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Life in the IMF fantasy world

I gave an interview on the national broadcaster ABC about the latest talk in Australia to ramp up the pernicious Work for the Dole program. I noted that the unemployment problem in Australia at present reflects a systematic failure to produce enough jobs rather than the personal failures of the unemployed themselves. Standard stuff. The interview got me thinking of about make work schemes and unproductive labour and boondoggling! and leaf-raking. My mind turned, immediately, to the IMF which runs one of the largest make work programs in the world and employs thousands of workers on good pay to do nothing constructive at all. The IMF is the exemplar of leaf-raking. You only have to read their working paper series – where multiple authors attach their name to senseless reports about nothing. These papers are always “Authorized for distribution by x” – that is, some higher-up leaf-raker who spent years learning the craft of being occupied doing nothing. All IMF economists aspire to be the person who sits in the office and authorises for distribution the papers that all the peons pump out which provide nothing useful to anyone. At least aggregate demand is being maintained via the workers’ wages. Pity the IMF couldn’t find something more productive for their workforce to do. Perhaps they are not skilled enough though. Anyway, life in the IMF fantasy world!

Take for example this IMF Working Paper – An Analysis of U.S. Fiscal and Generational Imbalances: Who Will Pay and How? – which has been getting a lot of media attention in the days since it was released (April 1, 2011). Talk about boondoggling!.

While I jest (yes, Americans – this is what goes for humour where I live – pathetic I know) – the paper is another input into the relentless conservative push to alter the public policy debate away from what matters. It is a sneaky paper because it avoids essential debates that should be thrashed out before any of the matters discussed in the paper are dealt with.

It adopts a series of implicit assumptions – which are highly significant and contestable – knowing that the average reader and journalist will never question. It does this to render the case they are proselyting more powerful because they know that if these assumptions were ever questioned – and replaced with real world facts – then their case would have zero meaning and zero importance.

As I said – boondoggling!

To see how the media report this paper (before I consider it) take this article – IMF economists see dire future for US taxpayers – which appeared in the Melbourne Age (April 5, 2011).

The media report said that:

Americans will need to pay much heavier taxes and accept less from public healthcare to put state finances on a sustainable track …

So bad … “much heavier taxes” … “less public healthcare” … “put state finances on a sustainable track”.

When the reality is that none of the statements that they make from the IMF report can be credibly defended when you get to the bottom of it all. The point is that the journalist writing this up provides no context or critique. Mindless repetition of the IMF press release.

I know there is a difference between news and comment/opinion. But the world’s press are not the press offices of specific organisations like the IMF – yet they act as if they are.

The journalist goes on to outline the “baseline scenario” (higher taxes, public spending cuts targetted at 45-65 year olds) without once mentioning what the baseline scenario assumes. I will come to that in a moment. It is presented in this article as a truth:

The IMF says it, we don’t question it, you better believe it … (which could be the start of a rap song I might write about the IMF!).

They keep quoting the IMF about “returning the United States to a fiscally sustainable path” – without telling the reader what that actually would entail other than this jargon:

Fully eliminating current deficits and the long-term shortfalls on social plan commitments for the current generation …

So what are “long-term shortfalls on social plan commitments for the current generation”? Not enough real resources being available? No, that issue – which is the only issue – is never raised in the IMF paper.

If you understood what the IMF thinks is a “fiscally sustainable path” then you would wonder why anybody bothers to employ these economists.

The IMF say that unless there is an immediate and permanent 35 per cent in public transfers the “delay in the adjustment makes it more costly”.

What is their notion of cost? Numbers on bits of paper that some government department produces as a fiscal report once in a while? Cutting transfers immediately and permanently by 35 per cent will be costly … very costly … it will result in many more productive resources lying idle – wasted … that is a huge cost. The IMF doesn’t consider that at all.

I lose all respect for this type of journalism. The press agencies just become conduits in the neo-liberal propaganda machine and the notion of a free press pales into insignificance. Our political freedoms are then further compromised.

The Abstract of the paper tells you what it is about. Summarising:

… updates existing measures of the U.S. fiscal gap … applies … generational accounting to establish how the burden of adjustment required to attain fiscal sustainability is shared across generations … U.S. fiscal and generational imbalances are large … under our baseline scenario, a full elimination of the fiscal and generational imbalances would require all taxes to go up and all transfers to be cut immediately and permanently by 35 percent. A delay in the adjustment makes it more costly.

So my bet is that the journalist didn’t even read the paper – the press release was just taken from the Abstract and propagated as truth into the public debate. Then some politicians who also will never read the paper will start making laws based upon it … and the weak and poor pick up the pieces.

It reminds me of what I used to think about as a student. I never really prepared much for exams each year preferring to read widely during the year (well outside the prescribed curriculum – because the latter was clearly intent on imparting conservative ideological biases in many of the disciplines I studied). I found that the exams were then not much of a hurdle.

The alternative, broadly accepted method of examination preparation was to take notes in lectures – which were only partial accounts of what went down in the lectures anyway (I preferred not to take notes during lectures as the alternative). Then as the exams approached I observed students taking précises of these lecture notes, then further distilling them down into key points, then study cards … end result rote learned nonsense.

