passing a conversion law, the government could pay some of its bills, including wages, by issuing small-denomination IOUs, which could be traded for goods and services. These would form a proto-currency that would trade at a discount to the remaining euros in circulation—a shadow price of the devaluation to come. Since the money supply would be shrinking fast, as euro deposits fled the country, this sort of paper would be accepted readily. Scrip issued by the province of Buenos Aires circulated freely months before Argentina’s dollar peg broke.

None of this is an accurate description of anything inevitable. The sovereign government could simply ignore the capital markets. Please read my blog – Who is in charge? – for more discussion on this point.

Restoring sovereignty provides all the fiscal capacity to spend in the local currency and to honour any obligations denominated in that currency. As long as there were real resources that were idle the government would have the capacity to expand employment and well-being by using its newly restored currency.

A sovereign government does not have to issue IOUs. A sovereign currency is really equivalent to an IOU. The important point is that there would be a demand for this “new” currency as long as the government allowed the non-government sector to relinquish its tax obligations using it.

The revelations of last week (see more on this below) that the US Federal Reserve lent trillions to the non-government sector at zero interest rate demonstrates that credit does not need to evaporate when private banks go on “holiday” in a crisis. So there is no reason for the money supply to shrink fast. The demand for credit can be satisfied without financial constraint by the currency-issuing capacity of the newly restored sovereign government.

The Economist then asked whether an exit would be worth it:

A determined country could leave the euro and establish its own currency again: nothing is truly irreversible for a sovereign nation. But even the most wilful and powerful state could not fully control the banking chaos and social unrest that a forced currency conversion would unleash … Countries at the euro zone’s periphery that face years of austerity and high unemployment inside the euro may find it harder to believe that things could be much worse if they left. A devaluation would spare them the grinding wage deflation needed to price the unemployed back into work (though it would not address the economic weaknesses that lie behind poor competitiveness). The spectre of bank runs, high funding costs, default and social unrest might not seem so scary in today’s conditions: some countries are already vulnerable to these. Efforts to ameliorate these problems have so far proved inadequate …

Therein lies the danger for the euro. The cost of breaking up the single currency would be enormous. In the ensuing chaos and recrimination, the survival of the EU and its single market would be in jeopardy. But by believing that a break-up cannot happen, the euro zone’s authorities will always tend to stop short of the radical measures needed to hold the project together. Given the likely and devastating chaos, it would be a mistake for a country to choose to leave. But mistakes occur in times of stress. That is why some are beginning to contemplate the unthinkable.

I am not suggesting there would not be chaos. But the restoration of the fiscal capacity of the sovereign government is a very powerful tool to minimise the chaos and to divert activity to the domestic economy while all the external issues were resolved over time.

By suggesting that staying in the EMU is the only long-term way to avoid chaos, the conservatives and the supporters of the power elites are really deceiving the populace with respect to the viable choices that are available. Exit will be costly, but as the Economist notes staying in is also going to be very costly.

You can see the controlling nature of the debate by the conclusion that a decision to exit would be a “mistake”. I would like to see Ireland or Greece actually articulate the costs and benefits (given they have superior access to their own data) of exit compared to staying on in the EMU.

My top-of-the-head thinking on this is that over a 20-year period, exit will be less costly. Further, staying on only exposes the nations (already crippled by the current crisis) to the next major demand shock. The problem is that the basis design flaws are not being dealt with and the EU bosses are not going to introduce policy changes which would reduce this dysfunctional design because they have convinced the member states and their citizens that exiting will be catastrophic.

Where is the evidence for that? The EMU is a classic example now of a citizenry that is being steam-rolled by a power elite which is using a highly filtered and biased flow of information to suppress alternatives that would probably advance the interests of the populations involved.

The EMU will never serve the interests of the vast majority of citizens in the member states.

In this article – In Defense of the Public – that appeared in In these Times (December 3, 2010) the case is made against the pressures to privatise the commons. The article notes that “Americans have come to associate anything “public” with a notion of inferiority” and quotes from a 2009 (Beacon Press) book Another Kind of Public Education:

Ideas about the benefits of privatization encourage the American public to assume that anything public is of lesser quality … The deteriorating schools, health care services, roads, bridges, and public transportation that result from the American public’s unwillingness to fund public institutions speak to the erosion and accompanying devaluation of anything deemed public. In this context, public becomes reconfigured as anything of poor quality, marked by a lack of control and privacy—all characteristics associated with poverty.

This trend in public opinion is not confined to the US. In all the advanced (English-speaking at least) countries the neo-liberal onslaught has successfully indoctrinated us to accept the view that public is bad, private is good. This message is also rammed home in most mainstream economics textbooks. I remember the intermediate micro book by Jack Hirschleifer that described someone receiving state income support as being “welfare dependent” and those who did not as being “robustly independent” (or words to that effect). The author didn’t mention all the bond market players who enjoyed coporate welfare via public debt issuance or other firms that relied on state aid in the form of handouts of various times.

