Following the excellent J.W. Mason, here are the ideas I would like to blog about if I had more time:

  • Let’s stick wealth into the utility function.

Please, it’s way past time. It doesn’t have to be along Caroll’s proposed solution, but something a bit more reflective of the hierarchy of needs would be nice. In fact, a hierarchy of needs utility function would be great in general. At the bottom, you have fixed costs: food, shelter, health care, transportation.  The demand for these is more or less fixed. Above that you, have more luxuries: vacations, nice cars, nice restaurants, entertainment. After that, you are basically left with status and power — i.e. wealth.

  • Capital values — duration effects (again).

Zero nominal rates are special because any asset earning an income stream is infinitely priced when rates are zero. There is a nominal singularity. Equivalently, we can think of this as a duration effect. As nominal rates fall, duration goes up. If the probability that a given (tangible) investment succeeds in earning a profit is fixed, this means that investments that deliver more of their earnings in the present (via dividend payouts) rather than in the future (via re-investment) are valued more highly. So there is a change in the relative market cap of income stocks versus growth stocks when nominal rates are cut. This would be a real effect arising from a change in nominal rates.

  • Who gets the rents?

Assume that firm managers — the ones making actual investment decisions — are risk averse. By definition, the firm managers are more exposed to the success or failure of their investments. To carry zero exposure means that performance in choosing good investments versus poor investments is disconnected from pay. If their own risk premium, as a result of their positive exposure, is x% above the risk-free rate, but then in aggregate capital investments will earn a premium of x% above the risk-free rate. So who gets the x%? Is it equity investors, the managers themselves, the VCs creating firms and selling them into the equity markets, or (God forbid) labor? It seems to me that this is purely a question of bargaining power.

  • More on distribution
Borrowing (in our world) is against capital. Consumer debt, while possible, carries prohibitive rates and is limited by quantity. Therefore households do not
really have the consumption problem as typically described. A better description would be that they can borrow, but only to purchase other investments, not to consume. In which case the solution to the euler-equation is extremely wealth-dependent. If you have wealth, you can smooth consumption but if you do not have wealth you cannot. And I would add that the wage growth rates for most of america are not the aggregate wage growth rates at all.
  • MMT Schism? 
I go back on line, and it seems that there is some splinter group from MMT that doesn’t like the job guarantee. Sheesh. I think what is happening here (and I could be wrong, as I haven’t been paying too much attention), is that the PKers are generally aware of the political and distributional issues behind economic theories, and so they have an additional reason to splinter off of each other. Mainstream macro aspires towards purely mathematical and scientific aspirations (while advocating proposals that wreck our lives — Friedman praising deflation, Greenspan and Summers advocating financial de-regulation, union-busting, ignoring the housing bubble, etc.). So the heterodox types are aware that their analysis has strong political and distributional consequences and bear the costs with additional disunity. Mainstream econ has agreed (more or less) to avoid these questions and externalizes the costs by dispensing bad advice.
P.S. I am a big fan of the Job Guarantee. That is a no brainer that everyone, even if they do not believe a word of MMT, should support. And it is much better than a basic income guarantee. The JG/ELR makes sense even if we were on a gold standard.

13 thoughts on “Queue

  1. “…Mainstream macro aspires towards purely mathematical and scientific aspirations…”

    I hope you wrote this while doing a roll-eye.

  2. “That is a no brainer that everyone . . . should support” MMT. Really? I’ve been reading, studying and writing on this topic for 20 years. The questions relating to whether JG is worthwhile, how best to run it, etc etc are EXTREMELY COMPLICATED. Anyone who thinks that supporting or opposing JG is a “no brainer” clearly hasn’t studied the subject.

    1. I know your arguments, Ralph, and I don’t find them convincing. To me, it is a no brainer. It is better to pay someone to do work, allowing them to accumulate human capital, gain work experience, and obtain references — than to pay them to not work. It’s a no brainer.

  3. Sergei says:

    “EXTREMELY COMPLICATED” you say? Was getting to the Moon extremely complected or just complicated? Or maybe it was even EASY?

    We are not talking here about jumping above our heads. We are talking about organizing ourselves better than just mainstream view on economy which is pure luck. JG might fail in the end but it will NOT fail because it is complicated.

    1. Agreed. Many things are “complicated”: Social Security, department of defense, National Transportation Safety Board, Environmental Protection Agency, Department of Justice. And you can find inefficiencies/corruption/sub-optimal outcomes in all of the above.

      Nevertheless, having them is a no-brainer. That is a separate question from the much harder issue of how to best organize these services. The latter is open ended and subject to much debate. But I don’t see the debate in having or not having these programs at all.

  4. Greg says:

    You and the other MMTers are big on this idea of the rentier class being the enemy. But your arguments are never very convincing. Money is a scarce resource. And rightly so. If it were easy to obtain money we’d all be millionaires. Some people want money before they’ve actually earned it. These people are borrowers. We could have a system where the government doles out cash through lending channels (I am sure lending standards would be really strict – not) or we can rely on private banks to compete for this business. You seem to prefer going the government route. Am I right?

