Tuesday, May 16, 2017

Neil Wilson — Running a Modern Money Economy

MMT is a description of the existing monetary system and its interaction with the production mechanisms. It takes a unique viewpoint that highlights opportunities that remain out of sight to traditional methods.
From this viewpoint comes a number of suggested policy proposals. So how do those proposals help keep things running smoothly?
Modern Money Matters
Running a Modern Money Economy
Neil Wilson

20 comments:

Ralph Musgrave said...

Neil says: "Banks can only lend directly to borrowers for capital development purposes..". So no one can get a loan to buy a house?

Any political party advocating that idea wouldn't have the remotest chance of being elected to power.

Neil Wilson said...

Ralph,

Can anybody pick you out amongst your collection of Strawmen?

What is the only thing that is classified as household capital investment?

Ralph Musgrave said...

Neil, So "capital develoment" in the case of a household, is a grandiose name for the simple process of buying a house with the help of a mortgage? Assuming I've got that right, what's the relevance of the word "development"? That implies "improvement" or something of the sort, and when someone buys a house, they do not necessarily improve it.

Can we cut down on the gobbldegook and stick to plain English?

Next problem.... (and this will be way above the heads of 90% of the advocates of JG)...assuming unemployment is at Bill Mitchell's "inflation barrier", i.e. skilled labour is realtively hard to find, where does JG get the skilled labour it needs, e.g. the full time permanent administrative people needed? It can't just wade into the market and pay over the odds for skilled labour because that effectively knicks labour regular employers, and it is not the purpose of JG to create JG type jobs at the expense of regular employment.

Neil Wilson said...

"where does JG get the skilled labour it needs, e.g. the full time permanent administrative people needed?"

Where do you get social workers from? Where do you get classroom assistants from? Where does the Employment service get its Work Coaches from? Where does the Probation service get its team leaders from? Where do charities get their marketeers, their project managers and their collection drivers from? Where does the council get its dustmen from?

Solved problem.

The resources of a nation are for the elected government to command *first* and the private sector gets to work with what is left. Policy is set accordingly.

The veneration of the private sector as some infallible superior God is a neoliberal concept. I've been inside enough crap businesses to know it's total rubbish.

Ralph Musgrave said...

Obviously I need to explain in more detail. I'll use monosyllabic words as far as possible.

At the inflation barrier, (i.e. the level of unemployment at which any reduced availability of skilled labour for the regular jobs market will be inflationary), having JG grab skilled labour will be inflationary. So (to repeat) the JG system cannot just wade into the market and buy up skilled labour, and more particularly skilled full time labour (a form of labour for which it will have at least a finite need.)

I actually solved that problem 20 years ago: allocate JG people to EXISTING employers. That way existing skilled labour works alongside a small increase in numbers of relatively unskilled. Nice to see my idea up and running in the UK in the form of the Work Programme (not that the WP is free of faults of course). In contrast, the chance of JG being implemented in the US under the current Republican regime is zero.

Re your ideas on what seems to be a "command economy", people in the West have been free to go and live in that sort of economy (i.e. in the old USSR and more recently in North Korea) ever since WWII. They've been remarkably reluctant to leave the evil "neoliberal" West. I can't imagine why.

MRW said...

The resources of a nation are for the elected government to command *first* and the private sector gets to work with what is left. Policy is set accordingly.

The veneration of the private sector as some infallible superior God is a neoliberal concept. I've been inside enough crap businesses to know it's total rubbish.


I’m definitely with you on this, Neil.

Ralph, the veneration of the private sector began ‘in serious’ here in the US in 1980 when the concept of shareholders dictating to finance and society came into full play. The captains of industry were replaced with the number crunchers. [Michael Hudson has done some great talks on this.]

The history of why public corporations were created is fascinating. They were conceived—and given tax breaks as a result—to serve the public purpose; hence, “public corporations.”

Start reading here: 3 Corporate Myths that Threaten the Wealth of the Nation
Corporations are not working for the 99%. But this wasn’t always the case. In a special 5-part AlterNet series, William Lazonick, professor at UMass, president of the Academic-Industry Research Network, and one of the leading expert on the American corporation, along with journalist Ken Jacobson and AlterNet’s Lynn Parramore, will examine the foundations, history, and purpose of the corporation to answer this vital question: How can the public take control of the business corporation and make it work for the real economy?
http://www.alternet.org/story/154873/3_corporate_myths_that_threaten_the_wealth_of_the_nation/

Neil Wilson said...