How would we describe the modern banking system not to mention the other “private” beneficiaries of public money during the current crisis – as disclosed in the recent US Federal Reserve statement – (December 1, 2010)? Trillions of US dollars of zero interest loans to corporate America and beyond. The loans were extended to multinationals, billionaires and foreign banks. The Federal Reserve is being called “the central bank of the world”. Are they all “welfare dependent”? Should the recipients be subjected to the humiliating “public” accountability that we inflict on the unemployed?

The point is that we have let these inconsistencies in rhetoric flourish and in being so complacent we have allowed the policy framework to become distorted and work against the interests of the majority by advancing the interests of the elite and powerful.

No-one could credibly advance a case that private sector decision-making is capable of advancing social welfare independent of government. The current crisis has demonstrated, beyond doubt, that the private sector profit-seeking is susceptible to corruption, deep fraud, and incompetence – in no particular order and the overall stability of the system (financial and real economy) is reliant on public intervention and public financial support.

While the hard-line Austrian school types were saying we should have let the crisis play out – it is clear that they have little understanding of the depth of the crisis and how much public intervention was required to stem the collapse. The scale of the US Federal Reserve credit line intervention is staggering. If the public interventions had not been made then we would have endured a major depression beyond doubt.

As it is, the news that is slowly emerging from the US about illegal foreclosures indicates that a large proportion of the housing loan industry is in an uncertain state. Where did all the mortgage notes that were not passed on as part of the securatisation process go? Why weren’t they passed on? It seems that the financial sector attempted an elaborate scam on state governments to avoid real estate transfer taxes by not passing the notes on as required by law and exploiting the Mortgage Electronic Registration System (MERS).

Now the banks are about to endure the costs of this widespread fraud. This blog and the links it provides is interesting in this regard (especially the work of Yves Smith on this topic). This Testimony is also helpful.

The saga has demonstrated the sector was based on a “failed business model” and has exposed the entire US economy to systemic risk (that is, risk of collapse). Why? Greed and fraud. That is what drives private sector decision making and unless there is public oversight the whole show heads for self-destruction. None of the developments that the illegal foreclosure scandal has exposed are covered in mainstream microeconomic or macroeconomic textbooks. There we just learn about private optimising agents pursuing self interest to maximise welfare for all of us. It is a fairy tale without any application to the real world we live in.

The In these Times article says that:

The schema of capitalism—where the pursuit of private profits is sanctified—has turned Americans shamefacedly away from the public life that is the birthright of all citizens in a democracy … How can we undo the prejudice against shared public resources that has settled over America’s discursive landscape? To begin with, we need a compelling argument that the public sphere is worth fighting for. We need to cultivate a richer understanding of what public actually means—or what it ought to mean.

Public does not mean government institutions or government ownership—although government institutions can and should serve the publics that conjure them into being. Public is more than offices in buildings where people’s salaries are paid for by taxes. By bickering over how much salary, whose taxes, and where the offices ought to be constructed, we lose sight of the grander meaning of our commitment to one another as human beings.

This sort of thinking has been important in my career as I have sought to advance understandings of how the state can advance public welfare through the use of the fiscal (and other) policy tools that a sovereign government has at its disposable.

Many readers write to me along these lines – “I wonder whether your faith in government would survive IF the world was using the principles advanced in MMT” – or words to that effect. The IF is the important demonstration or give-away that most people do not understand what prevails in the current situation.

The fact is that MMT is not a futuristic description – it describes how the monetary system operates NOW. It provides insights into why things happen at the macroeconomic level now. It tells you what the implications of voluntary constraints that governments might impose on themselves – including the imposition of the EMU on national governments, which were previous fully sovereign in their own currency.

So we all better get used to the fact that government is a central aspect of our modern monetary system. We can either work in communities to make sure the government uses its unique capacities in the fiat monetary system to advance our collective well-being.

The national government always has a choice: (a) It can maintain full employment by ensuring there is no spending gap – that is, run budget deficits commensurate with non-government surpluses; or (b) It can maintain some slack in the economy (persistent unemployment and underemployment) which means that the government deficit will be somewhat smaller and perhaps even, for a time, a budget surplus will be possible. Associated with these choices are an array of related policies including public provision of services without profit versus privatised service delivery for profit; regulative oversight of industry versus a belief in self-regulation of private markets etc.

The rise of neo-liberalism was the result of an erosion of the concept of collective will. The persistently high unemployment that the world economy has experienced since the mid-1970s has arisen because there has been a decline in collective will. The move away from collective solutions to the consequences of the demand fluctuations of the capitalist economy has accompanied the widespread acceptance of neo-liberalism. At the heart of this rationalist resurgence is the concept of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) concept and the abandonment of full employment by the governments in Australia. The increasing emphasis on individual solutions to economic problems has meant that we are no longer prepared to bear some costs ourselves to ensure others have employment. The only way we will return to full employment is if the costs and benefits of economic activity are shared. The public sector must be the vehicle to restore the collective will.

