The focus of the self-termed 99% (or at least the 1% on the streets that say they represent the rest of us) has been income inequality, and there is little doubt that income inequalities have grown over the last few decades. However, the remedies put forth by some, when they do offer up remedies, are usually focused on traditional taxation: tax the rich and give to the poor - it seems our prescriptions to problems haven't much changed from the days of Robin Hood.
There are other options which are seldom if ever discussed. One thought that comes to mind is specific to charitable donations. Every year, particularly around this time of year, billions of dollars of private charitable donations are provided: often to the those in the lower and mid-lower rungs of the 99%. Individuals alone contribute to over $200B every year in charitable giving, often matched by corporate contributions.
Our federal government provides a healthy deduction on many kinds of charitable giving, but some research shows that we as a society would get a bigger bang for our buck if the subsidy were a match (similar to the above stated corporate match). And in fact, even a modest match might encourage private citizens, often those wealthy enough to do so, to give more.
So, instead of a deduction, and perhaps as a political solution to get around arguments of class warfare etc., the federal government could instead encourage the private market to ramp up what they already do every year. The government could honor, with all the full force and faith that our government can provide, a match on every dollar of contribution made to certain charities that benefit the poor or down-trodden. This helps the poor like a tax cut would, albeit through a charity organization; it helps the rich by increasing satisfaction to a cause they already celebrate; it helps government by partially deflecting arguments of class warfare - after all the government is simply mirroring the actions of the private market and the 'revenue' isn't coming from increasing taxes on the rich.
The revenue could at least partially come from eliminating the need for a charitable deduction (money that ordinarily would go back in the rich guy's pocket) and replacing 100% that program with a matching program (where the money would go to the poor guy's pocket - but a poor guy of the rich guy's choosing!). Personally, I'd be in favor of putting new dollars into this kind of a project for at least a time, since there is no sign at this point that government spending is causing any serious inflation - though I understand that might be political suicide.
There could be issues politically with setting up a federal matching program, not the least of which would be deciding what charities could be supported in this manner. There would, for example, need to be a minimum threshold by which the private citizenry would have to contribute to a particular cause for the match to kick-in. IE., if one crazy nut donates to the 'poor satanist's society' or some such thing, the government would not match that obviously. But, I suspect since the government already has a list of 501c3 non-profits that many corporation feel comfortable in allowing their employees to associate with, this picking and choosing may not be too difficult.
All this is not to suggest that I disagree that certain persons should be paying their fair share of taxes (and they aren't). But it is a suggestion given our political reality and given the pressing immediate need for a solution.
UPDATE: further research shows that this kind of idea is already on the table. Must admit, I haven't heard much about it though. Also, the match discussed in the article seems rather week. I'd suggest a much more substantial match. It appears that I'm not alone in that. Anyone else?
Wednesday, December 21, 2011
Thursday, December 15, 2011
Jobs Guarantee
Heteconomist has a nice discussion about the so-called jobs guarantee idea being put forth by MMT adherents.
I would like to suggest that Kalecki's list of possible reasons why some might have reservations about a jobs guarantee program is sorely incomplete.
His three reasons, as Heteconomist lists them:
All three of the above, one could argue, point purely to a conservative political-ideological point of view. According to Kalecki, it seems the uneasiness some might feel stems from three uneasy free-market invasions:
1. government sector vs. private sector
2. spending type a vs. spending type b
3. labor vs. capitalist
But I'm uneasy with the idea of jobs guarantee; and while I might have some discomfort along the lines of the above (to varying degrees), my true discomfort stems from some additional reasons given our existing government structure (including but not limited to):
1. Final decisions (running the business/employment programs, deciding what programs are best to do and what aren't etc) would be made by politicians. One must merely observe today's political environment to see that, absent a Utopian government, the logistics of such an operation, even if attempted with public-private resources, would likely fail in the long-term. How would these decisions be made? Who gets hired where, and based on what?
