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April 29, 2010

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Ebenezer Scrooge

Apart from aggregate demand, I don't see any inconsistency with what you are talking about and balanced budgets. It's just a matter of willingness to tax.

Mandos

Yes, you can tax it back and achieve a balanced budget, but you have to ask yourself: is 0 deficit the correct target. What do we get from a 0 deficit? The theory doesn't deny that there are circumstances where you would want to run a balanced budget or a surplus, just that there's no reason to be afraid of a deficit when you need one to do actual productive things.

Joe S.

I'm not sure we disagree.

An increase in deficit does actual productive things when you need to goose up aggregate demand. And you sometimes need to do that. But it's not sustainable forever--there's a point beyond which you cannot continue increasing deficits above GDP growth. And aggregate demand is, I think, the only actual productive thing done by a deficit. Wealth redistribution can be done with a balanced budget.

But you don't even need a deficit to goose up aggregate demand. You can tax the savers and redistribute the wealth to the spenders. Again, you reach a point of diminishing returns.

The point I'm trying to make is that sufficiently large deficits have costs, and one can do progressive macroeconomics without deficits. (The Petersen people exaggerate the costs, and don't like prog macro.)

Now of course you can argue that I'm out there in pony land. In the real world, rich people will refuse to be taxed, and any kind of deficit neutrality predicated on taxing the rich is unrealistic. You might be right.

Mandos

I too have a little inkling of skepticism, but they made a really good case.

However, I guess their response would be like this: they don't want to increase aggregate demand to infinity, merely to the point where full employment is achieved. If there's unemployment, chances are that there's room for GDP growth, almost by definition. So deficits can be run to the level required to maintain full employment.

I don't think they'd categorically reject redistribution by tax. But spending doesn't come out of tax revenue: at its base, all government spending is de novo. Once you've reached full employment, if further wealth redistribution is necessary (I suspect, quite likely), then you can burn the wealth of the rich through taxation.

I guess where they would disagree is on the balanced budget front. Unless you're already at full employment, you have to destroy demand on one side to increase demand on the other. The actual effect on employment is not predictable then. What is predictable: creating money and giving it to the unemployed in exchange for valuable work.

Matt Franko

Mandos,
I was there as well. I have been "on Board" with the MMT for sveral years now (Im not an economist) but perhaps here are a few points where youve asked ?:

elephant in the room: trade and trade deficit issues and foreign investment. Right now, foreigners have invested in the USA and are tied (particularly China) to the USA in deep economic ways. If the government uses its deficit power to reorient the economy to full employment, this is a reallocation of wealth, in a sense. But foreign investors made their investments under radically different assumptions. How does the transition to full employment affect this?

Try to think this way: China has decided to "net save" in US dollar denominated financial assets" ie Treasury Bonds for some time now, not invest. Per Moslers presentation, these bonds can be considered time deposits with the US govt instead of a regular "checking account". China sends us goods, we pay in USD, they take the dollars and put them in Treasuries to earn a little interest.

If the USA de-emphasizes inflation targets, doesn't that mean the value of their investments goes down?

Their bonds are mostly short term, they are redeemed in full by the Treasury when they mature, and China just rolls the proceeds into new bonds.

Do they respond by devaluing their currency even further? CHINA MAINTAINS A PEGGED (FIXED) EXCHANGE RATE

I think this was asked once during a Q&A and I didn't understand the answer. For all I know, it's not an issue..

At another point, someone asked about resource shocks. A panelist said that this would have very little permanent inflationary effect. BILL MITCHELL MADE THE POINT THAT A 'ONE TIME' SUPPLY SHOCK (IE OIL EMBARGO, ETC) IS NOT BY DEFINITION INFLATION, THE TECHNICAL DEFINITION OF INFLATION REQUIRES A LONG TERM STEADY DECLINE IN THE VALUE OF A CURRENCY

So say the price of oil rises dramatically...then the government does what?