In saying that the government sector is central to the monetary system does not disclose a naive belief that governments do not make errors – even monumental ones. In any complex organisation there will be mistakes, corruption and worse. But the fact is that we have no choice – the public aspect of our economy is central and we have learned that reducing its impact or footprint has not worked in our favour. To the contrary, it has led to the private sector fraud that has destroyed a fair percentage of the wealth that the workers have built up over their lifetimes.

The In these Times article says that public institutions are:

… simply the embodiment of a promise, a social contract, that we make to one another: to be mutually accountable and dependable, to cooperate in pursuit of the common good and to communicate openly and honestly when we can’t easily agree on what the common good is. No matter how uncertain the path, it is our right and obligation to discern it— but the collective fear and disillusionment gripping the nation in the shadow of the economic collapse has made that task seem too difficult or unpalatable. Instead of having the challenging conversations that are requisite for a robust public sphere, governing bodies of all kinds are taking the quick route: shut your eyes tight, privatize, privatize, and privatize some more.

The current policy debate is moving in the exact opposite direction to that required to stabilise the real economy and get it working again for the public good. There has to be a return to a notion of the collective. The individual pursuit of greed does not maximise welfare for all of us.

The public domain of our lives embodies the mutual nature of our lives – “to reject our need for collective support, choosing instead the conceit of solitude, is a false expression of a shallow “liberty”: liberty only from the ties that bind us.”.

The task of educators (like me) who understand that this mutual dependency is at the heart of social well-being and must involve comprehensive responses from our public policy makers – is to set out frameworks and controls which ensure our public agents are up to the task. The conservative agenda is to tear down the public elements and to convince us that we cannot rely on government. But that agenda is not consistent with a generalised social well-being. It is a recipe for accelerating the transfer of real goods and services to the elites with economic power. It works – for a time – and then collapses. When it collapses we witness the ultimate hypocracy – the request for the state to socialise the losses.

Conclusion

Time is up.

That is enough for today!

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    31 Responses to The public sector and free information are essential for collective well-being

    1. Tom Hickey says:

      It is clear from the rhetoric in the US that the right views the chief virtue of economic liberalism (capitalism) as opportunity rather than shared prosperity. Political liberalism takes individual freedom/personal responsibility to its conclusion in the libertarianism of the right, which views society as an aggregation of individuals, actually denying that society is a complex web of relationships among interdependent persons that requires cooperation and coordination to reach its potential as an integrated system. As a result, a doctrine of “It’s every man for himself” prevails as representative of the American character. Remarkably, many not-so-well-off Americans are willing to trade away shared prosperity for a vague opportunity to become wealthy, apparently unmindful that social mobility in the US is very low. For most people, the only realistic way upward is through winning the lottery. The “land of opportunity” as the American myth is undermining the American dream of middle class prosperity. It really is a strange phenomenon.

    2. Ray says:

      Tom Hickey says:
      Monday, December 6, 2010 at 17:04
      “Political liberalism takes individual freedom/personal responsibility to its conclusion in the libertarianism of the right, which views society as an aggregation of individuals, actually denying that society is a complex web of relationships among interdependent persons that requires cooperation and coordination to reach its potential as an integrated system.”

      If I may play Devil’s Advocate;
      One might argue that many individuals see their own worth or contribution to society variously greater or lesser than others and as such view ‘shared prosperity’ as an imposition of forced equality by extreme leftists. Following on from this, the creative juices in many would be replaced by a mediocrity society-wide. A good example of this (given you have mentioned the US) is the nuclear and space race competition between the US and USSR, one society rewarded by profit/fame and the other threatened by the fear of the Gulag. The US outperformed the USSR by every measure of technology and productivity.

      Admittedly, it was a pity the 2 weren’t in a race to discover the cure for cancer or global famine however it is very clear which type of system produces the greater achievements.

      Indeed, even the few really looney-tune-lefties on here I daresay would admit to studying really hard at university and putting that extra effort into Prof Bilbo’s classes in order to get ahead in life so they can buy their kids the GI-Joe with the Kung Fu grip for Christmas (if I may steal a line from Trading Places). Equity in wealth distribution sounds great in academia but I wonder if the really smart people see it as equitable?

    3. Andy says:

      I was shocked to discover the extent of Euro and Foreign currency assets held on UK banks’ balance sheets From the Bank of England Statitsics page.
      We discovered last week that the US had provided hundreds of billions of dollars to these UK banks as liquidity during the financial crisis. This got very little analysis in the media but surely it has quite profound implications for ‘Sovereignty’ (in MMT terms).

    4. Andrew Wilkins says:

      @Tom

      \”Remarkably, many not-so-well-off Americans are willing to trade away shared prosperity for a vague opportunity to become wealthy, apparently unmindful that social mobility in the US is very low. For most people, the only realistic way upward is through winning the lottery.\”

      I wonder how much of this phenomena can be attributed to the incredible media propoganda machine. 24 hour right wing news porn, absurdly biased news rags, Hollywood dream factory and endless hero worship of celeb\’s. I find it ironic that the ubiquitous Big Brother government surveillance in George Orwell\’s 1984 didn\’t really manifest itself as portrayed by Orwell. However the incessant public mind control has!…. Newspeak has manifested itself in the form of faux news and other extreme right wing media machinations. We didn\’t see that coming did we!