2. Unemployment, while unsavory, does serve a purpose. It weeds out the bad-acting laborers in good times. It's the bad times that is of concern - it's during deep recessions that even the average-actors are weeded out of the labor market. JG assumes that the recessionary environment is the norm or majority, when one can argue it is not. Why should the government guarantee jobs to bad actors (drug abusers, truant former employees, abusive former employees, lazy former employees)? Why should the good actors have to work to find a good job comparably? If I'm the good actor, who potentially values stability over wage, why wouldn't I reduce efforts to improve myself or advance my skills, and just take the government freebie? Related, if unemployment is pushed more toward 0% (2% or whatever) as an employer or last resort, the adult now has lesser incentive to re-skill or re-educate themselves - something a dynamic economy must do to survive.
I haven't closed my mind to the JG idea, but until someone attempts to formulate an extremely detailed plan, as opposed to just talking esoterically and abstractly as I've seen on blogs and in some MMT papers, then I have serious doubt that this jobs guarantee idea will ever be taken too seriously by anyone outside of academia or halls of philosophy.
I would like to suggest that Kalecki's list of possible reasons why some might have reservations about a jobs guarantee program is sorely incomplete.
His three reasons, as Heteconomist lists them:
The reasons for the opposition of the ‘industrial leaders’ to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. (emphasis in original)
All three of the above, one could argue, point purely to a conservative political-ideological point of view. According to Kalecki, it seems the uneasiness some might feel stems from three uneasy free-market invasions:
1. government sector vs. private sector
2. spending type a vs. spending type b
3. labor vs. capitalist
But I'm uneasy with the idea of jobs guarantee; and while I might have some discomfort along the lines of the above (to varying degrees), my true discomfort stems from some additional reasons given our existing government structure (including but not limited to):
1. Final decisions (running the business/employment programs, deciding what programs are best to do and what aren't etc) would be made by politicians. One must merely observe today's political environment to see that, absent a Utopian government, the logistics of such an operation, even if attempted with public-private resources, would likely fail in the long-term. How would these decisions be made? Who gets hired where, and based on what?
2. Unemployment, while unsavory, does serve a purpose. It weeds out the bad-acting laborers in good times. It's the bad times that is of concern - it's during deep recessions that even the average-actors are weeded out of the labor market. JG assumes that the recessionary environment is the norm or majority, when one can argue it is not. Why should the government guarantee jobs to bad actors (drug abusers, truant former employees, abusive former employees, lazy former employees)? Why should the good actors have to work to find a good job comparably? If I'm the good actor, who potentially values stability over wage, why wouldn't I reduce efforts to improve myself or advance my skills, and just take the government freebie? Related, if unemployment is pushed more toward 0% (2% or whatever) as an employer or last resort, the adult now has lesser incentive to re-skill or re-educate themselves - something a dynamic economy must do to survive.
I haven't closed my mind to the JG idea, but until someone attempts to formulate an extremely detailed plan, as opposed to just talking esoterically and abstractly as I've seen on blogs and in some MMT papers, then I have serious doubt that this jobs guarantee idea will ever be taken too seriously by anyone outside of academia or halls of philosophy.
Thursday, December 1, 2011
Is there a way out?
Did Minsky see a solution to our economic problems? Focus on the last paragraph of the following link: It seems he had a similar opinion 30 years ago that I do today - that there is no real solution right now so long as our political environment stays the way it is. And if you read closely, he suggests that that is unlikely to change unless our teachers of today (our academic economists and teachers of future leaders) wise up to reality. This suggests to me a slow process that must start with challenging the 'official' or mainstream economics of the day. Read the whole thing as it's one of my favorite Minsky publications.