The journalists seem to adopt a similar approach – end result mindless (but damaging) propaganda.

If you read the IMF paper (I wouldn’t if I wasn’t paid to – in the general sense of being a research academic who claims to be across my field – mainstream literature included) – you will soon get the gist of the intrinsic biases and the lies it perpetuates.

Lie Number One (first sentence):

The United States is facing an untenable fiscal situation due to the combination of high fiscal deficits, an aging population and rapid growth in government-provided healthcare benefits.

No it isn’t (facing an untenable fiscal situation) unless you count the irresponsible austerity push that the conservatives on both sides of politics are enforcing while the progressives … self-absorbed and vacuous – largely go along with while gesturing occasionally that the cuts have to be more equitable or something.

It is untenable to cut the deficit when the private spending growth is not sufficient to reduce unemployment and support higher real wages.

But the IMF isn’t concerned about matters of public purpose.

Their goal is close the “fiscal gap”. What is that?

In their own words:

… Over an infinite horizon, it measures the adjustment needed for the government to meet its intertemporal budget constraint, so that the present value of the excess of future expenditure and current liabilities over future receipts is zero. It has been argued that when fiscal pressures are concentrated in the long run, as in the United States, using the infinite horizon definition is preferable because finite horizon measures of the gap can underestimate the necessary adjustment …

In other words, use a flawed measure … then use the version of it that will give the worst result (from the perspective of the flawed logic) … because that will get the report the most media traction and scare mindless politicians the most.

I use mindless in this context not to imply the individual politicians are dumb – but rather to depict a process where their aims are to garner and maintain power at whatever cost and so they use reports like this (which few of them will be in a position to critique or understand) to further their quest for power. That is mindless and crooked behaviour in my opinion. The poor and the weak pick up the pieces.

But what does all that jargon mean? Infinite horizons … intertemporal budget constraint … present value of the excess of future expenditure and current liabilities over future receipts … etc

Nothing of importance or relevance to the US government. It does not have an intertemporal budget constraint. It is the monopoly issuer of its own currency. It can never be financially constrained. It can be politically constrained. All this talk about the Congress closing down governments doesn’t negate my observation that the US government is never financially constrained.

After all it depends on how you define the “government”. For me, the government has to include those who can make laws regarding fiscal policy. My understanding of the stupidity in the US Congress at present is that they are about to “voluntarily” close the fiscal policy down. That doesn’t mean the US government will be financially constrained. It means the politicians are idiots and don’t have an educated understanding of the monetary system for which they are managing and would be voluntarily enforcing a no spending rule on themselves – the government.

You can guess that I don’t care much for all the nitpicking over the last year as to whether a national government is truly free of revenue-constraints if it erects voluntary constraints that make it looks as if they are raising revenue, putting it into an account and then spending it once there is a positive balance. Those gymnastics do not alter the fact that the US government or any sovereign government can spend when they choose.

It also overlooks the fact that the revenue in the accounts cannot (logically) get there prior to government spending in a macroeconomic sense.

Anyway, back to the IMF paper.

The IMFs concept of a “fiscal gap” is explained in this extraordinary piece of make-believe:

The fiscal gap measures, as a present value, a country’s excess of total expenditures (including those arising from its commitments to spend in the future) over available current and future resources. It is commonly defined as the current federal debt held by the public plus the present value in today’s dollars of all projected federal non-interest spending, minus all projected federal receipts. In symbols:

FGt = PVEt – PVRt – At

Where FGt is the fiscal gap at time t, PVEt is the present value of projected expenditures under current policies at the end of period t. PVRt stands for the present value of projected receipts under current policies, and At are assets in hand at the end of period t.

A non-zero fiscal gap implies that the federal government is violating its inter-temporal budget constraint, meaning that it will not be able to finance its expenditures at some point in the future.

What does that all mean? The present value is the value you achieve using discounted cash flow analysis on a stream of payments and receipts that span some number of time periods. A dollar today is worth more than a dollar tomorrow is the logic because of compounding. You can invest a dollar today at some interest rate to get more next period. So you have to discount future dollars by some interest rate and number of periods into the future when those dollars might flow to reflect the fact that a dollar today can be compounded over that period. The sum of all these discounted dollar flows is the present value which allows you to make comparisons between cash flows across time.

Nothing rocket science about that except the area is hugely contested – what discount (interest rate) should one use for example. I have been an expert witness in several cases involving government projects (usually) where the consulting reports or government reports (say from treasuries) manipulate the discount rate to get the result that most suits their political aims.

As an aside, my testimony on behalf of a community group fighting the privatisation of their regional hospital was declared inadmissible by a court hearing the case after some days of legal battle because I had based my report on a leaked treasury document. The analysis in that document was fraudulent and, in part, involved the manipulation of discount rates. There was never any way the privatisation could be justified on economic grounds. But the hospital was privatised (community group lost) and not long after that the private company went broke (as predicted) and the government was forced to take over the hospital again. At the case, there was all this neo-liberal blather about the risk being shifted to the more efficient private sector. The risk was never shifted. It was a total fraud.