      Hope in the proles? …… hooked on 24 hour cable, crack cocaine and mega millions …… God help us all.

    5. Podargus says:

      Ray,you are not playing Devil’s Advocate,you are playing the Fool.Comparing two equally broken systems is not going to arrive at any practical solution to any problem.

    6. Andrew Wilkins says:

      @Ray,

      Equity in wealth distribution sounds great in academia but I wonder if the really smart people see it as equitable?

      I’m suprised. Just being devils advocate or do you really think any commentors on this blog have been proposing equal wages for all and forced re-distribution of wealth?

      Firstly you are a fool if you actually believe we live in a meritocracy. Secondly, most left wing commentators are in fact espousing an egalitarian meritocracy. Looking to address inequality of opportunity and improve the negotiating power of labour. Merely to reverse the backward trends of the past 30 years, would be a victory. It’s about living in a desirable society with checks and balance on excessive unelected power and capital leverage. It’s why we have a little things called voting and progressive taxation.

      “Admittedly, it was a pity the 2 weren’t in a race to discover the cure for cancer or global famine however it is very clear which type of system produces the greater achievements.”

      They were in a race. Crony capitalism is the uncontested winner causing famine in Africa and Asia. China under communist rule are the clear winners. True, capitalism has produced more cures for cancer and other diseases but it’s only available to a few. Communist states in India have told them where to stick their IP and cured many millions more. The world is a complex place isn’t it.

      It’s getting boring to construct counter arguments based on the failures of a corrupt, totalitarian, Stalinist, command economy. Who is proposing anything close to a Stalinist regime? Besides, look at the success of command economy US policy. Roosevelts’ new deal, atom bomb, rearmament for the war effort and space programs. Who was in space first USSR or USA?

      Any left winger could easily point to the the extremes of neo-liberal crony capitalism in Mexico, Pinochet Chile, Burma etc. No authoritarian extreme is a good option. Although I suspect you would be the first to squeeze on a pair of tight boots and strut around with a riding crop. In any case the major problems of the world are usually about greed, corruption and standards of governance rather than any particular ideology.

    7. Senexx says:

      Ray, I like to think of equity as equality of opportunity. To have equality of opportunity, you have to know that opportunity is available and educated enough to be able to take advantage of that opportunity. We are all limited by our location, education, transport availability. These opportunities are not available everywhere and never will be with the current trickle down theory. All it does is enforce the status quo. The correct name for people that want to keep the status quo are conservatives.

      If we were to implement some of the ideas Bill proposes there would be equality of opportunity everywhere.

      As an individual, an unpaid one at that, I see my contribution to society as greater than many others given the community work I do but I don’t throw people into the false two-dimensional paradigm of left and right. That’s just childish behaviour and politicking. I also know of many hard working intelligent and capable university students, well former students now, that haven’t had an opportunity.

      If you read some of Bill’s work he’s not proposing communism where everyone gets an equal share – the market still plays it part and he shows us operationally exactly where the money comes from whether his plan is implemented or not. The top end will still make millions, the bottom end will still makes a lot less with Bill’s plan but now they can afford to feed their family, feel worthwhile and are now able to live life that’s not a constant struggle where they can never get ahead. They can feel better about themselves.

      Bill will be aghast to hear me say it but in many ways he’s a conservative too. He wants to return to the way things were before (status quo ante) with full employment.

    8. /L says:

      Sometimes one wonder if European leaders are obsessed with ”gold standard”. 1969 after US de facto had abandoned free gold convertibility “EU” planned for fixed currency regime and in 1972 they come up with the currency snake, there were repeated currency crises. Around 1980 they come up with EMS witch finally cracked in the beginning of the 1990s. But they where stubbornly in to fixed exchange rates and dreamed up the common currency, the basic concept was sort of if we lock them up and throw away the key it must work this time.

      Insanity: doing the same thing over and over again and expecting different results.
      Einstein

    9. JKH says:

      “The fact is that MMT is not a futuristic description – it describes how the monetary system operates NOW. It provides insights into why things happen at the macroeconomic level now. It tells you what the implications of voluntary constraints that governments might impose on themselves – including the imposition of the EMU on national governments, which were previous fully sovereign in their own currency.”

      It’s a description of current operations where the analytical framework draws heavily on the acknowledgement of a feasible alternative (or “futuristic”) scenario – the lifting of self-imposed constraints.

      This alternative may well be the “base case” from an MMT perspective. But what is in place now is distinct from it – a toxic, structural derivative of it, perhaps, again from an MMT perspective.

      Many readers struggle still with their own impressions of ambiguity around this point of comparison. Witness the continuing, recent, extensive comment discussions on this site around the language and meaning of the term “constraint”.

