I have received several E-mails over the last few weeks that suggest that the economics…
We gonna smash their brains in
I get a lot of hate E-mail. The hate used to be expressed in handwritten tomes from those with old typewriters and too much time on their hands. Sometimes there would the anonymous phone call telling me that if I kept advocating the closure of say the coal industry (my region has the largest coal export port in the world) I wouldn’t see the week out. More often these days the spleen comes via E-mail from rather odd addresses (made up hotmail etc) telling me that I am a waste of space because I support active fiscal intervention to restore full employment. “How can I care so much for the unemployed … they are the dregs of the earth and would be better shot … like you” is a typical turn of phrase. Anyway, I notice that the right-wing always gets personal when evidence against their claims is produced. Then they slink back to their desks and determine that the facts before them are not facts at all (because they violate their ideological precepts) and precede to reinvent history. This exercise is otherwise known as making stuff up. I think in these situations interaction is less productive than action. Accordingly I regularly sing to myself as I work – “We gonna smash their brains in – Cause they ain’t got nofink in ’em” (curious? see later)!
On the topic of hate – and not at all typecasting myself or comparing myself with anyone – I love this speech from FDR at Madison Square Gardens in 1936 as he was campaigning for re-election. The full transcript is available HERE.
Here is a sample to remind you that not much changes:
It is needless to repeat the details of the program which this Administration has been hammering out on the anvils of experience. No amount of misrepresentation or statistical contortion can conceal or blur or smear that record. Neither the attacks of unscrupulous enemies nor the exaggerations of over-zealous friends will serve to mislead the American people.
What was our hope in 1932? Above all other things the American people wanted peace. They wanted peace of mind instead of gnawing fear.
First, they sought escape from the personal terror which had stalked them for three years. They wanted the peace that comes from security in their homes: safety for their savings, permanence in their jobs, a fair profit from their enterprise.
Next, they wanted peace in the community, the peace that springs from the ability to meet the needs of community life: schools, playgrounds, parks, sanitation, highways-those things which are expected of solvent local government. They sought escape from disintegration and bankruptcy in local and state affairs.
They also sought peace within the Nation: protection of their currency, fairer wages, the ending of long hours of toil, the abolition of child labor, the elimination of wild-cat speculation, the safety of their children from kidnappers.
And, finally, they sought peace with other Nations-peace in a world of unrest. The Nation knows that I hate war, and I know that the Nation hates war.
I submit to you a record of peace; and on that record a well-founded expectation for future peace-peace for the individual, peace for the community, peace for the Nation, and peace with the world.
Tonight I call the roll-the roll of honor of those who stood with us in 1932 and still stand with us today.
Written on it are the names of millions who never had a chance-men at starvation wages, women in sweatshops, children at looms.
Written on it are the names of those who despaired, young men and young women for whom opportunity had become a will-o’-the-wisp.
Written on it are the names of farmers whose acres yielded only bitterness, business men whose books were portents of disaster, home owners who were faced with eviction, frugal citizens whose savings were insecure …
For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up.
We had to struggle with the old enemies of peace-business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.
They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.
Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me-and I welcome their hatred.
I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.
The rest of the speech is well worth studying as it documents much more clearly than current Presidential speeches the class divisions in American politics and the lying, cheating power elites that will do anything to keep the interests of capital and government closely aligned. Any hint that government might stray towards helping workers attain a modicum of security and “peace” (in FDR’s words) is resisted by the conservatives.
I have been studying the economic history of the Great Depression again a lot lately because it is clear that it is a major headache for the conservatives who are increasingly revising the actual facts to justify the claim that the New Deal made things worse and deprived people of their liberty.
It is an argument that almost anyone who lived through the period would laugh at. Only conservatives in well-paid jobs or independent means of income at the time would have dared to suggest that the jobs programs were anything but essential.
I love this cartoon from the period that portrayed the well-to-do that went to the Trans-Lux theatre in New York to hiss FDR. The exhibit at the Library of Congress says it was drawn by one Peter Arno who:
… lampoons a group of middle-aged socialites hissing at President Franklin D. Roosevelt at the Trans-Lux, a popular New York theater. In this drawing, unlike the published version, the group appears scantily dressed, perhaps for a costume party. Though highly popular with most Americans, Roosevelt was strongly disliked by many members of the conservative, social elite. The Trans-Lux often screened newsreels that featured the president.
The modern revisionists – many of them rabid Austrian Schoolers – are now claiming that the public works programs introduced by FDR made the Great Depression worse – for example, HERE (read this in-between meals so as not to sacrifice your nutritional levels). There are many similar examples of this sort of bile which pretends to carefully examine the historical record but essentially just makes the record up to suit.
One of the worst examples I have read is from regular right-wing Bloomberg commentator Amity Shlaes who wrote a book along similar lines (The Forgotten Man) which grossly misused the official data to suit her argument. Trying to prove that FDRs public works programs didn’t reduce the unemployment rate she counted the workers employed in those programs as unemployed. That is just one of many errors in scholarship that you will find in that book. It is a disgraceful piece of work.
This Politico article (February 13, 2009) – Revisionists’ blind view of New Deal – by Matthew Dallek is on sound historical ground.
Please read my blog – The conservative reconstruction of history – for more discussion on this point.
Anyway, the attacks on FDR are clearly motivated at warning the current US administration away from introducing any such programs which are the only way a government can effectively eat into entrenched unemployment and get the economy moving again when the real economy has slipped as much as it has.
I note that the current US President doesn’t sound anything like FDR in his speeches. By his words and actions he is pitching policy towards “organised money” and not towards the “millions who never had a chance-men at starvation wages, women in sweatshops, children at looms” and not towards those desperate “young men and young women for whom opportunity had become a will-o’-the-wisp.”