Anyway, I digress. What the statement by the IMF amounts to is this:

1. They invent some constraint on government net spending that has to hold infinitely – the “inter-temporal budget constraint”. In this case they claim the budget has to be balanced to satisfy this constraint.

2. They then claim that if it doesn’t balance the government will be insolvent – “it will not be able to finance its expenditures at some point in the future”.

3. They then do some manipulations of revenues and spending to solve the model so that it does balance in present value terms. This solution is declared fiscally sustainable and delivers the tax rises and spending cuts.

The first question a half-intelligent primary school child would ask is “what is this inter-temporal budget constraint”? A person who understands the reality as opposed to the graduate school indoctrination would reply – how can the government who issues the currency be constrained by not having enough of it.

It is impossible for the government to run out of its own currency. The concept of a fiscal gap is thus based on a false premise which leaves it meaningless.

Why should the budget ever be in balance? Regular readers will know that the purpose of the government is not to balance a budget. What meaning does that goal have? It is just an accounting statement. It might be appropriate to balance a budget at some times over the next 20 or 30 or 100 years (see below about the 100).

It might be that the external sector will achieve a continuous balance over the next 100 years and the private domestic sector will be in balance over that time span (both in present value terms) and that the level of aggregate demand that would then emerge if the government balance was zero was consistent with full employment.

If that set of outcomes occurred then a budget balance would be fine (as long as the public-private mix of demand was considered appropriate) and the growth rate of nominal spending was being absorbed by real output growth.

But I have never seen any country which would satisfy that condition in the history of available data.

The US ran continuous and variable deficits for years and years (they are the norm). It has never had any of its cheques bouncing although clearly prior to 1971 the government did have to fund its spending. Since 1971, the IMF world has not existed!

The real goal of government is to run budget outcomes that support aggregate spending at appropriate levels. Unemployment is a real cost, a budget deficit is not!

The IMF paper only considers unemployment in terms of the payments associated with income support. It doesn’t recognise that unemployment reflects a spending gap and imposes massive costs in the form of lost real income. These are the costs that span the generations that government should be mindful of.

I note that I don’t like or dislike budget deficits. I only know that history tells me that for most nations they are required as the normal situation if real economic growth is to be sustained and the private sector (overall) is not burdened with ever increasing debt accumulation.

The recent crisis has been, in part, the result of neo-liberal policies that thought nations could sustain growth based on such increases in private indebtedness. That is one lesson we should have learned. Unfortunately, the conservatives have diverted attention and think that public debt is the issue. In doing so, they are setting the world up for the next crisis. Given that the residue of this crisis will remain for a long time, the next crisis will build on that residual.

I won’t even go into an analysis of the “generational accounting” literature here. It is another one of those comical diversions that mainstream economists have indulged in which asks the question:

… if policy remained as it is for current generations for the rest of their lives, how much would they pay in net taxes and how much would future generations pay?

Oh yes, to balance the budget! The framework assumes that “all net liabilities transferred forward must be paid for eventually”.

As a description of the fiscal policy process it is laughable. It completely overlooks the reality that fiscal policy is a year to year proposition – as it should be – seeking to stabilise aggregate demand at high levels of activity in the face of fluctuations (sometimes large) in private spending.

Governments do not act as infinite entities. Taxes are not set to balance the net present value of the budget at zero. This framework is used by economists because they can use – what they think of as – some fancy mathematics – which allows them to fill their days in better. If you ask a mathematician what they think of the standard maths used by economists and you will have to wait for them to stop laughing before you get their very short, one or two word, opinion.

Deficits are never paid back!

Public debt associated with deficits (under current arrangements) is in a macroeconomic sense never paid back (or rarely)!

This is not to say that today’s deficits do have implications for the future generations. Clearly, if the government maintains strong economic growth (that is environmentally sustainable) and encourages high productivity (which supports high real wages growth) and low unemployment, the future generations will be better off than otherwise.

Governments that maintain high quality health care and public educations systems will set in place the conditions for future prosperity.

Conversely, governments that allow mass unemployment to become entrenched and cut back public service delivery and public infrastructure development impose significant real costs on future generations. Most governments are in that mode at present. The IMF policy agendas (seeking to impose pro-cyclical fiscal policy regimes on the advanced nations) would worsen the real burden that our children and grandchildren will bear.

The only good thing that the IMF paper delivers is that in their “generational accounting” exercise they:

… assume that each individual lives for 100 years.

That is neither an infinite-horizon nor approaching life-expectancy rates in the advanced world. But those issues aside, it would be good it just that little part of the analysis turned out to be true. I can see myself as a white-haired centurion hanging down the beach!

Conclusion

The IMF paper is a glowing example of why mainstream economics has failed. It starts with a lie … does some flawed analysis upon the basis of those lies … and concludes … nothing of importance. A supreme example of boondoggling!

Competing for today’s blog space was the comments overnight by Alan “I’ve been very distressed by that fact … I was a mindless ideologue” Greenspan. They will be cherished by all for years to come. Some will say they must be the signs of senility (they were so bad). But I have dealt with the economics profession all my professional life … indeed I am part of it … and that is the way they think and talk. More later on that.