Tuesday, November 29, 2011
MMT Update
Been following some interesting back and forth regarding MMT at Winterspeak.com (see below - the comments are public so I feel ok in re-posting them. It's not my intent to remove from context but I truly feel they epitomize the main back-and-forth re: MMT). I am thankful that the MMTers are finally having a discussion on the points that are causing the confusion - the "should/could" instead of "does". As I observe this from afar it becomes apparent that most MMTers prefer to start with the abstract theory and make 'should/could' assumptions about how the Treasury interacts with the Fed (namely consolidating their operations) - assumptions that at least in some cases are factually inaccurate. When one points out the inaccuracies, the response is, "that's a political problem, not an economic one." And then, you are back to my basic beef with MMT in that you cannot, ever, separate political institutions from economic institutions. The only reason the US is a monopoly of its fiat currency is due to the political institutions. So, ignoring real barriers upfront to a 'should/could' philosophy makes ones theory rather moot, in my opinion. This will become even more of a reality as the Fed is continued to be scrutinized for its actions and calls for audits are mandated.
But I am still learning this new and seemingly more realistic way of thinking about the government's role in money. Is my beef for style than substance? Commenters....please discuss.
One specific thought, reading the comments shows that perhaps the focus is existing solely on the interaction on the spending side of the coin - whether its a style disagreement or a substance disagreement. But I'm much more concerned about any real barriers on the tax side of the coin. What if the government made an error and released too much money. According to MMT, taxes could be raised to effectively remove it from the system. But taxation is political and SOLELY in the hands of the executive and legislative branches....
UPDATE - ongoing discussion
JKH said...
(The following is not directed at Dan K.’s articulate comment; it is rather a broad observation.)
I could almost get more value from reading “market monetarist” posts these days than from witnessing the blogosphere train wreck of tortured conceptualizations that has become "MMT”.
MMT has valuable insights into the nature of the monetary system. But it is ineffective as a platform for conceptual exposition of the monetary system. It seems incapable of distinguishing consistently between factual and counterfactual monetary operations. It seems intent on conflating these two parallel modes of analysis, with such stuff as “the government neither has nor doesn’t have money”.
It is not logically possible to present any interpretation of a monetary system that does not reference explicit institutional design assumptions. Monetary systems don’t exist without specific institutional design. In this regard, there are facts of actual prevailing design, and there are counterfactuals, and there are differences between those two things.
It is certainly possible to design an institutional monetary configuration in which “the government neither has nor doesn’t have money”. But the existing system as it is designed does not have this property.
I’d love to see MMT turned upside down in its expositional approach. But the MMT’ers are a small group, with a thoughtful investment in their chosen presentation, so I don’t expect this sort of change to happen. And understandably, like most of us, they probably don’t appreciate criticism at a fundamental level.
6:29 AM
Neil Wilson said...
"But the existing system as it is designed does not have this property."
It does when you consolidate the balance sheet of the government sector and 'zoom out'.
It very much depends what level of abstraction you are working on at the time.
I do this all the time when designing systems. Sometimes I'm zoomed out ignoring the specifics, and sometimes I'm zoomed in dealing with the nitty gritty - often below the level you talk about (how do transaction records get from A to B in a timely and secure fashion?).
Sticking at one level of abstraction, or constraining yourself by the 'current design' is a huge mistake.
What we can learn from the 'current design' we largely have. Now to explore what the new design should be to deliver the required goals.
7:42 AM
JKH said...
Neil,
I'm aware of the abstraction. It's not a question of constraining one's view. It's about being clear on the starting facts.
If you consolidate all of the balance sheets in the world, what you end up with is a single balance sheet. On the left is all of the real assets of the world. On the right is a global net worth valuation of them.
All financial claims net out in such a consolidated view. But the conclusion from that is not that I "neither have nor don't have money".
Such a conclusion would be the height of silliness (unless you assume a design change to barter).
Yet it's the same point.
winterspeak said...
JKH: I think that's an excellent way to put things. The Federal Reserve is the currency issuer, not the Federal Government.
To what degree those two entities are truly distinct is a worthy topic, but fundamentally political, not economic.
10:41 PM
But I am still learning this new and seemingly more realistic way of thinking about the government's role in money. Is my beef for style than substance? Commenters....please discuss.