GOVT CAN USE FISCAL POLICY (DEFICITS) TO REBATE TAXES TO CITIZENS TO PAY FOR THE INCREASE IN THEIR GASOLINE BILLS, THIS IS WHAT THE GOP EFFECTIVELY DID WITH THEIR $650 REBATE IN THE SUMMER OF 2008 WHN OIL WENT TO $150.

Another problem is my usual one with some lefty bloggers and policy wonk types: political marketing. Some of the panelists suggested that they had experience even with convincing right-wing crowds that this form of job guarantee/full employment is actually more optimal than paying welfare or incurring the long-term costs of unemployment and poverty. You can convince crowds to support a lot of nice ideas. But can you get the crowd to actually vote for your candidate? I've come to think that a leftist conceit is the belief that if you convince enough people of the efficacy of a policy, they'll actually put it into place.

POLITICALLY YES WE HAVE LONG HARD SLOG AHEAD OF US.

Resp,

lambert strether

Audio and slides for the entire teach-in are now available here.

lambert strether

In policy terms, the Jobs Guarantee (JG) -- the final item on the agenda -- looks like a winner. As Mandos summarizes:


So the solution to unemployment? Give people jobs! Yep, just give them money. Money at a living wage, to do things that keep their employable skills available for private sector employment when such becomes available. Money allocated to doing jobs of social benefit that the market has failed to provide, but we know are necessary or desirable through our political decision-making processes. This sets a floor on the quality of life all wage-earners will live, but at the same time, it doesn't waste human resources in the most costly way possible.

And as Mitchell says, the unemployed are already in the public sector; that's where unemployment checks put them! So... Why not give them a job and then a check, instead of just a check?

And in political terms, I can't help but think JG is a winner, too. Maybe 20% real unemployment is going to be enough to shorten the political slog. Optimism of the will...

Mandos

Matt Franko:
GOVT CAN USE FISCAL POLICY (DEFICITS) TO REBATE TAXES TO CITIZENS TO PAY FOR THE INCREASE IN THEIR GASOLINE BILLS, THIS IS WHAT THE GOP EFFECTIVELY DID WITH THEIR $650 REBATE IN THE SUMMER OF 2008 WHN OIL WENT TO $150.

Alright, but as oil becomes more and more dear (a steady process past Peak Oil), where does it go after that? Do we keep using fiscal policy to make oil affordable, or do we let it become scarce in the form of real physical shortages?

Mandos

Also Matt: what it seems you are effectively saying is that a full employment policy in the USA would have only neutral effects on the export-orientation of China. I'd have to think about that.

Mandos

lambert: You're welcome. I think that to rely on unemployment to shorten the political slog will require the "official" unemployment to be at 20%, not the real unemployment (which would presumably be up at 35% or something like that).

ifthethunderdontgetya™³²®©

Oil, and thus gasoline, costs a lot more than just the price listed at the pump. There's all are wars and occupations, along with the huge standing army cost to be added in as well.

Keeping it artificially cheap has had the effect of damping the search for alternatives, as well as encouraging stupid behavior like indulging ourselves in giant S.U.V.s for no real reason.
~

Cammie Novara

This article by the leading blogger on Hubpages (one of America's top 125 websites) describes a completely innovative and effective solution to the ongoing Quebec issue. He envisions the creation of a Canadian Capital District stretching from Ottawa to the West Island and to just east of Cornwall where bilingual rights are strictly protected, and which can also act as a tax-exempt Free Foreign Trade Zone to boost the area's economic development: http://hubpages.com/hub/The-Canadian-Capital-District-The-Solution-To-Finally-Achieving-English-French-Equality

David H.

Thanks so much for this post. MMT makes so much sense, it's no wonder it's not considered mainstream (!)

I just wish it was called MM(something else) because, as you said, the part regular folks like me need to understand is how our modern monetary system works, and the word "theory" can distract from that mission.

Something like Modern Monetary Excitment, or something less silly. MMT needs a re-branding. Ugh, what a horrible word!

Keep up the good work.

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