Reviving Economics

I will say I think creating the term money &quo...

2012-05-12T16:18:23.409-07:00
I will say I think creating the term money "thing" is what is nonsensical.

Well, then Keynes (or even earlier thinkers) should be blamed. Wray merely cites him & his definition.

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2012-05-07T03:45:46.149-07:00
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"When you pay taxes by writing a check to the...

2012-05-05T11:24:03.718-07:00
"When you pay taxes by writing a check to the federal government, they debit your bank’s reserve account at the Federal Reserve Bank. Reserves can only come from the Fed; the private sector can’t generate them. If your bank doesn’t have any, the check you write results in an overdraft in that bank’s reserve account. An overdraft is a loan from the Fed. So in any case, the funds to make payments to the federal government can only come from the federal government."

http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

"Right now, the US treasury needs funds at its TGA and TTL accounts to spend."

Kelton analyses this assumption in this paper:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=115128

"an economy can be a strong net exporter and doesn't need government expenditure "to pay taxes". The government can happily be running a surplus for years without the domestic private sector having difficulties in paying taxes."

So long as there is enough "government money" or debt already in existence then technically you're correct.

Personally I remain unsure about the MMT claims that trade deficits aren't necessarily a problem and that "imports are a benefit, exports are a cost".

Anons, this is confusing. May 4, 2012 10:55 AM so...

2012-05-04T15:41:18.767-07:00
Anons,

this is confusing. May 4, 2012 10:55 AM sounded like the Anon from above but May 4, 2012 2:09 PM says he/she is the original Anon.

Either way, in the extreme event of market turbulence, the US Treasury can use its line of credit at the Federal Reserve but that's in future not now.

Right now, the US treasury needs funds at its TGA and TTL accounts to spend.

Whether this is good or bad is an entirely different matter.

You could simply state this instead of trying to argue as if the US Treasury has an open line of credit at the central bank whereas it has zero line of credit in reality.

A better way to say all this instead of using silly arguments such as "spends first" is to say that in most circumstances the government expenditure and the tax rate can be considered to be exogenous with the financing requirement as a residual.

Of course that doesn't appeal to a nontechnical person so there is a tendency to oversimplify and argue that "government spends first" and that the private sector needs to pay taxes and hence the government needs to run a deficit which is a dubious conclusion.

As I mentioned above - for the case of Australia, the domestic private sector is a net debtor to the other sectors and yet pays taxes - so your kind of reasoning is faulty.

Another example: an economy can be a strong net exporter and doesn't need government expenditure "to pay taxes". The government can happily be running a surplus for years without the domestic private sector having difficulties in paying taxes.

I'm the previous anon, not the one above. &qu...

2012-05-04T14:09:02.718-07:00
I'm the previous anon, not the one above.

"The US Treasury has no overdraft facility at the Federal Reserve."

You are ignoring the fact that the Treasury and Federal Reserve are both different parts of the federal government.

The Fed is unusual in that it has a structure in which public and 'private' aspects overlap to a certain degree. Most central banks have a much simpler institutional structure.

The 'Board of Governors of the Federal Reserve System' is an independent agency of the executive branch of the Federal Government (appointed by the president), and it determines monetary policy.

"No, there is no misconception. The US Treasu...

2012-05-04T10:55:17.361-07:00
"No, there is no misconception. The US Treasury has no overdraft facility at the Federal Reserve.

So it has to get funds to spend."

If you've been following recent operational debates, you would know there are ways to get around this. Not a hard and fast rule.

"...once again says that the way you construct statements unnecessarily becomes counterproductive."

Not sure how you would call this "counterproductive." To whom is this counterproductive? You and a few other people? I find it irrelevant to the general message. When MMT interacts with mainstream the specifics never surround specific operational requirements between the Fed and Treasury. Where is the countered production?

*you as in MMTers in general

2012-05-04T09:41:01.557-07:00
*you as in MMTers in general

"especially given the common misconception th...

2012-05-04T09:33:59.312-07:00
"especially given the common misconception that government has to 'get money in' before it can 'put money out'."

No, there is no misconception. The US Treasury has no overdraft facility at the Federal Reserve.

So it has to get funds to spend.

You have to talk reality. This is not the first time I (and some commenters) have argued on this - check old Mosler threads and that in Billy Blog.

It's immaterial, spends first or spends later. In either cases the sectoral balances identity holds.

Now, this discussion is much away from other things but once again says that the way you construct statements unnecessarily becomes counterproductive. There is simply a problem of syntax.

*was

2012-05-04T08:34:48.248-07:00
*was

You could say that. No reason why you shouldn...

2012-05-04T08:34:31.983-07:00
You could say that.

No reason why you shouldn't also state something that is simply logical - especially given the common misconception that government has to 'get money in' before it can 'put money out'.

The chronological sequence of the history of money since year zero(chicken and egg) were not what I was referring to above.

"I was saying that if the government wishes t...

