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.