That is enough for today!

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    This Post Has 69 Comments
    1. “The interview got me thinking of about make-work schemes and unproductive labour and boondoggling and leaf-raking. My mind turned, immediately, to the IMF which runs one of the largest make-work programs in the world and employs thousands of workers on good pay to do nothing constructive at all.”

      Either there’s something new in Bill’s morning coffree these days or our prompting him to be more polite (in his letter writing) energised his sarcasm cells! The blogs are getting more humorous and entertaining – aside from being educational.

    2. one thing i dont understand about mmt is that you wrote that unemployment could be resolved by creating money via deficit spending, but what will the unemployed produce? couldn it be that they will end up producing something that nobody wants, totally useful? Because if there is demand for that good they could be already producing it without the need for deficits…

    3. What effect is the “carry trade” using Yen loans in Australia having? – high exchange rate? import surge? pricing local companies out of the market? ? What would you suggest MMT could do to explain and counter. Exact opposite of our problems in the UK?

    4. Because if there is demand for that good they could be already producing it without the need for deficits…

      I don’t see why we should believe this. The recognition that it is fallacious goes back to Adam Smith who said government has

      the duty of erecting and maintaining certain publick works and certain publick institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.

    5. Am I right in thinking that the central error of this report, and other similar reports, really has little to do with the fact that the US government is sovereign in its own currency? The error is in thinking that any country, whether sovereign in its currency or not, has an inherent inter-temporal budget constraint. This is true even of a country that finances all of its expenditures from taxes and debt. So, long as a country continues to grow, its total level of public debt can grow along with the economy. It can roll that debt over indefinitely without increasing the per capita burden on future generations.

    6. Jan “Because if there is demand for that good they could be already producing it without the need for deficits…”

      -I think the idea is that lack of demand is not due to no one wanting the goods or services but rather due to those that want them not being able to afford them. Creating money will not of its self reduce unemployment. Money has to get to those people for whom lack of money is preventing them from buying the goods and services they want. I think the “jobless recovery” phenomenon has come about because of the idea that tax cuts for the super rich (who already buy all goods and services they want) would somehow lead to something other than asset price inflation and commodity hoarding.

    7. Dan K @ 22:22:
      It depends on the growth rate of the economy and the interest rate on the debt. If the interest rate is greater than the growth rate eventually interest payments will gobble up the entire economy, at least in the models as they are set up. Scott Fullwiler has written quite a lot of interesting stuff on this.

    8. “You can guess that I don’t care much for all the nitpicking over the last year as to whether a national government is truly free of revenue-constraints if it erects voluntary constraints that make it looks as if they are raising revenue, putting it into an account and then spending it once there is a positive balance. Those gymnastics do not alter the fact that the US government or any sovereign government can spend when they choose.”

      Glad you finally said that Bill. It’s been my reaction too each time I see people dwelling on this. Canada (where I live) has basically the same system as the US (and the UK, Japan, Australia,etc, etc) but we don’t have the debt limit nonsense or other silly and essentailly irrelevant rules imposed on us, rules that can be lifted whenever they become too inconvenient.

      Nonetheless we do face the identical misleading arguments based on household finances and intergenerational burdens. Availibility of real resources and their distribution are the nub of the matter. It’s all political as a number of commenters have pointed out more than once. That’s our very difficult challenge.

    9. jan: If I understand the typical argument for a Job Guarantee correctly, then the aim is basically to provide mostly public goods, to which the usual supply and demand thinking does not apply in any way, shape or form. It’s not like those workers would be employed producing ping-pong balls that nobody wants!

    10. jan: “Because if there is demand for that good they [the unemployed] could be already producing it without the need for deficits…”

      I take it that you mean that if there were a demand for the good that the private sector would already be paying people to produce it, and so there would be less unemployment. Under our current circumstances the private sector does not have enough money in circulation to pay for enough desired goods and services to have full employment. Deficits address that problem by putting money into circulation.

      But more generally, consider problems like the rotting infrastructure in the U. S. There is certainly a need to repair or replace it. The gov’t could certainly hire unemployed people to do that. Even if that meant running or increasing deficits. Not to do so is what used to be called “Penny wise and pound foolish.” Yet it continues not to be done, on the illusion that we cannot afford it.

    11. I’m with Jan on this. There are certainly plenty of jobs that could be done here in the UK although I think a lot of those jobs would be Make Work type jobs. Like they used to have in the Soviet Union. They had no unemployment.

    12. What’s wrong with the IMF paying good salaries to their staff? They add to aggregate demand.
      According to MMT it will be criminal to fire them ror cut their wages right now.

    13. Make work jobs ?

      Building schools
      Fixing pot holes
      Managing woodland, flood plains
      Caring for the elderly
      Providing childcare
      Tackling drug abuse and cause of homelessness
      Teaching music and other extra curricula activities
      How about non feeing paying education full stop
      More apprenticeships
      More police
      More Fire fighters
      More guns for our soldiers

      The list of worthy causes is endless.
      All you need to is a “socio-economic programme to advance the public purpose” oh and an understanding of MMT

    14. MamMoTh: What’s wrong with the IMF paying good salaries to their staff? They add to aggregate demand.
      According to MMT it will be criminal to fire them ror cut their wages right now.