Which brings me to the topic of the blog – welfare systems. I read an interesting (academic) article today – Falling Short of the Promise: Poverty Vulnerability in the United States and Britain, 1993-2003 – which was published in The American Journal of Sociology, Vol. 116, No. 1 (July 2010), pp. 232-271 (Thanks Scott for the source). The link will only allow you to download the article if your institution has access to JSTOR.
So what is this article about? Simple, the neo-liberal attempts to dismantle the welfare systems that were put in place in various forms after the Second World War to protect workers from income fluctuations arising from the vagaries of the market and/or other sources of insecurity (sickness, old-age, etc) have increased the vulnerability of people to poverty and disadvantage.
Surprised? I wasn’t because I see this sort of research often and have done work in this area myself. For example, we cover these themes in our 2008 book – Full Employment abandoned.
The fact is that this type of research – documenting the damage the neo-liberal policy structures have caused – is getting easier to do because the datasets available are longer in duration – that is, we are now getting more and more data and longer time-series which makes standard statistical analysis more credible.
As I have written before, the conservatives have made an art form of denying mass unemployment. To justify abandoning full employment the mainstream economics theories had to reconstruct mass unemployment.
The world-wide neo-liberal resurgence came in the mid-1970s as governments around the world reacted poorly to the OPEC oil shocks. The contractionary policies designed to quell inflation caused a surge in unemployment and the economic dislocation that followed provoked a paradigm shift in macroeconomics. The overriding priority of macroeconomic policy shifted towards keeping inflation low and eschewed the use of active fiscal policy. Concerted political campaigns by neo-liberal governments, aided and abetted by a capitalist class intent on regaining total control of workplaces, hectored communities into accepting that mass unemployment and rising underemployment was no longer the responsibility of government.
As a consequence, the insights gained from the writings of Keynes and others into how deficient demand in macroeconomic systems constrains employment opportunities and forces some individuals into involuntary unemployment were discarded. Mass unemployment was no longer constructed as a systemic failure (deficient aggregate spending). Policy makers progressively adopted Milton Friedman’s conception of the natural rate of unemployment which redefined full employment in terms of a unique unemployment rate (the NAIRU) where inflation is stable. The NAIRU is allegedly determined by supply forces and is invariant to Keynesian demand-side policies.
The resurgence thus alleged that free markets guarantee full employment (that is, Say’s Law which was discredited in the 1930s) and claimed that Keynesian attempts to drive unemployment below the NAIRU would be self-defeating and inflationary.
The NAIRU approach alleges that individuals “choose” unemployment by not searching effectively for available jobs, by failing to develop appropriate skills, by having poor work attitudes (that is, being plain lazy), and by being overly selective in terms of jobs they would accept.
Governments reinforce this individual lethargy by providing income support payments and imposing restrictive regulations on hiring and firing.
Neo-liberals claim the role of government should be restricted to ensuring individuals are “employable” which involves making it harder to access income support payments by imposing pernicious compliance programs; reducing or eliminating other “barriers” to employment (for example, unfair dismissal regulations); and forcing unemployed individuals into training programs to redress deficiencies in their skills and character.
As the neo-liberal ideology became entrenched in the policy making domains of government, advocacy for the use of discretionary fiscal and monetary policy to stabilise the economy diminished, and then vanished. The rhetoric was not new and had previously driven the failed policy initiatives during the Great Depression.
However, history is conveniently forgotten and Friedman’s natural rate hypothesis seemed to provide economists with an explanation for high inflation and alleged three main and highly visible culprits – the use of government deficits to stimulate the economy; the widespread income support mechanisms operating under the guise of the Welfare State; and the excessive power of the trade unions which had supposedly been nurtured by the years of full employment.
All were considered to be linked and anathema to the conditions that would deliver optimal outcomes as prescribed in the neoclassical economics textbooks. With support from business and an uncritical media, the paradigm shift in the academy permeated the policy circles. After the policy commitment to full employment was jettisoned, unemployment accelerated and has never returned to the low levels that were the hallmark of the Keynesian period.
It was alleged that governments could only achieve better outcomes (higher productivity, lower unemployment) through microeconomic reforms. As a result, governments began cutting expenditures on public sector employment and social programs; culled the public capacity to offer apprenticeships and training programs, and set about dismantling what they claimed to be supply impediments (such as labour regulations, minimum wages, social security payments and the like). Privatisation and outsourcing accompanied these policy shifts.
The agenda was clear – reduce government protection of the weak and transfer power to employers by undermining the capacities of trade unions to bargain for advantage.
That the NAIRU approach seduced governments at all is more difficult to understand given the fact that since 1975 there have never been enough jobs available to match the willing labour supply in most nations. It was absurd to base income support payments on relentless job search when there were not enough jobs to go around.
It was inefficient to force the unemployed to engage in on-going training divorced of a paid-work context. But all that was lost on these ideologically-obsessed governments and their policy advisers. The flawed doctrine of full employability mainly functioned to subsidise the needs of private capital by suppressing wages and conditions and creating desperation among the unemployed.
There is also compelling evidence from developing countries that the type of programs that FDR introduced – broad-based public works – reduce poverty because they provide employment.
In 2008 I did some work for the ILO in South Africa, which involved an evaluation of the South African Expanded Public Works Programme (EPWP) and designing a minimum wage framework for the scheme (and hence the economy as a whole). I found without reservation that poverty rates fell when these schemes were introduced.
Please read the blogs that this search string generates for more discussion of the role of employment creation in less developing nations.
Anyway, back to the main topic.