    1. You are babbling. It’s hard to understand what point you are responding to. But if you want to enter into some type of argument about the moral superiority of the wealthy, this isn’t the place in which to do it. Typical analysis assumes a Representative Agent, which is equivalent to a population in which everyone is identical in both wealth and preferences. I am interested in the economic consequences of large disparity of wealth, as well as preferences. One consequence in particular is that a reduction in the rate of interest shifts the wealth distribution and therefore preferences.

    2. Dan Kervick says:

      I believe reward should be based on a person’s work, and their willingness to work to their potential.

      If some one has $X, and gives it to someone for some period of time during which the lender does absolutely nothing, and then at the end of that period of time receives back $X + $Y, it seems to be that they have been given money for nothing.

      1. Well, to believe that reward is proportional to work is to hold to a labor theory of value. Reward is determined by supply and demand, by power, and by some positions being more valuable to a firm than others. A firm can only have one CEO. But it will pay that CEO a lot. Who is to say that if one person “works” a little harder than the next, and gets the CEO slot, that they deserve to earn 100,000 more income? Market forces were never designed to deliver moral outcomes. It is moralizing ex-post that is done to try to make the market outcomes seem moral.

  5. beowulf says:

    “Splinter group”? I guess that’s better than “militant wing”.
    Its precisely because a JG guarantee could also function in a hard money system which makes it the wrong issue to tack onto monetary reform proposal; inevitably fiscal, monetary and banking reform will be cut and what’s left is welfare reform. Newt Gingrich and his campaign adviser Peter Ferrera have endorsed replacing cash benefits with workfare that anyone willing to show up at 9am willing& to work can claim.
    I actually think workfare (a term that drives JG supporters nuts for some reason) is a good idea but it doesn’t move the ball forward on economic reform. Ferrera’s plan calls for state run programs with fixed federal block grants, John Conyers’s bill for a federal ELR would raise taxes to fund it on a deficit neutral basis, both proposals are lacking a certaint… counter-cyclicalness.

  6. I think the proposed ELR would differ from workfare in that it would be open to everyone who wants it, it could be used for education or work (at the applicant’s discretion), and it would include healthcare and childcare in addition to paying the minimum wage. The point, in sum, is to avoid loss of human capital and to foster an increase in human capital.

    Other proposals, such as workfare, carry that odious moral element — i.e. make them work instead of giving them a dole. So it makes a big difference whether the program is structured to really promote the accumulation of human capital or whether it is structured to impose costs on those receiving handouts.

    Yes, I totally agree that it is odd to combine a specific policy proposal with an economic theory. But I do not view MMT as an economic theory. It is a kind of movement that says, “Look we’re not on the gold standard. We are in charge of our own future. Let’s build an economy that fosters real growth and social welfare.”

  7. beowulf says:

    “Other proposals, such as workfare, carry that odious moral element…”

    Which make it far more politically popular than “Job Guarantee” or “Employer of Last Resort”. The trick is, its the same thing, Work and you get paid, don’t work and don’t get paid (there is no chance that the federal govt or any US state would enact an ELR program that current welfare recipients could opt out of). When I said its the same thing, I’m not kidding. Below is Peter Ferrara’s (sorry about misspelling his name above) workfare proposal– he covers healthcare, day care, even universal eligibly (as personified by a day laboring “Warren Buffett”). Even with that odious moral element (which, remember, is a good thing politically), it still isn’t economic policy.

    “Suppose all aid to the able bodied was in the form of an offer to work. Report to your local welfare office before 9 am and you are guaranteed a work assignment somewhere paying the minimum wage for a day’s work… If you have children with no one to care for them, bring them with you and they will receive free day care… If you work a minimum number of hours you get a Medicaid voucher that will purchase basic private health insurance. If you work for a continued period establishing a regular work history, you would be eligible for new housing assistance focused on help in purchasing your own home… These workers would continue to receive the EITC and child tax credits…”
    “The government could even reduce administrative costs to a minimum under this system. There would be no need to maintain and investigate eligibility requirements. If Warren Buffett wants to show up for a work assignment before 9 am, no big deal. Most importantly, this new system would effectively eliminate real poverty in America. Everyone would have a place to go where they could get an assured job and an assured income of $25,000 to $30,000 per year.” (p. 9)

    1. The proposal sounds good.

      Historically, most “workfare” consists of unpaid labor that those on welfare are required to do, from time to time, in order to keep their benefits.

      The labor is designed to be demeaning and undesirable — e.g. picking up trash on the side of the road. It is the same type of thing that those sentenced to do “community service” must do in order to work off their fine.

      ELR would just be work that needs to be done based on your skills, with the goals of improving your human capital. Enrolling in a jobs training program, for example, could fully substitute for work in ELR, because it achieves the goals of increasing your human capital. Show me a workfare program in which you are sent to a trade school in lieu of picking up trash, and that would be a program whose goal is to improve the overall productive capacity of the economy, rather than punishing someone for receiving a benefit.

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