      What the IMF does isn’t criminal? Count the bodies.

    15. What the IMF does isn’t criminal? Count the bodies.

      What? Write useless papers? Make loans?
      Criminals are those sovereign governments that accept their conditions, maybe.
      The IMF staff support aggregate demand.

    16. “The IMF staff support aggregate demand.”

      They’d support aggregate demand just as well talking to old folk and since they are no doubt on higher than minimum wage and the IMF is funded by government appropriation you could spread the joy around a bit.

      So that’s lots of cheered up old folk and no more silly reports.

      Sounds like a win.

    17. “The IMF staff support aggregate demand.”

      Tell that to the developing nations and all the people that have had austerity foisted upon them to make the bankers whole. Count the bodies.

    18. “The IMF staff support aggregate demand.”

      In the words of comedienne Maria Bamford, “That’s emotionally, not financially, Honey.”

      ;)

    19. “one thing i dont understand about mmt is that you wrote that unemployment could be resolved by creating money via deficit spending, but what will the unemployed produce? couldn it be that they will end up producing something that nobody wants, totally useful? Because if there is demand for that good they could be already producing it without the need for deficits…”

      Jan – you seem to have bought into the absurd neoliberal claim that only the private sector creates wealth. And that if there was a need for something, thenn the private sector would have already created it.

      There are useful services that the private sector could never produce, such as the Internet, rural electrification, high-speed rail, and universal health insurance (well, maybe not in the US, but in civilized nations). So what could the unemployed do if we put them to work? Daycare for the poor, park maintenance, road repair, companions for the elderly, housing repair for the poor. All it takes is that voters hold their representatives accountable.

    20. Dear MamMoTh (at 2011/04/06 at 2:38)

      You claim:

      According to MMT it will be criminal to fire them or cut their wages right now.

      Not according to MMT. Modern Monetary Theory provides no prescription about the way firms should treat unproductive staff. You cannot make claims about what MMT says when you clearly do not understand its purview.

      best wishes
      bill

    21. One item that I forgot to add – fundamental scientific research. Work that’s too speculative for private industry to fund, but which could have huge value. This would include the Human Genome Project, nuclear fusion, fuel cells, and advanced materials research.

    22. What people don’t seem to get that is that the historical “JG” was the servant class. The elite is aiming to reinstitute it. It was considered the obligation of the wealthy to hire servants to provide employment to those who could not find jobs in the fields or sweat shops. We’ve been through this already.

    23. Not according to MMT. Modern Monetary Theory provides no prescription about the way firms should treat unproductive staff. You cannot make claims about what MMT says when you clearly do not understand its purview.

      It’s repeatedly said over every MMT site that reducing the workforce lowers aggregate demand and should be avoided then.
      Regardless of their productivity. I don’t know why the IMF staff would be an exception. Besides, you even said that productivity is irrelevant before reaching full employment.

    24. Mamoth
      Regardless what you think is being implied on every MMT site, that specific issue has been addressed in the MMT academic research numerous times precisely as Bill has stated.

      Also, you’re mixing things that don’t go together. How firms treat unproductive (in their view) workers is quite a bit different than whether or not JG jobs should be “productive” in the traditional sense. Again, this has been covered a lot in the academic literature.

    25. Dear MamMoth (at 2011/04/06 at 7:55)

      You claim:

      It’s repeatedly said over every MMT site that reducing the workforce lowers aggregate demand and should be avoided then.
      Regardless of their productivity. I don’t know why the IMF staff would be an exception. Besides, you even said that productivity is irrelevant before reaching full employment.

      MMT notes that at the macroeconomic level, cutting employment will reduce spending. True. Less employment, less income, less aggregate demand.

      Yes, low productivity workers also spend (I presume the IMF staff spend their wages like the rest of us).

      But that doesn’t lead to conclusions at the microeconomic level of the firm about what firms should do. MMT says nothing about that.

      Further, please direct me to my writing (either in my blog or in my academic work) where I have said that “productivity is irrelevant before reaching full employment” (whatever that means? in relation to what?). I always emphasise the benefits of productivity growth in allowing for higher real wages.

      best wishes
      bill

    26. Scott, if you mean governments should said they are cutting unproductive services when taking austerity measures, instead of the political drivel of what they can’t afford, then I agree. My understanding was MMT thought austerity measures were not appropriate now regardless of the productivity because it lowers aggregate demand.

    27. There is a lot of work to be done to wean us off our dependence on fossil fuel. Insulating homes, electrification of transport etc. I have this slightly odd recurring dream. The Government builds a giant carbon tow factory and floods the market with cheap carbon fibre. We are all racing around in feather light cars.

      The Government has to pick some winners. There’s another common neo-liberal lie for you. They are concerned the Government might pick alternative winners when they own an inefficient distribution monopoly that might be challenged. They never complain when the Government picks winners like Lockheed, BAE, Boeing etc etc.

    28. Bill, if you say you never said it, then I must be wrong, sorry.
      Either I read it somewhere else, in a comment, or imagined it.