The article – Falling Short of the Promise: Poverty Vulnerability in the United States and Britain, 1993-2003 – notes that:
In early industrializing nations, poverty was the expected life-long condition of a large segment of the population. Those born into the working class almost certainly faced a future at or barely above the level of subsistence. The rise of modern welfare states in the mid-20th century saw the establishment of a variety of measures aimed at protecting vulnerable members of society from serious want … The promise of the welfare state was that it would improve the long-range picture for those at risk of poverty by redistributing social and economic resources.
It is clear that the welfare states reduced poverty. Many credible references (I know the research) are cited to support this contention. But at the same time, over the last two decades or so, the previous trends towards eliminating poverty in advanced nations has been reversed.
The authors say that “in many welfare states a share of the population continues to experience recurrent or persistent deprivation” and this has been exacerbated by the “refashioning of social safety nets during the 1990s-most notably in the United States and Britain”.
They choose to compare United States and Britain to see:
… how well the promise of the welfare state is being fulfilled in an era of reform … The United States and Britain make useful case studies of poverty dynamics, risk factors, and the impact of social transfers. Both are classed as liberal, or minimally redistributive, welfare states … and both established welfare-to-work programs during the 1990s …
The comparison is interesting because the authors also note that there are some key differences in the way the two nations have behaved during the neo-liberal onslaught on the welfare system:
Britain’s policies-for example, universal child benefits and inclusive access to unemployment compensation and housing support-are more closely linked to those of the highly redistributive European social democratic welfare states … In addition, the British government explicitly prioritized poverty reduction from 1997 onward and introduced a wide range of programs aimed at accomplishing this … By contrast, American reforms focused on slashing welfare rolls and devoted less attention to poverty reduction or to the structural supports (e.g., child care and health benefits) that make paid work economically viable for the poor …
I won’t go into the technical detail of their study which uses econometric modelling to make the comparisons. Based on the differences noted in the way the “reform” process has been implemented in both nations, the authors expected “to see differences between the two countries with respect to poverty vulnerability, despite their broadly similar approaches to social welfare”.
So what did they find?
The authors provide an excellent literature review. One of the recurring findings in the literature is that:
… poverty patterns conform broadly to predictions drawn from welfare regime theory. Rates and durations are lowest in nations where programs are most redistributive and highest where they are least so … Likewise, poverty’s association with social class and with market-related risks such as unemployment appears especially strong in liberal welfare states …
The authors conclude (after controlling for many known causes of poverty and correcting for common measurement errors) that:
1. “… poverty is not as temporary as has been suggested in the bulk of research on observed individual poverty dynamics … in the United States, persistence rather than transience was the dominant form of hardship experienced over this decade-long period”.
2. “Our results also modified the view that poverty risks are widely dispersed across the population. Instead, we determined that nearly half of each
national sample was expected never to fall below 60% of the median income (the stayer group).”
3. “… vulnerability is concentrated among those with particular social characteristics”.
4. “The model estimates also highlighted differences between these two reforming liberal welfare states with respect to the kinds of poverty histories engendered. Persistence, though evident in both countries, was seen to affect twice the proportion of working-age Americans as Britons. Moreover, in the United States, persistence characterized the majority of poverty experiences over the decade, whereas in Britain, occurrences were most often temporary.”
5. Poverty “risks were considerably less equitably distributed in the United States than in Britain”.
6. “These results all point to differences between the United States and Britain with respect to how well their social safety nets protect vulnerable citizens from want. Our analysis of the direct impact of redistributive programs on individual poverty dynamics shed additional light on this distinction. In general, we found that Britons were better protected by social transfers than Americans. British programs were more effective at reducing poverty persistence, at increasing the probability that those who were poor would escape the following wave, and at reducing the risks attached to social location.”
What do the authors think their work means for policy?
They argue that in contrast to the neo-liberal policy approach that “shifted … emphasis from endorsing redistribution and institutional change to promoting individual responsibility and positive life course planning … [which] … is nowhere more evident than in the United States …” their research finds that:
… over a period in which both nations’ governments enacted reforms based on notions of individual responsibility, many vulnerable citizens were left still wanting. At the same time, the comparative story is one in which Britain’s stronger social safety net and explicit commitment to poverty reduction were associated with less persistent poverty and less vulnerability based on social location. That story, evidenced here in multiple ways, indicates that unless structural supports and redistribution remain central elements of antipoverty policy, welfare states risk falling far short of their promise.
The “falling short of promise” is of-course the agenda that the neo-liberals promote. Government rhetoric is about making a difference to the lives of the poor (in a positive way) but their policies are hurting the poor.
The results of their work clearly show that when the government provides a comprehensive “social safety net” people “who fall into poverty” can “pull themselves out” again. The results show that “Americans who become poor are more likely to stay that way.”
The study shows that government fiscal interactions clearly have a positive effect on poverty reduction.
In an article – Welfare Works Better than Bootstraps – published in the Stanford Social Innovation Review, one of the authors of the study said:
I think it all comes down to how you as a society respond to those most vulnerable within it … Do you cut them loose and say: ‘You’re on your own-we did it, now you go do it, too’? Or do you say … we as a society are going to try to mitigate inequalities? It’s a choice of the society, and America has always been more individualistically based than other social democratic countries.
The author also says that this “distinction may now be fading” because of the fiscal austerity program that the new British government is now implementing.
I think this type of research has great relevance for how a government chooses to intervene at the macroeconomic level. I consider an essential aspect of a comprehensive welfare state to include employment guarantees.
In that context, I broaden the concept of a welfare state to be an integral part of macroeconomic policy management – so that the employment guarantee system provides all the benefits that a traditional welfare state will provide (income security etc) but also provides a nominal price anchor to allow full employment to be compatible with price stability.