One specific thought, reading the comments shows that perhaps the focus is existing solely on the interaction on the spending side of the coin - whether its a style disagreement or a substance disagreement. But I'm much more concerned about any real barriers on the tax side of the coin. What if the government made an error and released too much money. According to MMT, taxes could be raised to effectively remove it from the system. But taxation is political and SOLELY in the hands of the executive and legislative branches....
UPDATE - ongoing discussion
JKH said...
(The following is not directed at Dan K.’s articulate comment; it is rather a broad observation.)
I could almost get more value from reading “market monetarist” posts these days than from witnessing the blogosphere train wreck of tortured conceptualizations that has become "MMT”.
MMT has valuable insights into the nature of the monetary system. But it is ineffective as a platform for conceptual exposition of the monetary system. It seems incapable of distinguishing consistently between factual and counterfactual monetary operations. It seems intent on conflating these two parallel modes of analysis, with such stuff as “the government neither has nor doesn’t have money”.
It is not logically possible to present any interpretation of a monetary system that does not reference explicit institutional design assumptions. Monetary systems don’t exist without specific institutional design. In this regard, there are facts of actual prevailing design, and there are counterfactuals, and there are differences between those two things.
It is certainly possible to design an institutional monetary configuration in which “the government neither has nor doesn’t have money”. But the existing system as it is designed does not have this property.
I’d love to see MMT turned upside down in its expositional approach. But the MMT’ers are a small group, with a thoughtful investment in their chosen presentation, so I don’t expect this sort of change to happen. And understandably, like most of us, they probably don’t appreciate criticism at a fundamental level.
6:29 AM
Neil Wilson said...
"But the existing system as it is designed does not have this property."
It does when you consolidate the balance sheet of the government sector and 'zoom out'.
It very much depends what level of abstraction you are working on at the time.
I do this all the time when designing systems. Sometimes I'm zoomed out ignoring the specifics, and sometimes I'm zoomed in dealing with the nitty gritty - often below the level you talk about (how do transaction records get from A to B in a timely and secure fashion?).
Sticking at one level of abstraction, or constraining yourself by the 'current design' is a huge mistake.
What we can learn from the 'current design' we largely have. Now to explore what the new design should be to deliver the required goals.
7:42 AM
JKH said...
Neil,
I'm aware of the abstraction. It's not a question of constraining one's view. It's about being clear on the starting facts.
If you consolidate all of the balance sheets in the world, what you end up with is a single balance sheet. On the left is all of the real assets of the world. On the right is a global net worth valuation of them.
All financial claims net out in such a consolidated view. But the conclusion from that is not that I "neither have nor don't have money".
Such a conclusion would be the height of silliness (unless you assume a design change to barter).
Yet it's the same point.
winterspeak said...
JKH: I think that's an excellent way to put things. The Federal Reserve is the currency issuer, not the Federal Government.
To what degree those two entities are truly distinct is a worthy topic, but fundamentally political, not economic.
10:41 PM
A Ridiculous Response From About.com
Ridiculousness here.
I'm removing about.com as a link on my blog - I liked it better when it was run by Mike Moffatt.
Whether or not students were 'right' to walk out of class is beside the point - the point it seems that Ms. Beggs can't see. Value judgement are inescapable in the economics of real life. Half of the so-called 'positive statements' in economics are really just normative statements disguised by bad and unrealistic assumptions.
I agree the students don't quite perhaps articulate their own beef very well, but the point about Adam Smith vs. Keynes, as I read it, was more to point out the broad fact that Mankiw teaches a specific ideology, at the expense of alternatives - not just Keynes'. And the Keynesianism he does teach is arguably not the Keyensianism that Keynes would have taught himself. (See distinction between Post-Keynesian economics and so-called New-Keynesian economics).
And now for my shameless plug: anti-mankiw
I'm removing about.com as a link on my blog - I liked it better when it was run by Mike Moffatt.