"having JG grab skilled labour will be inflationary."

So why haven't the Work Coaches Universal Credit 'grabbed' caused hyperinflation.

Because in reality what you believe doesn't happen. It hasn't happened. And it won't happen.

The JG metasystem gets the labour it requires, just as Universal Credit has the labour it requires, because public required provision comes *first*. The private system works with what is left. Private lending under credit analysis and the public policy settings of tax, planning and projects bring the private sector to a halt with sufficient JG buffer in place to anchor the system at all locations in the country.

We already allocate jobs to existing private employers. The result is low productivity, low business investment and hand car washes propped up with state subsidies. That is not the private system I want - growing fat on public subsidy. Under a JG they will have to work for a living and get lean and mean. Or they will go bust.

I did write a piece just on this. The link is at the top of this page.

MRW said...

Ralph, the point of JG as conceived by Warren Mosler is that it was government that hired them, not have them compete with the private sector or act as a subsidized welfare work force for private businesses. There are lots of skilled labor out of work who need to keep up their skills or they will never be hireable in the private sector. Contrary to the ballyhoos of full employment being extolled here right now, it’s BS. We still have 45 million on food stamps. And the participating labor force in down to 62.x% of the available work force, according to the April 2017 figures. It was 67% in 2007.

The US ran a brilliantly successful version of this in The New Deal’s WPA program. It’s been done before, and instituted quickly. Also, Mosler’s chronicles the implementation of another version in Argentina at the turn of the century.

Andrew Anderson said...

A depositor in a commercial bank is holding nothing more than an outsourced central bank account. Neil Wilson

No he/she isn't. A depositor in a commercial bank is holding the bank's liabilities for fiat while central bank accounts deal in fiat itself.

IF commercial banks were forbidden from CREATING additional liabilities ("Bank loans create deposits") then what you say above, Neil, might be true. But commercial banks may create additional liabilities so what you've said above, Neil, is false.

Andrew Anderson said...

Not that we should forbid banks from creating additional liabilities. Instead, 100% private banks with 100% voluntary depositors should be allowed to create all the liabilities they dare. Why not since they would no longer hold the economy hostage?

Andrew Anderson said...

Nor do we need the physical infrastructure (e.g. branch locations, bank ATMs, etc.) of banks, credit unions, etc. for the limited services a central bank may properly* provide since local Post Offices (with central bank ATMs inside) and the Internet should suffice for those.

There's really no legitimate reason why the non-bank private sector could not have accounts at the central bank alongside those of the banks and thus no legitimate excuse for government provided deposit insurance and other privileges for the banks.

*These do not include lending, a labor intensive process.

KongKing said...

To: CEO of Job Guarantee Implementation Bureaucracy
Dear Neil Wilson,
I am hereby exercising my statutory right to be provided with a job under the new Job Guarantee Act.
I am fully qualified since I am currently part of the buffer stock of unemployed lumpen proletariat.
.
I am very keen to start my new job for the following reasons:
1. Living wage. As promised, this must be sufficient for my spouse and seven young children as well as myself.
2. Flexible hours. The promised flexible working hours of JG jobs will enable me to assist my wife with some of the burdens of childcare. One of our children is a quadriplegic.
3. JG Job close to my home. JG jobs are promised close to people’s homes. We live in a remote barren area. There are zero local jobs - the old mines closed several years ago. My previous jobs were in the closest town over 100 km away and there is no public transport. In the past I had to stay in expensive and overcrowded dormitory shacks and was only able to go home on non-work days.
As an alternative to providing a JG job close to our current home, the Bureau could provide us with a new house at a better location and cover our relocation expenses.
4. JG job compatible with my physical and mental abilities. My previous jobs were back-breaking and unpleasant. I quit labouring at a slaughterhouse due to the stench of blood and strains from lifting heavy carcasses. Then I worked as a geriatric nursing aide but I became a victim of the neoliberal mainstream elite. I was sacked due to alleged absenteeism and low intelligence. In fact I suffered from backaches due to obese patients, while my IQ is a good 85.
5. Re-training. My ambition is to become an airline pilot, so I intend to take advantage of the promised retraining opportunities.
6. Socially worthwhile work. The JG scheme offers productive employments for thespians, musicians and surfers, which are deemed beneficial to society. Likewise my own preferred JG employment, kite-surfing. This could be the basis for science and character building classes in schools, and for a shark early warning system for popular beaches. Moreover, pay-per-view podcasts could be profitable.
7. Inflation Anchor
My new guaranteed job will benefit the economy by providing an anchor for inflation. I hope to kite-surf over the Marianas Trench, the deepest part of the world’s oceans, and could drop an additional inflation anchor there.