That is how I see the concept of the Job Guarantee which would ensure that employment opportunities are provided for all those willing to work.
The Job Guarantee (JG) is a policy proposal to restore the role of the public sector as a significant employer, and to do so in a way that also controls inflation.
This category provides links to many blogs I have written on this topic.
The Job Guarantee approach is based on a buffer stock principle whereby the public sector offers a fixed wage job to anyone willing and able to work, thereby establishing and maintaining a buffer stock of employed workers which expands (declines) when private sector activity declines (expands), much like today’s unemployed buffer stocks.
The Job Guarantee provides a platform for developing a national skills base and can be extended in a flexible way to providing jobs to accommodate individuals with special physical, intellectual and behavioural needs.
It can be adapted to address the needs of rural and remote communities, and to reflect cultural norms within indigenous and ethnic minorities.
It is a very inclusive income support program. The Job Guarantee is intended as a platform to: provide economic security and social integration for those whose labour is currently being under-utilised; reduce social dislocation arising from unemployment and poverty; and contribute to the quality of life of all by its contributions to a better environment, public amenity and improved services.
As a minimum wage employer that accommodates the poaching of its skilled workers by other employers, and even facilitates this practice when extra workers are needed in the private sector, the Job Guarantee is a superior price stabiliser than the present method that entails keeping millions of people precariously unemployed and under-employed, and in a condition of skill-atrophying idleness, social exclusion and poverty.
The lying neo-liberals can say what they like. History and credible research show that these sorts of programs really enhance the outcomes for the disadvantaged.
All governments as a minimum act of intervention should introduce employment guarantees as part of their welfare systems. The macroeconomic principles underpinning the Job Guarantee constitute an alternative economic paradigm to that which has dominated economic policy-making over the last 30 years, and which has entrenched under-employment, fuelled private debt and, ultimately, led to the worst crisis in 80 odd years.
Conclusion
To finish the week, I have been listening to one of the classic albums today – Linton Kwesi Johnson’s 1979 – Forces of Victory – released in 1979.
One of the songs is particularly relevant to today’s introduction – Fite Dem Back – which inspired the title of the blog. LKJ wrote the song as a statement about the increasing influence of right-wing movements in the UK and Europe during the 1970s. Not much has changed and the target group now extends more broadly.
Here are the lyrics – learn the melody and sing along as you go through the day!:
We gonna smash their brains in
Cause they ain’t got nofink in ’em
We gonna smash their brains in
Cause they ain’t got nofink in ’emSome a dem say dem a niggah haytah
An’ some a dem say dem a black beatah
Some a dem say dem a black stabbah
An’ some a dem say dem a paki bashahFashist an di attack
Noh baddah worry ’bout dat
Fashist an di attack
Wi wi’ fite dem back
Fashist an di attack
Den wi countah-attack
Fashist an di attack
Den wi drive dem backWe gonna smash their brains in
Cause they ain’t got nofink in ’em
We gonna smash their brains in
Cause they ain’t got nofink in ’em
I think the same about the deficit terrorists and related conservatives – “their brains” – “ain’t got nofink in ’em” – better to just smash them. My blog is my way of attempting to advance that aim.
Saturday Quiz
The Saturday Quiz will be back sometime tomorrow.
That is enough for today!
I can understand you get more than your fair share of nutters bill but I’ve been wondering why we can’t get the mainstream economists and commentators to discuss MMT. It’s not for lack of trying. Is their some history here?
Its not that they are dumb enough to engage and try and argue against the ideas. They don’t even respond.
As to songs I’m going through a Doors phase at the moment. The lyrics of Five to One seem appropriate but instead I’m gonna go for an old Sex pistols ditty to throw at the aforementioned experts.
“You got a problem?
The problem is YOU
Err what ya gonna do?”
Bill, I am saddened here in New York as I watch the TV news of Obama’s out-in-the-open “bipartisan” maneuvers to cut “entitlements” and enforce austerity. Your blog today is an inspiring ray of light. Thank you for writing it.
IMO, the Great Depression and now the “Great Recession” (or whatever it is to be called) is nothing more than a medium of exchange problem caused by the really rich, the bankers, and economists.
At least 2 things need to be explained.
1) Correctly (with emphasis) explaining how say’s law gets violated
2) Why almost everyone in power believes that all new medium of exchange should be the demand deposits created from debt, whether private or gov’t
Mr Bill you only get hate mail because you are in the Arena and the detractors are outside it, merely pathetic cold and timid souls.
THE MAN IN THE ARENA
Excerpt from the speech “Citizenship In A Republic”, delivered at the Sorbonne, in Paris, France on 23 April, 1910 – by FDR
It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat. (end excerpt)
I still think trying to convince the Policy Industry is the wrong way to go with MMT. Ideas need to be simplified so that politicians can understand and articulate the core actions indicated by MMT and the impact of JG itself.
I will have a go at simplifying the Australian Budget to give you policy wonks the idea.
Reduce the Australian Budget to 100$.
The budget is 100$ and the income from all sources is predicted to be $100. A beautiful set of numbers.
One small problem, 12% of the workforce is either unemployed or under employed.
The politicians ask Treasury Dept what are the alternatives to fund say 10$ of extra Gov expenditure to stimulate the employment of the 12%.
Treasury advises the politicians can borrow the money from overseas lenders, increase taxes of some sort or print the money.
The politicians look at the printing of money in the USA and Japan and conclude that printing of AUD will not result in a crash of the AUD exchange rate. The money is printed, the 12% unemployed or underemployed are given jobs and the economy is healthy. The Gov is re-elected. Repeat, the Gov is re-elected.