Whether or not students were 'right' to walk out of class is beside the point - the point it seems that Ms. Beggs can't see. Value judgement are inescapable in the economics of real life. Half of the so-called 'positive statements' in economics are really just normative statements disguised by bad and unrealistic assumptions.
I agree the students don't quite perhaps articulate their own beef very well, but the point about Adam Smith vs. Keynes, as I read it, was more to point out the broad fact that Mankiw teaches a specific ideology, at the expense of alternatives - not just Keynes'. And the Keynesianism he does teach is arguably not the Keyensianism that Keynes would have taught himself. (See distinction between Post-Keynesian economics and so-called New-Keynesian economics).
And now for my shameless plug: anti-mankiw
Monday, November 28, 2011
Sunday, November 27, 2011
Agreeing and Disagreeing with Steve Keen
Steve Keen interview here
I agree that the crisis is due to a Minskian debt bubble....
I disagree that the solution is necessarily to write off the debt per capita with new money.
He is asked directly about the moral hazard problem and he simply restates what he always says - the is was a systematic problem not an individual problem and therefore moral hazard, implication being, shouldn't matter. There are two things, as I see it, wrong with that.
1. Moral hazard doesn't care if a problem is systematic or individual or not - it only matters what people think. And, as the interviewer notes, many people would think that 'bad actors' would be given the same handouts that the 'good actors' are given. To some, that's not fair - and that creates moral hazard moreover in so far as 'bad' debtors have some blame. And what about those that have no debts at all - Do they get nothing? ... which brings me to my next point.
2. Keen makes the assumption that creditors should take full blame for the systematic failure. This is not obvious to me. Credit / loans are a multiple-party transaction and while one can argue that relatively speaking the creditors should have known better and have more power in the relationship and therefore more responsibility, the fact nevertheless remains that many debtors should have known better and demanded funds well beyond their means. I find it somewhat ironic that Keen doesn't agree on this point since circuit theory explains that credit money expands, and bubbles are formed, due in part for the the demand for it.
I believe Prof. Keen is correct that the financial failure was a structural failure - but the structure arises from behavior of individuals and institutions, not some amorphous blob immune to moral hazard.
"Everyone gets a boost because we are not trying to boost individuals...."
It's that kind of statement that makes it clear to me that Keen has no ready answer for the question of fairness and moral hazard. I respect Prof. Keen and agree with him on many points, but I can't agree with his prescription on it's face.
I agree that the crisis is due to a Minskian debt bubble....
I disagree that the solution is necessarily to write off the debt per capita with new money.
He is asked directly about the moral hazard problem and he simply restates what he always says - the is was a systematic problem not an individual problem and therefore moral hazard, implication being, shouldn't matter. There are two things, as I see it, wrong with that.
1. Moral hazard doesn't care if a problem is systematic or individual or not - it only matters what people think. And, as the interviewer notes, many people would think that 'bad actors' would be given the same handouts that the 'good actors' are given. To some, that's not fair - and that creates moral hazard moreover in so far as 'bad' debtors have some blame. And what about those that have no debts at all - Do they get nothing? ... which brings me to my next point.
2. Keen makes the assumption that creditors should take full blame for the systematic failure. This is not obvious to me. Credit / loans are a multiple-party transaction and while one can argue that relatively speaking the creditors should have known better and have more power in the relationship and therefore more responsibility, the fact nevertheless remains that many debtors should have known better and demanded funds well beyond their means. I find it somewhat ironic that Keen doesn't agree on this point since circuit theory explains that credit money expands, and bubbles are formed, due in part for the the demand for it.
I believe Prof. Keen is correct that the financial failure was a structural failure - but the structure arises from behavior of individuals and institutions, not some amorphous blob immune to moral hazard.
"Everyone gets a boost because we are not trying to boost individuals...."
It's that kind of statement that makes it clear to me that Keen has no ready answer for the question of fairness and moral hazard. I respect Prof. Keen and agree with him on many points, but I can't agree with his prescription on it's face.
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