      “Debates in modern monetary macro” continue, much of it language and framework based.

    10. Ray says:

      Senexx says:
      Monday, December 6, 2010 at 19:49
      “Bill will be aghast to hear me say it but in many ways he’s a conservative too. He wants to return to the way things were before (status quo ante) with full employment”
      Senexx, some interesting points in your post.
      I wonder sometimes whether the “good old days” of full employment in Australia ended with the advent of militant unionism? Is it co-incidence that the days of full employment aligned with limited workers’ rights and now underemployment is occurring with far more employee-friendly working conditions, equality, flexibility etc?
      I can’t agree with AW’s assessment that the employee is somehow trodden upon in modern society given the amount of regulation that has occurred and how in decades past there was far less legal recourse for the worker against a harsh employer.

    11. Ray says:

      And by the way, I am all for Assange and his WikiLeaks. Bring it on.

      At last those inept, corrupt and scheming officials within governments are being exposed. Anyone in business understands that if you write it down then expect it to be there as evidence one day.

      Some of the stuff goes well beyond embarrassment. It is more frightening that our elected leaders seem to believe they possess a mandate that they don’t.
      Kevin Rudd should be immediately fired for even suggesting that one superpower may need to engage in force against another. Many in industry have forged very strong ties with the Chinese which those in Government clearly don’t understand.

      AW’s model prima facie Chinese society is not the communist one at all. It is the new capitalist China which has emerged in the free markets and become a willing participant in the global sandpit (notwithstanding continued appalling human rights abuse and neglect of the peasant class).

    12. Andrew Wilkins says:

      I can’t agree with AW’s assessment that the employee is somehow trodden upon in modern society given the amount of regulation that has occurred and how in decades past there was far less legal recourse for the worker against a harsh employer.

      I didn’t say that. You made it up Ray.

      The employer has lost wage negotiation power. That’s why the wage share is declining. I don’t buy the justification of increase in profit share because of productivity gains from capital investment.

      When was the last time you worked? Maybe you haven’t experienced the joys of modern day corporate HR practices. Subjective performance assessments, relative ranking, stacking, “talent management” of the bottom 10% and other delights. They over reward selfish individualism and punish teamwork. There is a colossal disparity in reward for executive levels vs career professionals. I’ve been working for 25 years and it ain’t getting fairer and better. A recent CEO claimed 20% of the workforce are doing 80% of the work and would be rewarded accordingly. He of course awarded himself millions. It’s made crystal clear the doors are open if you don’t like it and there’s never a guarantee you can feed your kids comfortably if you walk out. It’s dog eat dog and watch your back. I am capable and I can survive OK. I just think life can be a lot better for everyone.

      You have some Victorian picture of harsh employers and cloth capped brawny workers. It’s not like that. It’s under rewarded engineers, technicians, and disenfranchised back office staff. They are falling further behind, whilst profits increase and the top brass share the spoils.

      Then of course there are the real power crazed elites, billionaire sociopaths and their ilk. But that’s another story.

    13. Andrew Wilkins says:

      AW’s model prima facie Chinese society is not the communist one at all. It is the new capitalist China which has emerged in the free markets and become a willing participant in the global sandpit (notwithstanding continued appalling human rights abuse and neglect of the peasant class).

      Not my favorite state Ray, been there, don’t like it much. It is a socialist state and it’s hardly a paragon of free markets. Unless corruption and cronyism is part of the deal. Some aspects are good and some are bad, we shouldn’t over generalise to fit an ideological preferences.

      The point (spoiled by a typo) was that the centrally planned Chinese communist economy was hugely successful alleviating hunger. Unlike the IMF and some of the wonderful free market economics of the late 20th century.

    14. Greg says:

      Ray

      I too find the competition between USSR and USA to be quite enlightening. We DID do things better. Warren Mosler describes it here quite well

      http://www.youtube.com/watch?v=21B3_MmERe8&feature=related

      Watch the first 10 minutes or so and he’ll talk about the cold war and how the systems differed. Essentially he says that Russia tried to be a net exporter to their sphere of influence and ended up bleeding them selves dry while the US was a net importer FROM their sphere of influence and made them selves richer in real terms while providing jobs for the Germans, Japanese and Vietnamese who began producing stuff to send to the American market. Its a fascinating and true story that Ive never heard told in this manner. In addition, it becomes clear that where we went wrong was in maintaing this demand via private credit (by not keeping taxes low enough and wages high enough.)

      We DID do things better but now we are becoming just like them, with a govt that is a crime syndicate in bed with oil interests and bankers. Todays America is not the 1970s/80s America. We are being run by corporatist thugs not public servants.

    15. Editorial note says:

      The employer has lost wage negotiation power….should read…. The employee has lost wage negotiation power.

      The typesetter will be taken out and executed at 7am in the morning.

    16. Keith Newman says:

      Re Sennex @ 19:49
      I’m not sure why you write that running an economy at full employment is conservative. I think the issue is what goods and services are being produced at full employment and how they are distributed. Does full employment advance the public good by making a reasonably good life possible for everyone in a way that is environmentally sustainable? Does it concentrate wealth and power at the top end? Does it perpetuate a war economy than crushes many people’s well being? Etc.