Tom Hickey said...

This is exactly the kind of person that a country would like to see. A person that is undervalued, underemployed and has high aspirations. It is fairly easy to work with such people to figure out a win-win.

A whole lot of people that are unemployed are much more difficult to deal with.

How about someone comes in and says, I live in the inner city and work with a gang as a mule. They now want to move me up but to do so, I have to kill someone, which is the basic requirement for promotion. I really don't want to have to do this. I have no education and no experience and am basically unemployable in the private sector. Oh, and I'll have to relocate pretty far away to escape my gang. Can you transfer me and cover my tracks? I don't have too much choice, since fi this doesn't work out, my alternatives are an early death or a lifetime alternating between the street and prison. What can you do for me?

John said...

Dear KongKing,

Similar arguments can be levelled against the universal state health (NHS), universal state education, universal state pensions, universal state unemployment benefits, universal state disability benefits or any other universal state benefit etc. It was all nonsense. The state is happy to pay the unemployed to do nothing, yet the state is incapable of paying the unemployed to do SOMETHING. There is plenty of work that needs doing, and the millions of unemployed are willing and able to do it. So rather than paying them to do nothing, why not pay them to do something? This in turn gets the economy motoring and the private sector will eventually hire them because aggregate demand has gone up.

An 85 IQ would easily get you into the present cabinet, but intelligence isn't the reason that unemployed people are paid to do nothing. Apart from the productivity loss, unemployment leads to family breakups, an increase in substance abuse and of course crime. The country can watch all this with equanimity, while paying the unemployed to do nothing, pay for their housing, their deterioration in health and pick up the pieces using the criminal justice system, but suggest a simple and extremely useful solution to all this, cries of bloody hell are heard.

The reason you come up with a nonsensical hypothetical unemployed person is because there is no argument against the job guarantee. The same nonsensical hypothetical persons exist when it comes to health, education, pensions and welfare benefits. Why should I pay taxes to fund a heart operation on an obese smoker who is doing life in prison for raping and murdering children? So let's privatize the NHS, and then the fat nonce can die the painful death he deserves. Vote Ukip!

Bob said...

If we don't address the moral objections to a JG, then this project will be rejected or eventually dismantled. That is the point Neil makes with regard to the BIG/UBI/etc.

jrbarch said...

”….my alternatives are an early death or a lifetime alternating between the street and prison. What can you do for me?”


Peace Education Program (PEP)

Light Behind Bars

Putting a human face (in this case for women, but the same is happening in prisons for men) to the never ending stream of facts and figures, ideas, about job guarantees and social programs. The University of Texas at San Antonio who studies programs for prisoners found PEP has the lowest rate of recidivism.

This works - by focusing on the vertical to inform the horizontal and you don’t get more horizontal than in jail …..

KongKing said...

@ Tom Hickey and John,
First let me say that I share all your concerns about unemployment. However, I am more in favour of macroeonomic stabilisation through conventional fiscal policies, supplemented by Job Guarantee/Employer of Last Resort/WorkFare schemes, rather than a JG scheme alone.
My application for a JG job (in my earlier comment above) raises seven issues which are generally poorly addressed by JG proponents. Tom surely too optimistic regarding my case in saying: “It is fairly easy to work with such people to figure out a win-win.”
Is the JG really going to pay a living wage which will satisfy my wife and seven young children? Or will we be put on more limited benefits + workfare conditional on my turning up for a lousy job?
Flexible hours?? Wow!!
Job close to my remote home, as proposed by Neil Wilson?!! Crazy.
What useful job can you find for a weak-bodied, dissatisfied, lazy, complaining, simpleton like me? How will I be motivated and disciplined to work hard if I don’t enjoy the work?
How does "employing" a jerk like me have any significant effect on inflation in the economy as a whole, as claimed by Bill Mitchell?
How does paying me a “living wage” have any extra automatic stabilization effects (as claimed by Neil Wilson) compared with paying me and my family the same amount through unemployment and other welfare benefits?
Regarding Tom Hickey’s sad case of gang mule, this would be better dealt with by law and order and social welfare agencies rather than the JG Bureaucracy.

