Becker on Grexit

" Nevertheless, I believe Greece in the long run would be better off through having the additional flexibility from controlling its own currency."

Duh.

It's shocking to me that all the analysts are dreading Grexit like it's a bad thing.  It's not a bad thing relative to alternatives.  Staying with the Euro and at the mercy of Germany and the European Bank is a much less tenable long-term solution that just draws the painful process out, puts the Greeks through an incredible pinch, and shows Europe's dysfunction.

Monetary System: A Great Explanation

Let's All Talk Past Each Other

Cullen Roche: 

The govt CAN set the price of anything it wants. It can also put us all in jail, murder everyone, give everyone a job, tax us all 100%, etc etc. But none of this means they SHOULD. MMT takes the monopolist argument to this extreme claiming that the govt SHOULD hire everyone just because it can – based on the idea that this is just what monopolists do – they set prices, etc. It’s just wrong because the idea of the money monopolist is wrong. And instead of building a persuasive moral argument here they build a faulty economic argument based on a misleading perception of the way the monetary system works. Wray says it’s all just based on an understanding of modern money. Except the MMT idea of the way the money system works is wrong! Which is why they make these faulty conclusions like the JG. Personally, I think they’d have more luck selling the JG as a moral policy because the economic argument is very weak in my opinion. (http://monetaryrealism.com/)

L. Randall Wray:

Here’s the rub. Bank money is privately created when a bank buys an asset—which could be your mortgage IOU backed by your home, or a firm’s IOU backed by commercial real estate, or a local government’s IOU backed by prospective tax revenues. But it can also buy one of those complex sliced and diced and securitized toxic waste assets that created all the trouble since 2007. A clever and ethically challenged banker will buy completely fictitious “assets” and pay himself huge bonuses for nonexistent profits while making uncollectible “loans” to all of his deadbeat relatives.   

The bank money he creates while running the bank into the ground is as good as the government money the Treasury creates serving the public interest. And that crooked banker will happily pay outrageous prices for assets, or lend to his family, friends, and fellow frauds so that they can pay outrageous prices, fueling asset price inflation. This generates nice virtuous cycles in the form of bubbles that attract more money until the inevitable bust. I won’t go into output price inflation except to note that asset price bubbles can fuel spending on consumption and investment goods, spilling-over into commodities prices, so on some conditions there can be a link between asset and output price inflations. 

...

Since government is the only source of the currency required to pay taxes, and since at least some people do have to pay taxes, government has pricing power—that is, can set the conditions according to which it will supply the currency.  

Just as a water monopolist does not let the market determine an equilibrium price for water, the money monopolist should not let the market determine the conditions on which money is supplied. Rather, the best way to operate a money monopoly is to set the “price” and let the “quantity” float—just like the water monopolist does.  

My favorite example is Minsky’s universal employer of last resort (ELR) program in which the federal government offers to pay a basic wage and benefit package (say $12 per hour plus usual benefits), and then hires all who are ready and willing to work for that compensation (Wray 1998). The “price” (labor compensation) is fixed, and the “quantity” (number employed) floats in a countercyclical manner. With ELR, we achieve full employment (as normally defined) with greater stability of wages, and as government spending on the program moves countercyclically, we also get greater stability of income (and thus of consumption and production).   ("Keynes after 75 Years...")

Cullen obviously completely misinterprets(and misunderstands) Wray.  Yes, the federal government is the monopoly issuer of our currency, but that doesn't mean they have 100% control over what happens with that currency (anymore than a monopolist of water has control over how their water is consumed or used at the end of the day).  Further, I would presume the MMT folk would agree that the private demand for credit can have a feedback (circuit / horizontal) effect on the issuance of more and more currency.

The other annoying thing about Cullen's analysis is he seems to think he's (and Steve Waldman) come up with a fresh new paradigm he calls "diaganolism."  I don't know if he's aware, but the concept of an upward sloping credit money curve goes back to the 80s and 90s and the horizontalist v. structuralist debates which Wray is perfectly aware of.   Wray: "There are structural and horizontal aspects of the money supply process."

Wray equates MMT understanding of money monopoly with Minsky's jobs guarantee (employer or last resort) idea.   Though, to my knowledge, he never ties the two together. IE, how is the government the monopoly issuer (demander) of labor jobs?  I don't get that.  I don't see the relationship.  It's made up.  It's not at all the same.  That neither suggests JG is a good idea or a bad idea (I've expressed skepticism but that's just me) but it also doesn't at all mean: "because government is the monopoly issuer of the dollar therefore they should become an employer or last resort."  I don't see this connection.  Feel free to enlighten me but it's almost like he's taking a positive statement about how money operates to conclude a normative statement about how labor should operate.  

May Day May Day, our Movement is Dying

So today is May Day, which means supporters of the Occupy movement were to, in essence, disengage from our capitalist overlords (ie., skip work, skip shopping, etc.).

Sigh

Hopefully I'm preaching to the choir at this point, but for those of you who still may be holding out hope that this movement goes anywhere, you need only consider what they are asking for to see how completely hopeless a cause it is.