    17. Alan Dunn says:

      Ray.

      Bay of Pigs.

      /thread.

    18. Alan Dunn says:

      Ray

      Life expectancy of a Cuban is greater than an American.

    19. Ray says:

      Ray
      “I too find the competition between USSR and USA to be quite enlightening. We DID do things better. Warren Mosler describes it here quite well
      http://www.youtube.com/watch?v=21B3_MmERe8&feature=related
      Watch the first 10 minutes or so”

      that’s a good listen Greg…I watched the earlier bit too.

      Alan Dunn says:
      Tuesday, December 7, 2010 at 11:03
      Life expectancy of a Cuban is greater than an American.

      Alan,
      hot women, good hooch and cigars, what do you expect? ;)

    20. David says:

      Well, you can compare the U.S. and the U.S.S.R. through the lens of “capitalism vs. communism” but how do you explain the postwar success of Germany and Japan who both had higher growth rates than the U.S. and arguably superior outcomes in terms of social equity. They both were exempted from the cold war arms race which may be part of it and both had rather highly “planned” and controlled economies. If we want to explain Germany and Japan there are certain facts to account for that don’t easily fall into a simple planned economy vs. laissez faire dichotomy.

    21. Ray says:

      David,
      yes agreed. Clearly, sustaining an active armed forces is counter to achieving the highest possible economic prosperity and one must expect the billions (trillions) that ends up with a relatively few corporations (Haliburton, McDonnel Douglas, Boeing, Ratheon etc etc) is in itself creating inequity in wealth distribution.

      I am trying to get my head around an example of a society that has employed MMT principles the closest to how those who advocate MMT principles. Sweden of the 80s and 90s perhaps? high social welfare benefits, education, hospitals but extremely progressive/punitive taxation?

    22. Tom Hickey says:

      Ray: I am trying to get my head around an example of a society that has employed MMT principles the closest to how those who advocate MMT principles.

      This question amounts to whether any country has managed to achieve full employment (~2%) with price stability over time using functional finance principles. Anyone?

    23. Tom Hickey says:

      Two interesting developments on Assange and Wikileaks. First, Wikileaks revealed that it has positioned a poison pill in the form of an encrypted download of its unreleased archive, which apparently contains some really “sensitive” stuff, and it stands ready to release the password if anything should happen to Assange. Secondly, shadow groups not associated with Assange have taken the attack on Wikileaks as an attack on open information and have launched denial of service attacks in retaliation, taking down the site of the Swiss bank that froze the Wikileaks account. A lot of people take free information flow as seriously as neoliberal take “free markets, free trade and free capital flow.” i.e., they are willing to fight for it.

    24. David says:

      “oops, i meant to say a society that has evolved closest to how those who advocate MMT principles.”

      Ray, that one’s a little tougher to answer because the neo-liberal paradigm has been so pervasive in the last few decades. The Scandinavian countries have tried to maintain their commitments to greater social equity, but they have proceeded under the assumption that it had to be “paid for” through higher taxes. I don’t know of a country that has said “we will spend what we need to spend to ensure full employment, let our currency fluctuate freely and let the bond vigilantes, the IMF, etc. be damned.”

      The German and Japanese examples have relevance despite the different international environment that prevails today. They seemed to have a more sophisticated understanding of banking and money and how coordination between the banking system and the government can advance social purposes than our current crop of blinkered finance ministers and central bankers are able to muster. In that sense there are valid analogies to be drawn between them and MMT.

      I remember the old joke that said “the West German economy is like the bumblebee. It seems to be aerodynamically unsuited for flight.” It never occurred to the jokers, of course, that maybe they were applying the wrong “aerodynamics.”

    25. Tom Hickey says:

      Ray: If I may play Devil’s Advocate; One might argue that many individuals see their own worth or contribution to society variously greater or lesser than others and as such view ‘shared prosperity’ as an imposition of forced equality by extreme leftists. Following on from this, the creative juices in many would be replaced by a mediocrity society-wide. A good example of this (given you have mentioned the US) is the nuclear and space race competition between the US and USSR, one society rewarded by profit/fame and the other threatened by the fear of the Gulag. The US outperformed the USSR by every measure of technology and productivity.

      Ray, if you lived in the US, I’d say that you had been listening to too much Glen Beck. This is the argument against “the left” offered by the far right here. For them anything that is not Ayn Rand Libertarian is “Marxist-Socialist-Communist-Fascist.” Yes, they equate fascism with socialism, too, since Nazi stood for “national socialism.” Rep. Steve King wants a revival of the McCarthy hearings to root out the Marxists, echoing Rep. Michelle Bachman’s call some time ago to root out from Congress those who are “un-American.” This cohort includes some members of its own party who are not pure enough, many of whom have already been purged. The term “Jacobin” is being aptly applied to them.