Tom Hickey said...

The MMT package is a comprehensive policy recommendation, based on both operational analysis of the existing monetary system and what this implies for policy space, and also MTT macro theory, which is largely a synthesis of previous ideas and proposals, as well as former policy, for example, during the New Deal, when the advice of Keynes was heeded and Marriner Eccles ran the Fed.

The basis of MMT's fiscal policy proposal is functional finance (Abba Lerner) informed by sectoral balance analysis (Wynne Godley), which MMT economists claim is capable of producing growth, full employment and price stability simultaneously, which most economists do not believe is possible.

MMT economists hold further that the fiscal balance is non-discrtionary, so in addition to the budget, automatic stabilization is required to maintain the sectors in balance near full employment.

The JG is part of the automatic stabilization that mops up residual unemployment by creating a buffer stock of employed instead of a buffer stock of unemployed as does present policy. Moreover, by anchoring the currency to a unit of unskilled labor it also promotes price stability.

While this policy can be enacted partially, MMT economists caution that a test would only be definitive if the whole package were implemented properly. That would depend on political conditions. Like all theory MMT is an idealization and the devil is in the details of implementing it correctly and managing it over time. Since this is about policy, shifting political conditions would impinge, as well as changing economic and financial conditions that are dynamic.

For example, the MMT policy proposal doesn't address the issue of Minsky's financial instability hypothesis directly. Dealing with that would require financial reform and a new approach to monetary policy, including regulation. Warren Mosler has set forth proposals for addressing this, for example.

All this has to be translated into a series of bills that could be submitted to Congress for political consideration. Then the issue becomes getting the bills through the legislative process intact. And then after that there are issues with implementation. It would not be clear at first exactly how to implement the program nationwide, for example, since conditions are different regionally and locally.

So this is a long way from solved but at least the outline for a foundation is there. It's not there in a conventional approaches to economics and policymaking.

Furthermore, this proposal assumes the existing social, political and economic system and it doesn't address the social, political and economic issues arising from capitalism that now threaten the liberal order itself. The is the looming issue globally at present and peering into the future, where big challenges are emerging as a result of a failed approach. This is especially relevant now, with social unrest rising and war clouds gathering again that are becoming darker by the minute almost.

Tom Hickey said...

Regarding Tom Hickey’s sad case of gang mule, this would be better dealt with by law and order and social welfare agencies rather than the JG Bureaucracy.

I agree that a JG is not going to solve these problems that have been festering socially and politically as well as economically for over 100 years in the US and are now exacerbated by the issue of illegal immigration. Both slavery and illegal immigration were fostered by the business community in search of labor whose wage is as close to subsistence as possible.

This is therefore an issue of capitalism and it cannot be addressed through capitalism as its cause without addressing capitalism itself. We need to revisit the work begun by Marx and developed by Marxist. Marxian, and Institutionalist economists, as well as sociologists like C Wright Mills and economic sociologists like Adolphe Lowe's instrumentalism. There are also many heterodox economics and social thinkers who have something to say and that don't fall into a particular category, like Kenneth Boulding (grants economics) and Karl Polanyi.

However, this has to be addressed more broadly now that the liberal order that was initiated in the 18th century is breaking down with globalization. This is fundamentally a spiritual question, which arose with the end of the religious age and the rise of the scientific age. It is also a philosophical question since involves the clash of different world views that are incompatible in major ways. It is also a general systems issue, since globalization involves the development of a world system. Emmanuel Wallerstein is a pioneer int this.

There is a lot of work to be done and a lot of debates to be had. There are many conflicting points of view on these issues and it is by no means certain or even visible in outline what will prevail in the coming years as a new world order emerges through travail and hopefully without any major wars. Minor ones seem inevitable though.

This is a phase transition between dialectical moments in world history.

Bob said...

Yeah there will be a lot of "debates" from the mouths of automatic weapons. The time for polite discourse is running out. What gets discussed at MNE is what could have been, rather than what will be...