2012-05-04T08:14:59.306-07:00
"I was saying that if the government wishes to take a form of money from the private sector which only the government produces, then it has to give some of that money to the private sector first."

Again the first spends is silly. You could simply state that if the private sector wants a lot of saving, the government has to accommodate this demand by running a higher deficit unless it is prepared to run the economy at less than full employment.

Instead you go arguing one of chicken or egg came first and are adamant about it.

I wasn't referring to some hypothetical situat...

2012-05-04T08:07:31.606-07:00
I wasn't referring to some hypothetical situation involving grown up people in a non-money economy.

I was saying that if the government wishes to take a form of money from the private sector which only the government produces, then it has to give some of that money to the private sector first.

"Tax obligations are settled in the state cur...

2012-05-04T07:27:06.183-07:00
"Tax obligations are settled in the state currency. That can't really happen unless the state provides some of that currency in the first place. "

Man ... same old, same old.

Yeah right. Try imagining grown up people who do not have a money economy gather and form a government and everyone is waiting for the government to "first spend and collect taxes"!

The argument "first spends" is really silly.

"Not if you accept the consolidated Treasury/...

2012-05-04T07:22:18.634-07:00
"Not if you accept the consolidated Treasury/Central Bank argument.

Even if you don't, it just requires more words to explain the exact same double-entry accounting result. So there was some abstraction, so what?
"

No even if you consolidate, lending by the consolidated entity is not called spending.

Basic accounting.

The JG is a fixed wage program - that's the ba...

2012-05-04T06:51:52.272-07:00
The JG is a fixed wage program - that's the basic point. There appears to be some disagreement among MMTers about exactly what that wage should be, what kind of work should be offered, or what kind of additional benefits should come with the job.

The work could be provided directly by government or through private non-profit organisations.

The basic JG idea is the same as Minsky's, though the number of people in the JG program could potentially be everyone who is involuntarily unemployed (willing, able and fit to work).

The only alternative solution for full employment (along with with low inflation) that I have seen offered by the 'MMRists' is Vickrey's inflation controlling market for price-rising permits - which is basically about controlling prices across the whole economy. Other than this the MMRists either tend to ignore the issue and imply that it's not their responsibility to come up with a solution, or else they dismiss unemployment as unimportant or the unemployed as being 'mentally ill'. Mike Sankowski also appears to be advocating a higher inflation target of around 4%, which might be an idea worth pursuing, or it might not.

My reading of Minsky's ELR is somewhat differe...

2012-05-04T06:18:18.751-07:00
My reading of Minsky's ELR is somewhat different from the JG as suggested by current MMTers. In MInsky's case, the wage price was set at some minimum level and could not be adjusted upwards. Therefore, individuals accepting those jobs hold no hope of any raises while working for the public sector. The programs suggested by Minksy were also directed largely at the youth population with a goal of maintaining full employment (4-6% unemployment, not 100%).

From my reading, the current JG attempts to make public employment significantly more desirable and to include a much larger population. An issue with either program is that once government enacts this sort of plan, there will be enormous political pressure to push up wages and benefits for those employees so that the program continues to increase.

I'm not entirely against the ideas presented by Minsky, but think more time should be spent discussing the political pressures that this type of program induces and how to manage those problems.

"anyone that has lived through our most recen...

2012-05-04T05:52:24.481-07:00
"anyone that has lived through our most recent debt bubble knows that wage-driven inflation isn't the only thing one need be concerned with."

You're right. And the MMTers know this too. The point is that the JG is simply an alternative to the current policies of controlling wage-driven inflation through unemployment.

The JG would in theory do much the same thing as current NAIRU-type policies, except that the 'buffer' (as MMTers call it) would be employed rather than not.

"JG also can add perversions to the labor market and disincentives to leave the program. It also, in so far as there is no such thing as a 100% labor driven project, could distort relative prices of capital and obviously moral hazard issues come into play as well."

These are valid criticisms and may be real problems. They are worth discussing. A pseudo argument made on the basis of some misunderstood texts and irrelevant out-of-context quotes (a la Roche) is not.

The long and short of it for me is that MMT makes ...

2012-05-04T05:11:14.252-07:00
The long and short of it for me is that MMT makes an assumption that ELR/JG's buffer stock invokes some automatic price stabilizer via the wage-price relationship.

But anyone that has lived through our most recent debt bubble knows that wage-driven inflation isn't the only thing one need be concerned with.

JG also can add perversions to the labor market and disincentives to leave the program. It also, in so far as there is no such thing as a 100% labor driven project, could distort relative prices of capital and obviously moral hazard issues come into play as well.

Point is, just because it works in an equation, doesn't mean it's essentially the best option.

"A monopolist sells one good and sets the pri...

2012-05-04T05:07:09.430-07:00
"A monopolist sells one good and sets the price of that good and lets quantity float."