      As other have pointed out, this stark dichotomy between right and left is a caricature — a figment of an overly vivid imagination running wild with a fixed ideology. I certainly don’t want to accuse you of this type of thinking, Ray, but just sayin’. When someone asserts this dichotomy, these are the associations that come up.

      To the point though. Ideologies are neither true nor false. Only descriptive propositions make assertions are true or false. Political ideologies, scientific theories, religions, and institutions in general are frameworks for organizing data iaw rules. The rules are norms that may sometimes look like descriptions, but they function differently in that they provide criteria. Criteria are privileged from falsification, since they are the standard by which truth and correctness are adjudicated in that system, like criteria of analyticity in math — axioms and postulates. The test of a framework is principally pragmatic. However, to the extent that the criteria contain descriptive content, they are examinable from outside of the system, e.g., the assumption of rationality in economics can be critiqued from the vantage of other disciplines that study this phenomenon.

      What I am saying is that the dominant ideologies in political economy are twofold. The first position (“liberalism”) holds that pursuit of individual self-interest through competition as a rule or norm yields the most efficient results and efficiency is the chief criterion. This presupposes that society is a random aggregate of individuals functioning separately without common purpose and that each individual should have the opportunity to compete unfettered. The belief is that there is an “invisible hand” guiding the process toward the most efficient outcome, and if the previously stated rules are followed, then the most efficient outcome is guaranteed thereby. The evidence offered is one passage in Adam Smith’s The Wealth of Nations that mentions the invisible hand. A lot of modeling has been done to show this and a lot of data adduced to establish it, but the results are controversial. As Joseph Stiglitz said recently, referring to recent events, “There is no invisible hand.”

      The second position (“solidarity”) holds that human beings are inherently social and that society is a system of interdependent relationships that use various rules as appropriate — competition, cooperation, and coordination, for example, and that social life is collectively purposive — by pursuing the good of the whole an individual pursues its own good when considered from the larger perspective. There is a huge body of scientific research backing this up in many live forms. For example, it is known that social animals have larger brains relative to body mass than non-social, apparently because social life requires more intelligence for cooperation and coordination than competition alone. In certain situations competition is the most efficient means, whereas in other situations cooperation and coordination are more efficient. However, efficiency is the servant of effectiveness, since collective purpose is the criterion in terms of which goals are set. Social animals strive to survive and progress as a social group not merely as individuals.

      Human beings are an advanced instance of this in that human beings have reflexive consciousness and can learn instead of relying on instinct. They can also use language and generalize (conceptualize) broadly. Language is inherently social. Through language human beings not only communicate but also reflect, critique and create. They are capable of reflecting on their frameworks, critiquing them, and creating not only modifications but entirely new frameworks, and testing them, as well as changing them based on feedback. This ability involves a huge amount of capacity for cooperation and coordination, and it is the source of human progress.

      Human society has not progressed through competition alone or even chiefly. Progress has been the result of a combination of competition, cooperation, and coordination, with cooperation and coordination having been more significant in the larger picture than competition among individuals. For example, the Roman legions conquered “barbarians” who were used to hand to hand combat using the phalanx as a human tank.

      On a more specific note, the presumption that the West won because capitalism outperformed communism owing to superior design (freedom, incentive, meritocracy) is assumed, not proven. It can be argued that Soviet communism failed owing to corruption and that Western capitalism is in the process of failing for similar internal reasons, chiefly corrupt elites that bent the rules to their own advantage. See, for example, the work of economic historian Ravi Batra on this. His principal work on this subject is The Downfall of Capitalism and Communism (1978, rev. 1990).

    26. Ray says:

      thanks Tom, interesting reading.

    27. Senexx says:

      Keith, I say it is conservative because to be conservative as I stated you either want the status quo kept or want to go to the way things were before. To have things the way they were before is also conservative (in latin “status quo ante”). We’ve had full employment before.

    28. Dismayed says:

      Ray: “If I may play Devil’s Advocate; One might argue that many individuals see their own worth or contribution to society variously greater or lesser than others and as such view ‘shared prosperity’ as an imposition of forced equality by extreme leftists. Following on from this, the creative juices in many would be replaced by a mediocrity society-wide. A good example of this (given you have mentioned the US) is the nuclear and space race competition between the US and USSR, one society rewarded by profit/fame and the other threatened by the fear of the Gulag. The US outperformed the USSR by every measure of technology and productivity.”

      You’ve chosen a crude rhetorical device of presenting anything different from your view as the polar extreme. I haven’t heard anyone here arguing for wage equality. Do you have aspirations of being on Faux News?

      So you’re arguing that we’re better off keeping people unemployed? And you’re arguing that employing the unemployed is equivalent to communism?