The big question then is will the exchange rate realy hold up or crash and will the Government be able to spend the money in a way that permanently employs the 12%? The first question seems problematic for our politicians. If they get it wrong they will not be re-elected. The second question does not matter so much as its not just Gov that cant get spending right its often big business that stuff it up for shareholders.
So my point is simplify the core ideas. There is a very good reason why newspapers use simple language. Its because they must appeal to the widest possible audience. That wide audience is where our politicians come from. If MMT and JG cant be simplified it will remain an uphill battle to get Politicians interested. Or re-elected! Sorry this is wordy you can delete it if you want Bill. Cheers Punchy
Bill, from a know thine enemy point of view, I think it is worth trying to suss out what that aim is for the neoliberal agenda. From what I can fathom it is to maximise the SP500 share index as denominated in oil. If that is their only aim then perhaps sense can be made of what they say. It then becomes a case of pointing that out to people who don’t have the same aim and yet are being swept along into policies
If they attack personally, it means they have not a single factual or political argument left, if they at all did have any.
Ah. Linton Kwesi Johnson, brings back fond memories of college days.
At the moment, just as the first wave of TexasTea Party governors attack on passenger is wrapping up with the Florida governor’s turning back Federal capital grants on fictitious state balanced budget excuses ~ that is, given that there are multiple bidders willing to cover the costs of the balance of the capital spending for the opportunity to operate the services ~ the second wave rolled out with either real or trumped up budget shortfalls turned into opportunities to attack the right to engage in organized bargaining.
The Governor of Wisconsin’s proposal was particularly transparent, since the three unions that had endorsed him in the campaign were exempted, and the shortfall was less than the size of a tax cut he had just put through.
The idea, in an age of money politics, is to ensure that all of the top ten sources of political money support hard right wing causes ~ and while the White House and many elected members of the Whig faction of the purportedly of the Democratic party soft-pedal, in fear of scaring away their Hedge Fund liberal funding base, the working people of Wisconsin are not standing for it.
Neoliberal concerns with unemployment seem to concentrate on finding the right incentives to get those lazy bastids back to work. I suggest a new consensus in which all work together to create a maximum turnover among the unemployed by sending them all to finance schools for free. That way, those currently unemployed and those working in the financial sector could take turns sucking the lifeblood out of society and sitting back to enjoy a voluntary vacation thus optimizing everyone’s work-life balance. On second thoughts, I’m not sure it would be fair to the unemployed :-D.
Bill, I never understand why you are so violently opposed to the NAIRU idea. Roughly speaking NAIRU is simply the idea that when unemployment drops far enough, as a result of an increase in AD, inflation takes off (or to be more accurate, inflation accelerates upwards). Moreover, this sort of idea was around before NAIRU was born: it was just given a different name, the “natural level of unemployment”.
Also, you yourself seem to subscribe to the idea when you talk about “the need to stimulate aggregate demand levels such that they correspond to the capacity of the economy to respond in real terms (that is, non-inflationary terms).” See: https://billmitchell.org/blog/?p=13179#more-13179
In today’s article you accuse NAIRU advocates of thinking that “failing to develop appropriate skills, by having poor work attitudes (that is, being plain lazy), and by being overly selective in terms of jobs they would accept” is the sole cause of unemployment or an overridingly important cause. Not true. Laziness etc is certainly a finite problem, but there are at least a dozen other factors contributing to unemployment in the opinion of most NAIRU advocates.
Or perhaps you are using the term NAIRU in a very specific sense. In which case can we have your definition?
stone: from a know thine enemy point of view, I think it is worth trying to suss out what that aim is for the neoliberal agenda.
Capitalize the gains; socialize the losses.
From the neoliberal vantage, the single most valuable scarce resource is capital. When you appreciate this, everything that happens under a neoliberal regime falls into place. It is a scramble for capital in which just about anything goes, given the privilege and double standard that capital accumulation generates. Marx saw through the game and got banished from polite society for his trouble.
A school at which I was a professor got a grant to invite various experts to come and lecture. I was asked to invite someone. One of my former professors held a major chair in the Ivy League, so I invited him, thinking it would be something of a coup. The powers-that-be looked over his credentials, which included his publications. Turns out that he had written a book with “Marxism” in the title. Even though it was against Marxism, I was told that I would have to disinvite him because the donors might be offended and the president of the university didn’t want to have to explain them why this person wasn’t a Marxist. Really!
“Fed Up
2) Why almost everyone in power believes that all new medium of exchange should be the demand deposits created from debt, whether private or gov’t ”
MMT teaches us that government spending is NOT financed by debt, because what happens is that gov’t just credits bank accounts first, and then issues bonds later to drain excess reserves out of the banking system. If someone were to take their money out of the bank and keep it in cash there would not be even need to issue bonds for that amount.
I think we should tackle this issue that nobody understands how government finances by renaming government debt. Why not call it “public financial assets”, or “public assets” in short. Then we could say that budget deficits are finances by issuing more public assets, rather than issuing more public debt.
Public financial assets released by the government, on behalf of the people, for the use of its citizens.
The strength of the neo liberal movement in the past 40 years could partly be attributed to their success in selling a dumbed down message to the masses. I give some ‘credit’ to Robert Kiyosaki and his ilk. He had a logically flawed contention that everyone can be rich and successful if only they aped the actions of a rich man. This led to a plethora of pyramid schemes, property flipping and rent seeking schemes.
The idea that anyone can easily be on a fast track to riches is somehow more appealing than the logical certitude of shared wealth in a more redistributive system. I just don’t get it, what seems an obvious benefit for the majority is rejected in the vain hope a person is a future elite.