Davidson argues that a monopoly supplier can either set price and let quantity float, or can set quantity and let price float.

To solve the problem of unemployment whilst controlling inflation, the government can set a price (ELR wage) and let the quantity (number of people in the ELR) float. The alternative approach, of setting a quantity and letting price float, entails the existence of unemployment so as to control inflation.

" The ELR proposal uses the option of setting...

2012-05-04T04:49:06.379-07:00
"
The ELR proposal uses the option of setting one price, the ELR wage, paying market prices for other purchases, and letting the total quantity of government spending be market determined."

THis is part of what doesn't make any sense using the monopoly analogy.

A monopolist sells one good and sets the price of that good and let's quantity float.

The above sets one price of one type of thing - but not all prices, just part of one price of one thing in the entire economy (it sets a wage floor set by the public sector but all other wages are free to float in the private sector).

It let's all other prices of everything else be determined elsewhere....it's not at all like a monopoly. IMOP this employs a fallacy of aggregation - it assumes the actions of individidual (monopolist) at the group / macro level. It it in this sense that it is nonsensical.

"Well he was responding to the fact that the ...

2012-05-04T04:24:46.549-07:00
"Well he was responding to the fact that the Neochartalists tend to use language such as spending for lending by the central bank. Hence he is quite right. "

Not if you accept the consolidated Treasury/Central Bank argument.

Even if you don't, it just requires more words to explain the exact same double-entry accounting result. So there was some abstraction, so what?

"Take the Australian domesticprivate sector. It is a net debtor to the other sectors. Yet it pays taxes."

And watch the recession hit in the oncoming year unless deficit spending comes in via another stimulus package.

Let's accept what you say at face value though - so what happens?

Roche's odd confusion over this subject seems ...

2012-05-04T03:58:19.707-07:00
Roche's odd confusion over this subject seems to spring from his apparent misreading of certain texts regarding price setting and monopoly.

The following quote from Paul Davidson's 'Full Employment and Price Stability' (http://moslereconomics.com/mandatory-readings/full-employment-and-price-stability/) should help to clear up some of Cullen's confusion:

"The government has the same pricing options with its money of any monopoly supplier of an absolute necessity. An analogy can be drawn, for example, with an electric utility monopoly although taxes give the currency monopolist a tool to regulate demand that the electric utility monopolist does not have.

How does the monopolist price his product? There are two options:

1.Set price, p, and let quantity, q, float, or
2.Set q and let p float.

The first option is generally preferred, with a gold standard or the proposed ELR program two examples of using the first option.

However, the government is currently employing the second option. It sets a budget that determines q (spending), and lets the market determine p (price level) as all purchases are made at market prices. If the monopolist decides to set q, and let the market decide p, it must constrain q so that demand exceeds q, or, for all practical purposes, the price of its product will fall towards 0. Government constraint of q to control p means using continuous unemployment and excess capacity to maintain price stability. Surely this would never be considered a viable option in running an electric utility monopoly, for example.
......

The ELR proposal uses the option of setting one price, the ELR wage, paying market prices for other purchases, and letting the total quantity of government spending be market determined.

With a gold standard, gold can always be considered fully employed as gold can always be sold to the government at the fixed price. Likewise, with an ELR policy, labor can always find a buyer."

Ramanan, Tax obligations are settled in the state...

2012-05-04T03:32:19.476-07:00
Ramanan,

Tax obligations are settled in the state currency. That can't really happen unless the state provides some of that currency in the first place.

"self contradiction"

There isn't really a contradiction between arguing that "money is a public monopoly" today (in the sense meant by Wray) and stating that money may have preceeded 'the state' historically.

Perhaps Wray has changed his views on the historical origins of money over the years, perhaps he hasn't. Maybe there are inconsistencies between his different accounts. This is irrelevant to the question of whether the JG and other MMT policies are good ideas or not.

Here's Wray describing his position again in a different paper:

"if we recognize that the money
of account is chosen by the state, and that only the state can issue domestic currency, then we should view “money” as a public monopoly."

http://www.levyinstitute.org/pubs/wp_658.pdf

Notice the speech marks?
Again, we can disagree with Wray's argument and his use of language, but this makes absolutely no difference to whether the JG is a good policy option or not. For some bizarre reason however, Cullen Roche seems to believe that it does.

" govt MUST spend enough so the private secto...

2012-05-03T23:19:42.273-07:00
" govt MUST spend enough so the private sector has enough money to pay its tax obligation."

Yes they say that and it is incorrect.

Take the Australian domesticprivate sector. It is a net debtor to the other sectors. Yet it pays taxes.

"I've echoed this on the web in my quick ...

2012-05-03T23:18:00.721-07:00
"I've echoed this on the web in my quick response to Lavoie's friendly criticism of MMT where he prefers MMT to use standard economic jargon"

Well he was responding to the fact that the Neochartalists tend to use language such as spending for lending by the central bank. Hence he is quite right.