    29. MamMoth,

      Your analysis in the majority of threads is focused upon microeconomic principles whereas MMT is mostly focused upon macroeconomic principles.

      MMT does not claim to have solved the microeconomic problems of the labour market. It only offers solutions for the macroeconomic problems.

      Mainstream economics has no solution for either the microeconomic or the macroeconomic problem.

      cheers.

    30. There is an interesting article in the FT today by Martin Wolf about capital flows and currency reserves.
      I have to admit I don’t understand it but have recently learned to be suspicious of economists saying stuff I don’t understand so I ask stupid questions until I do understand it.

      I’m afraid it probably needs a subscription to read it and they are touch about copying and pasting.

      http://www.ft.com/cms/s/0/8c965926-5fb7-11e0-a718-00144feab49a.html#axzz1HytqFP80

      Anyway does anybody know where I can find some material relating to the operational realities of capital flows and currency reserves. Got there in the end.

    31. Andy,

      What Martin is saying is that cheap imports into Western Countries is coming to an end as is the reliance on exports in the ‘developing nations’.

      That means that all countries must now look to their own populations for economic growth rather than relying on others.

      What will happen is that the western currencies (Euro, Dollar, Pound, etc) will depreciate against the emerging currencies. If the emerging currencies fight against that then inflation will blow them apart. If the Western countries fight against it they will collapse in depression.

      This is another reason why for Western economies in particular zero rates is a sensible goal. It eliminates the government import subsidy that they are currently paying foreign holders of large amounts of financial assets and it forces a rebalance of the currency to a lower level against the emerging currencies.

      Short term that will be painful as the cheap import drug is withdrawn, but in the medium term is allows a rebuilding of the capacity within the Western economies to produce goods and services needed by their population.

    32. Dismayed,

      “One item that I forgot to add – fundamental scientific research. Work that’s too speculative for private industry to fund, but which could have huge value. This would include the Human Genome Project, nuclear fusion, fuel cells, and advanced materials research.”

      Those tasks can’t seriously be considered for JG programs.

      A JG program has to accept that at times it will have minimal and/or transient labour, thus has to be low skilled and therefore suitable for minimum wage remuneration.

      What you prescribe are careers, that have typically been availed at university and government funded science institutes such as the CSIRO.

    33. Thank Neil. Very useful and by “if the western countries fight against it’ do you mean by using their foreign currency reserves or raising interest rates of both ?

    34. The western countries doing what they plan to do – hike interest rates. ISTM that Interest Rates function as little more than an import subsidy that favours foreign goods and services over domestic ones.

      As we saw in the UK yesterday – a single report that suggested that the service sector might be feeling a little happier, the talk is suddenly all about interest rate rise and the Pound strengthens on that speculation. Recently it has been the Euro strengthening on talk of interest rate rises.

    35. “Those tasks can’t seriously be considered for JG programs.”

      I don’t know about that. It depends on the scope and vision of the JG system – and whether the living wage it pays really is a living wage. I’d gladly take a JG position if I could spend my days building Free Software.

      There is more to life than money. A low wage tenure could be very attractive to those who just want to discover stuff, build things of public value, etc.

    36. I still don’t see the problem of working for dole money. Okay, increase dole payments to French levels, why not.
      And I agree some of the jobs below are worthy.

      “Building schools
      Fixing pot holes
      Managing woodland, flood plains
      Caring for the elderly
      Providing childcare
      Tackling drug abuse and cause of homelessness
      Teaching music and other extra curricula activities
      How about non feeing paying education full stop
      More apprenticeships
      More police
      More Fire fighters
      More guns for our soldiers”

      As I see our littered countryside (this IS England after all), it does occur to me that there are people who are getting
      paid to fester, who could be cleaning it up.

    37. “I don’t know about that. It depends on the scope and vision of the JG system – and whether the living wage it pays really is a living wage. I’d gladly take a JG position if I could spend my days building Free Software.

      There is more to life than money. A low wage tenure could be very attractive to those who just want to discover stuff, build things of public value, etc.”

      Well a JG job would have to be something where every increment of output has value. It would serve no purpose to have half-completed software if you decided to return to the private sector, it’d be as effective as no software at all. Getting JG labour to build 60% of a tunnel before returning to the private sector if as effective as 0% of a tunnel.

      However, JG labour planting saltweed on saline affected rivers, and only 60% of the initial planned numbers is better than 0%. These are the type of jobs that should be considered for JG.

      To consider straight up a lifelong career on JG I don’t believe is the purpose of it. That’s not an ’employment buffer’ which Bill comments on, it’s just a career.

    38. “It would serve no purpose to have half-completed software if you decided to return to the private sector, ”

      Actually it would because of the incremental nature of how these things are built. The whole system is designed to be picked up and put down and has been from day one.

      And that’s the secret. If somebody does academic research and publishes the information then it is of value to the next person to pick it up.

      There’s nothing magical to it. It just requires you to use an organisational arrangement that facilitates and those arrangements can be used in vast areas of knowledge work.

      And those arrangements exist and have been proved to work.