BTW I was taught about the new deal at secondary school in the 70’s. After the GFC I thought is was obvious Governments would short circuit the depression and implement public works, as history dictated. Here we are still waiting for the numpties
Hello again folks,
I’m just getting into the MMT stuff. Really interested. I can see how a country issuing debt becomes money so therefore the deficit is a non issue. Can I ask where I could find a piece or perhaps get a brief explanation of what then happens in the international arena where all currency trades etc??
What are the limits on crediting money?
Cheers,
Kaiser
Kaiser said: “What are the limits on crediting money?”
Should that be on creating currency or creating the demand deposits created from debt?
Pz, what are the economic assumptions that most of the people in power have that lead them to say all new medium of exchange should be the demand deposits created from debt, whether private or gov’t instead of currency?
Pz, I’m also of the opinion that local, state, and federal gov’ts should run balanced budgets along with having a “currency printing entity” that gets new medium of exchange as currency into the private sector(s).
Fed up, Your phrase “instead of currency” is a mistake. In a fiat money system, there IS NO currency other than debt. That is, all money is either debt owed to a private sector entity (so called “horizontal money”) or it is a debt owed by the central bank (“vertical money”) to whoever holds such money.
However the latter so called “debt” is a bit of a nonsense (as pointed out by Willem Buiter). Central bank created money DOES appear on the liability side of the CB’s balance sheet. Also this money looks like a debt in that (at least in the UK) CB issued banknotes say “I promise to pay the bearer on demand the sum of £X”. But you’d be wasting your time going along the CB and demanding £X in gold or anything else. You’d be told to shove off.
Thus CB created money more the equivalent of the money distributed to players at the start of a game of Monopoly. The latter money enables people to play a game called “Monopoly”. Likewise central bank created money helps everyone to play a game called “economic activity”.
Ralph,
The main issue with NAIRU is that is has become a humpty dumpty term that can be set at any value you want (because you can’t measure it directly). That allows you to advance an agenda of disenfranchisement of the poor using ‘scientific’ justification. It Eugenics for jobs.
The element that is missing from NAIRU is what compensation do you pay to those who remain ‘unemployed’, since it is a clear failure of the system design to accommodate those needs.
Suggesting that millions of people should suffer because it is ‘natural’ is unacceptable language.
I would say that an economic system design must provide a level of income to all its people that keeps them all out of poverty. If an economic designer says that is impossible, then I would say they need to go back to their theories and rejig them until it is possible.
Neil, Re your first para, the fact that there are a number of dishonest people claiming NAIRU is higher than it really is does not invalidate the basic idea behind NAIRU, which (to over simplify a bit) is that there is a trade off between inflation and unemployment. Likewise, the fact that Lloyd Bankfiend of Goldman Sachs makes the ludicrous claim that he is doing “God’s work” does not invalidate the concept “God’s work”.
Re your second para, the NAIRU idea has nothing to do with what compensation the unemployed should get. The two are obviously connected in that presumably the lower such compensation is, the lower NAIRU will be. But the basic idea “there is a trade off between inflation and unemployment” is separate from the question as to what compensation the unemployed should get.
Re your third para and the “natural level of unemployment”, this phrase is simply a name given to an idea which is very similar to NAIRU. And names are sometimes inappropriate. For example the word “modern” as in “Monetary Monetary Theory” is inappropriate in that the basic MMT idea was first advocated by Abba Lerner well over half a century ago. I far prefer “functional finance”, but “Modern Monetary Theory” seems to have gained the upperhand.
Having said that, the word “natural” is far from TOTALLY inappropriate. It refers to a level of unemployment which an economy is condemned to for given levels of education, labour market efficiency, unemployment benefit, etc etc. The fact that something is not very nice is no reason for not describing it is natural. Death (and taxes) are inevitable and “natural”.
The obligation involved in a liability of A$1 or £1 in a reserve account is the promise to shift that entry into the account of another reserve account holder to clear a payment.
So it is a liability, but its a liability that a functioning reserve bank should never have any difficulty meeting.
Ralph,
You miss the point on compensation. NAIRU says that a number of people cannot be employed. Yet they still need to eat – you can’t turn the ‘excess livestock’ into meat pies. So they must be compensated so they can live because your system theory cannot accommodate them.
Alternatively come up with a different theory – which is what job guarantee and NAIBER does.
Neil Wilson: “NAIRU says that a number of people cannot be employed. Yet they still need to eat – you can’t turn the ‘excess livestock’ into meat pies.”
Milton Friedman’s idea was a negative income tax, right?
Ralph Musgrave said: “Fed up, Your phrase “instead of currency” is a mistake. In a fiat money system, there IS NO currency other than debt.”
No, it is not. By currency, I mean medium of exchange that has no interest rate attached, no repayment terms attached, and does not bring something from the future to the present.
Great story, Tom. Sometimes it’s worth offending the donors. One day Marx is a dirty word, so it’s out of court. Soon socialism is a dirty word, so it’s out of court. Then liberalism is a dirty word, so we only discuss progressivism, until that becomes a dirty word. Before long, debate is bounded by the ignorance and prejudice of the donors, which of course is their motive for being the donors.
Neil, Why do those who advocate a relationship between inflation and unemployment need to express a view on what form of support the unemployed get? Do those who advocate a relationship between smoking and lung cancer need to express of view on how best to discourage smoking or treat cancer? And if they don’t express such a view, does that invalidate their claim that the relationship exists?
Fedup, I am now confused as to where I agree with you and where I don’t. I’ll deal with your question: “What are the economic assumptions that people in power have that lead them to say all new medium of exchange should be the demand deposits created from debt?” My answer: the “assumptions” are poor quality. Private sector debt based money is a phenomenon that arises automatically in a free market.