So far, in New York, the origin of the major part of the movement there has been sparse activity.  Yeah, go ahead and blame in on the rain, but just remember Milli Vanilli faked it too.

And let's discuss what OWS thinks this strike of workers will do vs. what it actually will do.  OWS, first of all, doesn't think anything since it is anarchist by nature with no leadership or spokesperson (indeed if the media is to believed, there is fear that the Democratic Party will step into that vacuum).  What actually will happen is people will not want to risk getting fired or reprimanded (which incidentally would only hurt the 99% in the long-run) so that this "mass" strike will not be of any significance.   As for putting an end to shopping for a day, well the same concept was tried with gasoline - people protested gas prices and there was a call for a national 'don't buy gas' day.   I bet you can guess how that turned out.   Yeah, people still bought gas.

At the end of the day, OWS has all these ways of demonstrating, all these instruments, that they try to inflict on the system, but they don't know what they want the end result to be.   So it all comes off as half-assed and half-thought-through.    So, OWS supporters, go ahead and tie yourself to a bank blocking other 99%ers entry, or pretend to stop shopping only to go back and buy double tomorrow, or call off work putting you and your family at risk.

Until you grow up and grow a head, all of your methods will be for naught and to the detriment of real change.   Because the one thing OWS is really good at is annoying the hell out of or confusing the hell out of the 99% of the 99% that think OWS is nonsense.

So you say, but Garth, what would you have done differently.
Well that's another topic but I'll summarize with two points:

1.  Shrug off the anarchist roots and embrace capitalism - but a reformed capitalism (that isn't corporatism)
2.  Focus your message with a leadership team that is less about income distribution and more at the core of changing our system - our screwed up politics.   So, rather than 99% vs. 1%, the message should be about the hazards of our existing two party system and how it interacts with the 1%.   After all, you can't affect tax policy and redistribution issues easily until you correct the political machine that sets those policies.  And, I think one would find much broader consensus on the nature of our politics than on the nature of our income distribution.

Mosler - Keen Connection

I was reading a thoughtful blog post from Warren Mosler and when I came across one of his responses it reminded me that there is still significant work that needs to be done to connect MMT work with Steve Keen and the circuitist works that tend to focus on the interactions of banks and individuals in credit and debt formation.  

This raises an interesting question:
Is it ‘better’, for example, to facilitate the increase in spending through a private sector credit expansion, or through a tax cut that allows private sector spending to increase via increased income, or through a government spending increase?

The answer is entirely political. The output gap can be closed with any/some/all of those options.

Is it really entirely political from Keen's perspective?   In one circumstance, say a tax cut, there is no additional private debt added, whereas in the other case of private credit expansion there is necessarily a private debt increase.  I would imagine from that perspective, the latter may pose more of a problem - beyond the politics in so far as it may facilitate an unsustainable debt bubble.

Perhaps the options would mainly be political in an ideal MMT world where policy makers acted as if MMT explained reality, but in the environment we presently live in, I would suggest when given the choice to facilitate recovery between increasing private debt levels or increasing public 'debt' levels, the safest course of action would want to choose the latter.

If one accepts this logic, and admittedly some may not, it shines the light on the ineptitude of current monetary policy and lack of present fiscal policy gumption.

Gas Taxes: Indiana Style

John Gregg, Indiana's presumptive Democrat nominee for Governor has recently announced his policies would include an attempt to permanently eliminate the Indiana sales tax (7%) on retail gasoline. 

While I don't necessarily think this is the most effective way to get money into the hands of Hoosiers, I'm really wondering what the environmentalist side of the Democratic party are going to think about this.   Just a few years ago there was a debate nationally about whether or not to increase gas taxes as a disincentive to CO2 emissions.   Many economists and environmentalists jumped on board with the idea (though I did not).

Heck, even embatted Republican Senator Richard Lugar wants to raise gas taxes!

It will be interesting to see how this plays out nonetheless.

There Won't Be a Housing Price Rebound

....at least not for a long time.
News outlets keep acting like we are all waiting with bated breath for a housing price rebound to pre-recession levels.   Maybe homeowners who signed on the dotted line expecting ridiculously high appreciation are waiting as such, but I'm not.  Frankly, any economist (or analyst) who believes that housing prices were in a bubble, aren't.

Price bubbles, by their very definition, are about prices that reach unsustainable heights.   This means, when they fall, they don't get back to those heights unless one of 2 things happen: 1. another bubble forms, or 2. natural long-term appreciation reaches that level.

I don't know of anyone expecting another housing bubble anytime soon, and I think it would be ridiculous to assume the housing prices should be - if accurately priced - at the levels they were in 2006.  Here's a nice graph from Robert Shiller (of the Shiller Price Index).  Does the top of that red line look like something we are going to get back to anytime soon?  No, it doesn't.

Economists all say the same thing - we aren't even at the bottom yet - there's still too much housing inventory to put much of a dent in price valuations now.    The next logical statement though is equally important  - even when we get past the bottom, our next top is not going to be anywhere near where it was in 2006.

So, don't hold your breath.