      “To consider straight up a lifelong career on JG I don’t believe is the purpose of it.”

      I’m sure you don’t, but then you thought that software couldn’t be built incrementally…

    39. As I understand the JG should set the minimum wage, so it should target unskilled labour, which is definitely not the case of software development, but others examples of jobs that have been mentioned seem to require skills that are not acquired immediately.

      I also don’t see how the JG could guarantee a living wage, whatever that means. It can only provide a job and a nominal salary, not what you can afford with it.

    40. “As I understand the JG should set the minimum wage, so it should target unskilled labour,”

      You can set it at any number of levels depending upon the politics. There isn’t just one definition.

      I would want to see it set the minimum standard of job that the society is prepared to tolerate, and the output should be targeted at using the people fully that are available at that level.

      If you can get Nuclear scientists at the minimum level then it is a foolish waste of skills to have them polishing railway lines.

      Private sector operators then compete to pull people away from the JG by offering better than minimum standard positions.

      That’s what would make a JG different from the ‘working for the dole’ chain gangs. The private sector has to offer better terms, better conditions and frankly better work before they can profit from exploitation.

    41. That’s the whole idea isn’t it. At full employment the private sector will be forced to compete for suitable labour which will mean better terms better conditions…………..

    42. One thing I never understand, guys. All the computers and machines, all the labour saving devices, don’t they by definition make some labour redundant?

    43. Depends on how many jobs you think are worthy enough.
      I think bill mentioned a number in one of his recent blogs for this
      ……’infinite’ as I recall

    44. I also don’t see how the JG could guarantee a living wage, whatever that means. It can only provide a job and a nominal salary, not what you can afford with it.

      The JG wage is not pulled out of the sky. It is set in terms of what it can purchase, i.e., the basic necessities.

      The minimum wage in the US is below subsistence level. One needs more than one minimum wage job or else some government subsidies. There was a brouhaha not long ago about Wal-Mart’s wage being so low that people qualified for government assistance, and Wal-Mart had a department showing people how to apply for it. For those outside the US, Wal-Mart is the largest private employer in the US, employing over a million people.

      A JG at subsistent wage would force Wal-Mart to pay above subsistence and get those people off the dole.

    45. One thing I never understand, guys. All the computers and machines, all the labour saving devices, don’t they by definition make some labour redundant?

      Or they free up capacity for other work to be done that advances the public purpose

    46. Tom,
      you make good points but I think the way Bill and Mosler construct the JG is to not compete with the private sector. I think Mosler says $8.0/hr for the US. That is only a hair over minimum wage which, as you quite correctly point out, is not a living wage. At present working at Walmart plus whatever public benefit one can obtain is still a better deal than being on “welfare” alone, if only because benefits are so stingy. Workers at or near minimum wage also qualify for earned income credits which welfare recipients do not. This is another public subsidy that enables low wage employers. I suppose putting a real floor (actually taking away the excess supply of labor) on wages as opposed to a nominal one would eventually force the Walmarts of the world to pay better but I don’t know if they would ever pay a living wage.

    47. “don’t they by definition make some labour redundant?”

      Yes. That’s arguably how we have retired people. The machines do their work for them – allowing them to consume without further input.

      In a modern world it is arguable that we have more than enough productivity to fulfil people’s needs with very little labour indeed. The rest of the labour force is then deployed producing ‘wants’ – and there is a philosophical and political question as to whether that is a good thing to be doing particularly in a world of finite resources.

    48. The JG wage is not pulled out of the sky. It is set in terms of what it can purchase, i.e., the basic necessities.

      That raises the question of what the basic necessities are, and who should determine them.
      But the JG can only provide people with a nominal income, the real income will still be determined by the market unless the state takes over the production of those goods and services considered basic. That is not a road I would like to travel, and one that you won’t be able to travel in the US.

      A JG at subsistent wage would force Wal-Mart to pay above subsistence and get those people off the dole.

      And maybe lay off people and raise prices as well. If this happens to those firms producing the basic necessities on which the JG wage is based, production falls and prices rise, then those on the JG won’t be able to afford those basic necessities, and raising the JG wage will only aggravate things.

    49. DAvid, the problem is that Wal-Mart is not a JG because it is not a general job offer for anyone willing and able to work. That has to be the floor and the private sector has to build on top of that. An $8 p/h = benefits JG would not be competing with Wal-Mart. It would just force Wal-Mart to pay a bit more than subsistence wage, instead of relying on government assistance to provide them with workers that they can pay below-subsistence, or force workers to work several jobs. It would also end the temp scam that allows companies to pay below-subsistence wages and no benefits. This scam is now widespread in the US.

    50. That raises the question of what the basic necessities are, and who should determine them.

      That is a political question to be determined in crafting the JG legislation.

      <iAnd maybe lay off people and raise prices as well.

      Yes, it will close down the scams.

    51. Elizabeth@3:04,

      Your question was answered 173 years ago.

      Tozer, J. E. (1838). Mathematical Investigations of the Effect of the Machinery on the Wealth of a Community in which it is Employed and on the Fund of the Payment of Wages, Cambridge Philosophical Transaction, No. 6, reprinted 1968, New York, M. Kelley.