“The people in power” probably claim this is a good system because it is “free market”. But there is a big drawback with it, namely that it involves fractional reserve, and the latter is an unstable system. So if by “currency” you mean central bank created money or “monetary base”, and if you are saying this should be the only or dominant form of money, then I agree with you.
Tom Hickey
– Isn’t the issue with all of economics and politics simply control of what people do. The neoliberals seem to want a system where wealth determines how much control one has over other peoples’ lives and for that control to be used towards gaining more control. In the soviet system it seemed to be a case of political position determining control over other peoples’ lives and that control being used towards gaining more control. Personally I think the best hope is for control to be as dispersed as possible. If everyone has the financial power to act then more peoples capabilities can be tapped into. Ironically a redistributive state apparatus is essential if you want to avoid a stifling concentration of financial power. I think the neoliberal agenda gets so much sympathy because people quite reasonably fear that such a redistributive state apparatus can quickly slip into becoming a controling state apparatus. That is why I prefer a citizens dividend over a JG and a flat asset tax over specific targeted taxation systems aimed at specific perceived asset bubbles or whatever. At its heart money is merely relative power over other people.
I would consider unemployment to be an exogenous variable because the government and the RBA essentially choose to target inflation rather than seek to provide full employment.
With respect to inflation the government of the day usually rewards the pigs creating the inflation and punishes those who had absolutely nothing to do with the behaviour that caused prices to spike in the first place.
I mean if governments don’t want people to hold massive credit card debts then all the government has to do is stop destroying money and start running deficits.
“What are the economic assumptions that most of the people in power have that lead them to say all new medium of exchange should be the demand deposits created from debt, whether private or gov’t instead of currency?”
Mainstream economists believe, among other things, to something called exogenous money. Idea being that banks lend out multiple of reserves. That is why government spending without issuing debt is feared as inflationary, because that causes excess reserves to accumulate, and it is though that some day those banks suddenly start lending out huge amounts. It’s utter bollocks, of course. Money supply is endogenous.
Stone: I think that Michael Hudson has this one right. Tax away economic rent – land rent, monopoly rent, and financial rent – would fix the problem by discouraging rent-seeking and encouraging productive investment.
Taxes have two purposes. The first is drawing down non-government NFA iaw functional finance. The second is negative reinforcement as a disincentive of negative behaviors. These can and should be combined in good policy. On the other hand, taxes that discourage positive behaviors like productive investment should be avoided.
Hi, Punchy,
“I cannot praise a fugitive and cloistered virtue, unexercised and unbreathed, that never sallies out and sees her adversary but slinks out of the race, where that immortal garland is to be run for, not without dust and heat.” – John Milton, Areopagitica
Milton brings his contemporary Galileo into this appeal for a free press at a time when his detractors could legally use torture to suppress uncomfortable truths.
Primitive, like the U.S.A. still is today.
Tom Hickey, my feeling is that neolibralism gets (misguidedly) empowered by widespread reasonable concerns about gov making value judgments as to what is and is not virtuous activity. If someone was to develop a cure for cancer I guess you would regard that as productive investment. If that technology was then bought by a big pharma corporation and put through clinical trials then you would probably still regard that as productive investment. What if the big pharma corporation bought the monopoly rights after all the trials were complete as they sometimes do? What if that business model is the one most likely to create a cure for cancer? Even if all activity is virtuous it will still end up concentrating wealth over time. Wealth concentration equates to talented people being inadequately resourced.
” And if they don’t express such a view, does that invalidate their claim that the relationship exists?”
You can claim what you like, but you have a responsibility to caveat properly. Particularly when the evidence is weak or unrepeatable or the relationship isn’t directly measurable. Otherwise you get the same problems you did when a certain doctor said MMR causes autism. Real children were crippled due to the subsequent scare. At least in that instance the individual concerned was struck off. The same can’t be said for economists.
What if the big pharma corporation bought the monopoly rights after all the trials were complete as they sometimes do?
stone, that’s what taxing away monopoly rent is about. Patent expiration, too. These are issues that can be dealt with.
Tom Hickey, I’m not quite sure of your meaning. Are you saying that big pharma should NOT be permitted to extract money by buying the monopoly rights after all the trials are complete as they sometimes do? That is quite a major intervention. Pfizer essentially owes its current existence to having bought the rights to Lipitor and the subsequent $12B/year in cash flow from that drug. What would be your model for how say the pharma industry should be subjected to a tax on rent seeking and how would new drugs get developed?
Alan Dunn:
“I mean if governments don’t want people to hold massive credit card debts then all the government has to do is stop destroying money and start running deficits.”
Is running deficits enough? You have to get money into the hands of people who have credit card debt somehow. Getting money into other peoples’ hands might do so eventually, but there is no guarantee, is there?
E. g., tax cuts for the rich may increase the deficit, but how does that money reach the debtors?
Tom Hickey, I just googled and found an old wall street journal piece about Lipitor. That seems to muddy the waters even more. Pfizer apparently made some very shrewd marketing choices without which Lipitor might have flopped rather than being a blockbuster:
“Wall Street was skeptical, too. Dr. Cresswell says he and Warner-Lambert’s then-chairman Melvin Goodes, who was also on Lipitor after having taken a Merck pill for years, sought to drum up enthusiasm by regaling analysts with their own before-and- after cholesterol numbers. But investors continued to question its prospects. These were among the factors that led the company, shortly before FDA approval, to seek out a marketing partner for Lipitor. Out of several companies that expressed interest, Pfizer, highly regarded for its marketing, was chosen.”
stone, those falling into the category of price setters instead of price takers in a competitive market pay the tax on monopoly rent.