      As for the Russian space program, you’re totally ignoring what they did accomplish (source is Wikipedia):

      The Soviet space program pioneered many aspects of space exploration:

      * 1957: First intercontinental ballistic missile, the R-7 Semyorka
      * 1957: First satellite, Sputnik 1
      * 1957: First animal in Earth orbit, the dog Laika on Sputnik 2
      * 1959: First rocket ignition in Earth orbit, first man-made object to escape Earth’s gravity, Luna 1
      * 1959: First data communications, or telemetry, to and from outer space, Luna 1.
      * 1959: First man-made object to pass near the Moon, first man-made object in Heliocentric orbit, Luna 1
      * 1959: First probe to impact the Moon, Luna 2
      * 1959: First images of the moon’s far side, Luna 3
      * 1960: First animals to safely return from Earth orbit, the dogs Belka and Strelka on Sputnik 5.
      * 1961: First probe launched to Venus, Venera 1
      * 1961: First person in space (International definition) and in Earth orbit, Yuri Gagarin on Vostok 1, Vostok programme
      * 1961: First person to spend over 24 hours in space Gherman Titov, Vostok 2 (also first person to sleep in space).
      * 1962: First dual manned spaceflight, Vostok 3 and Vostok 4
      * 1962: First probe launched to Mars, Mars 1
      * 1963: First woman in space, Valentina Tereshkova, Vostok 6
      * 1964: First multi-person crew (3), Voskhod 1
      * 1965: First extra-vehicular activity (EVA), by Aleksei Leonov, Voskhod 2
      * 1965: First probe to hit another planet of the Solar system (Venus), Venera 3
      * 1966: First probe to make a soft landing on and transmit from the surface of the moon, Luna 9
      * 1966: First probe in lunar orbit, Luna 10
      * 1967: First unmanned rendezvous and docking, Cosmos 186/Cosmos 188. (Until 2006, this had remained the only major space achievement that the US had not duplicated.)
      * 1969: First docking between two manned craft in Earth orbit and exchange of crews, Soyuz 4 and Soyuz 5
      * 1970: First soil samples automatically extracted and returned to Earth from another celestial body, Luna 16
      * 1970: First robotic space rover, Lunokhod 1 on the Moon.
      * 1970: First data received from the surface of another planet of the Solar system (Venus), Venera 7
      * 1971: First space station, Salyut 1
      * 1971: First probe to orbit another planet (Mars)Mars 2
      * 1971: First probe to reach surface and make soft landing on Mars, Mars 2
      * 1975: First probe to orbit Venus, to make soft landing on Venus, first photos from surface of Venus, Venera 9
      * 1984: First woman to walk in space, Svetlana Savitskaya (Salyut 7 space station)
      * 1986: First crew to visit two separate space stations (Mir and Salyut 7)
      * 1986: First probes to deploy robotic balloons into Venus atmosphere and to return pictures of a comet during close flyby Vega 1, Vega 2
      * 1986: First permanently manned space station, Mir, 1986–2001, with permanent presence on board (1989–1999)
      * 1987: First crew to spend over one year in space, Vladimir Titov and Musa Manarov on board of Soyuz TM-4 – Mir

      But, hey Ray, you don’t dwell in the realm of fact.

    29. PG says:

      “If you read some of Bill’s work he’s not proposing communism where everyone gets an equal share”

      Just to get meanings correct. Communism is not defined by everyone getting an “equal share”, rather by the principle “From each one according to her/his capability; to each one according to his/her needs”. This does not translate to an “equal share” for everyone.

      Furthermore, an “equal share” is a very elusive idea. Actually, the only people I know to propose an “equal share” for everyone (in individual consumption only) were the Technocrats of Technocracy on the basis of a curious argument. They observed that the energy equivalent of the maximum amount of work that a human being can produce per day is about 2.5 kilowatt*hour. Under the conditions of industrial production, this amount is nearly irrelevant to the total amount of energy used, and, so they argued, does not provide a rationale for distinguishing among people with regard to the work done. Of course, they were thinking in the 20s and the 30s before information and information processing were recognized as components in production.

      Some indicative numbers just to get an idea of the energy magnitudes involved.
      Energy consumption at rest (ECR) for humans by day: approx. 2 kilowatt*hour
      Additional energy consumption per day for a “very vigorous lifestyle”: approx. 1.25 * ECR = 2.5 kilowatt*hour
      Average energy consumption for 1 $ in GDP US (2004): approx. 2.5 kilowatt*hour
      Minimum wage per day at 8 $ / hour: 64 $

      It seems that:
      - The notions of an “equal share” or of an “according to merit share”, whilst seeming intuitive at an emotional or ethical level, are extremely difficult to define in measurable terms.
      - Information and, above all, information control are worth a lot over physically measured work in producing and distributing output. (Factual judgment – no value judgment implied.)

    30. Keith Newman says:

      For Dismayed:

      The Soviets also had terrific hockey players and came within seconds of beating Canada at our own national sport of ice hockey in 1972!

    31. Senexx says:

      PG I agree with you that communism is not defined that way and nor is socialism but that’s the modern interpretation put upon it.
      It is still wrong though, it’s just like “the holocaust” which effectively denies the holocausts that came before and after it. The terminology is still incorrect. The use of the phrase was to get the point across not to correct the ill-informed from their miseducation.

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