    52. >“It would serve no purpose to have half-completed software if you decided to return to the private sector, ”

      “Actually it would because of the incremental nature of how these things are built. The whole system is designed to be picked up and put down and has been from day one. ”

      No, you’re misinterpreting the statement. If it was ambiguous I apologise. I understand there is scalable and incremental development of software, but each of those increments are discrete. There is such a thing as incomplete and therefore inoperable software, and that is my point.

      “And that’s the secret. If somebody does academic research and publishes the information then it is of value to the next person to pick it up.”

      Then academic research is fine for a JG job. But we currently have plenty of academic research positions at a wage well above what would be proposed for JG. This isn’t a position that the private or existing public sector isn’t averse to facilitating.

      “There’s nothing magical to it. It just requires you to use an organisational arrangement that facilitates and those arrangements can be used in vast areas of knowledge work.”

      There is a prerequite in the amount of knowledge one has however to perform research for knowledge work, otherwise someone is obtaining an eduaction under another name. We have insitutes to vet this prerequisite for knowledge.

      “And those arrangements exist and have been proved to work.”

      They also have strict guidelines to ensure it works. A JG as Bill has prescribed it not rigid, they are basically day-to-day contracts with the government having no right of refusal.

      >“To consider straight up a lifelong career on JG I don’t believe is the purpose of it.”

      “I’m sure you don’t, but then you thought that software couldn’t be built incrementally…”

      No I didn’t, I know software is built incrementally. But each increment is discrete. Without advancing this entire discrete increment, it is incomplete software, and inoperable.

      The same as using JG labour to build a railway line. If you only put down the left side of the track without the right, before the JG labour departs for the private sector, you do not have a functioning railway line.

    53. MamMoTh,

      There are many valid concerns about the JG but asking who will run it if the government closes down means that you have crossed the lunatic fringe.

      When a busines fails it is usually because of budget constraints / lack of income.

      A government that is sovereign in its own money has no budget constraint in terms of its own money.

      Therefore, the notion that a government would close down is ridiculous.

      Assuming that a government did close down though –

      What will happen to the many private sector firms that produce goods and services for government if their biggest customer drops out of the market ?

      Answer: Mass unemployment and anarchy.

      The JG would be the last of my concerns.

    54. Alan, it was Tom who said that the JG will help close down scams. I just noted the possibility of a vicious cycle, that’s all.

    55. I realise what Tom said. I was making a refererence to your notion about the impact that a government closing down would have on the running of the Jobs guarentee.

      The main problem with the JG is being able to administer it on the scale required to put enough people into work.

      The work itself exists but the same clowns administering the programs will be the same idiots responsible for work for the dole and other failed programs.

      A case of meet the new boss same as the old boss.

    56. MamMoTh, where do you see the vicious cycle? The JG would just mean that the bottom fishers could no longer game the system and would either have to pay the going wage or go out of business. There are a lot of people on Medicare, food stamps, and other social service programs that are employed in below-subsistence wage jobs. That would go away with the JG.

      What would happen if the government actually cracked down on hiring illegals? A lot of legals would be hired instead, wages would increase, and we’d pay more for vegetables, etc. It’s called true cost verse privatizing gains and socializing externalities.

      Not sure what you mean by the government closing down. If you mean anarchy, well, it would be anarchy and before long people would be eating each other. But what has the JG got to do with government closing? If you mean a government shutdown, well, people on SS will still get their checks, and people on Medicare will still get treated. I don’t see why it would necessarily affect the JG.

    57. MamMoTh: “I also don’t see how the JG could guarantee a living wage, whatever that means. It can only provide a job and a nominal salary, not what you can afford with it.”

      Hmmm. A hunter/gatherer society in effect provides people with a living wage. What is there about modern civilization, which is much more materially prosperous, that it cannot provide its people with a living wage?

    58. “….I know software is built incrementally. But each increment is discrete. Without advancing this entire discrete increment, it is incomplete software, and inoperable.”

      A program doesn’t need to be complete and operable in order to be useful in the world of Free (as in freedom) software. For example, if I wanted to develop an electrical circuit simulator for developers in the programming language Python, then finding a half-completed simulator written in Fortan would save me a lot of time and possibly improve my understanding of the problem and its solution if the original developer wrote clean code with good comments.

      That said, I think a JG program should be politically limited from offering jobs in engineering and science. I think a lot of brilliant people would simply switch to developing proprietary, in-house systems that are of limited social value (such as on Wall Street) because there they can bid up the value of their labor. I don’t want a world where all the brightest minds are competing like peacocks for short-term profits in the meaningless games of Wall Street rather than solving our most pressing problems or innovating ideas that enhance our quality of life. Personally, I don’t care about living a ‘rich’ lifestyle with access to toys and luxuries (I’m happy with a lab bench and a pizza), but I know these status symbols and lifestyles are extremely important to most people, so we need to promise them this life in order to attract them to work for public purpose. I’d rather use people of lesser talent to fill the more mediocre positions in bureaucracy, construction, and maintenance than use them to get mediocre results in science, engineering, and education.

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