Given a patent, however, this tax could be waived for a certain number of years, since a primary purpose of a patent is to recoup development costs, often considerable in capital intensive industries, along with a reasonable return on risked capital in order to encourage innovation. IF the company also benefited from government sponsored basic research, then that would have to be taken into consideration, too.
The basic idea is to tax in such a way as not to stifle productive investment and innovation. A rising standard of living is based on increased productivity.
The only comfort in regard to all these neoliberal nut-heads and their mindless drivel is that meanwhile they are also recruiting very nice looking ideologues who will be with us a long time parroting the same nonsense. From an aesthetic perspective this is definitely an improvement:
http://news.harvard.edu/gazette/story/2011/02/chasing-prices/
Ralph Musgrave said: “Fedup, I am now confused as to where I agree with you and where I don’t. I’ll deal with your question: “What are the economic assumptions that people in power have that lead them to say all new medium of exchange should be the demand deposits created from debt?” My answer: the “assumptions” are poor quality.”
From what I can tell the poor quality assumption by the people in power is that real aggregate demand is unlimited. That means the faster you can grow aggregate supply the faster the economy will grow. That seems to require “real profits growth” for businesses owned by the rich so they save and then reinvest (with or without debt). It also means the lower and middle class need to go into debt so that there is demand in the present and people won’t retire in the future leading to a labor shortage in the future.
And, “Private sector debt based money is a phenomenon that arises automatically in a free market.”
I really would not call it automatic and a free market. It is trick the lower and middle class into debt with poor assumptions about future wages and future prices (budgeting). If the lower and middle class had the right assumptions, I don’t believe they would go into debt. The way they are now, I would rather call them markets run by the few rich not a free market.
And, “The people in power” probably claim this is a good system because it is “free market”. But there is a big drawback with it, namely that it involves fractional reserve, and the latter is an unstable system.”
So is there a way to get all new medium of exchange should be the demand deposits created from debt, whether private or gov’t, to violate say’s law?
And, “So if by “currency” you mean central bank created money or “monetary base”, and if you are saying this should be the only or dominant form of money, then I agree with you.”
Depends on what you mean by monetary base (currency plus central bank reserves). Most of the time I see central bank reserves being used to manipulate the overnight fed funds rate, which is used to mostly influence debt levels.
I want to see a BASICALLY all currency economy meaning all medium of exchange have no interest rate attached, no repayment terms attached, and do not bring something from the future to the present. That means no entity goes into debt, including the gov’t or the “currency printing entity”. That means there would be no demand deposit defaults and no paying off the demand deposits so that the amount of medium of exchange can’t fall (go down) in either of those two ways.
I said: “”What are the economic assumptions that most of the people in power have that lead them to say all new medium of exchange should be the demand deposits created from debt, whether private or gov’t instead of currency?”
Pz said: “Mainstream economists believe, among other things, to something called exogenous money. Idea being that banks lend out multiple of reserves. That is why government spending without issuing debt is feared as inflationary, because that causes excess reserves to accumulate, and it is though that some day those banks suddenly start lending out huge amounts. It’s utter bollocks, of course. Money supply is endogenous.”
I’m going to replace money supply with medium of exchange supply. It seems to me the medium of exchange supply is influenced by the overnight fed funds rate, the markup on the loan, and the budget assumptions of the entities that might want go into debt/the ability to repay debt.
I’m going to try to rephrase my question. From a budget and time perspective, why shouldn’t the amount of medium of exchange increase by a certain amount of currency per year instead of a certain amount of the demand deposits created from debt, whether private or gov’t?
Fed Up,
without debt it would be hard to finance productive investments in capital assets, or private individual investing in, say, house and a car, because all money would have to be pre-saved.
And if banks would have to first gather money from deposits before they can make loans it is unclear if they could accumulate enough deposits to make loans, because as private individuals get wealthier first they start to spend more, so that there is diminished savings, and ultimately when they get rich enough they will stop working and start to live off their fortunes. And if you propose that we give much more money to the super-rich who do not work anyway, having a wast sums of money in the hands of private individuals are outright dangerous. If Bill Gates would own 5 trillion instead of 50 billion he could really mess up the world if he wanted to.
PZ and Fed Up, To me the key thing is to have as transparent and as simple a money system as is able to provide the required medium of exchange for an efficient economy. What seems to happen is that an increasingly opaque financial system develops as a way of luring people into doing the bidding of those who develop it. Everyone needs to face up to the fact that we have six billion people and one planet and all money does is to control who gets what proportion of that pie (control of labor and resources). Money can never increase the size of that pie. Money can only help (or hinder) in so far as it influences who gets what proportion. To my mind the current problem is largely that wealth is too concentrated. Currently some people have lots of money and have to be exceptionally inept to not end up getting more and more at the expense of others. To my mind in a sensible system it needs to be exceptionally hard to get more than an equal share with the level of difficulty of getting a larger share increasing as the share gets larger. As much as I try, I can not see how anything other than taxation can restore a level of wealth equality. If everyone was similarly wealthy then people would be able to buy houses outright. Companies could start up as worker partnerships with the partners being the equity holders. As far as I can see, such a scenario is only sustainable if taxation is a percentage asset tax and much of the spending is a flat citizens’ dividend.
@Ralph Musgrave:
I think what is meant is that using NAIRU as a political scare-tool to keep not only inflation, but also workers rights, real wages, the right to a job, etc. down is what bothers Bill, not the concept as such. Though i must say that any society where the 8-hour workday is the norm, that doesn’t guarantee it’s people the right to a job is ugly and unethical. It’s like the NAIRU has become and excuse for not fixing things, or making them worse.