Tue 2010-06-01 18:54 EDT

billy blog >> Blog Archive >> In the spirit of debate ... my reply Part 3

Bill Mitchell

The debate seems to be slowing down which means this might be my last response although we will see...I urge all those who are interested in finding out more about the employment guarantee approach to price stabilisation to read our major Report (released in December 2008) called Creating effective local labour markets: a new framework for regional employment policy...productive is not confined to contributing to the profit bottom-line of a capitalist enterprise. There are many things that deliver social returns that will never spin a private profit. Even mainstream economics says optimality should be defined in terms of social costs and benefits. It is just that they never get to that level and slip back always into the private returns mould...It also seems that conservatives in the US are starting to take to modern monetary theory. My colleague Warren Mosler has been giving modern monetary talks to the arch-conservatives in the US at the Tea Party meetings... would advocate that banks be regulated into going to back to being banks and outlawed from being merely commission recipients for securatised package deals etc. I would prevent banks from doing anything other than taking deposits and making loans. All the rest of the behaviour that the banks have been involved in would be outlawed...

Billy Blog; blogs Archive; Debate; reply Part 3; Spirit.

Tue 2010-06-01 16:23 EDT

billy blog >> Blog Archive >> In the spirit of debate ...

Bill Mitchell

Readers of my blog often ask me about how modern monetary theory sits with the views of the debt-deflationists (and specifically my academic colleague Steve Keen). Steve and I have collaborated in the last few days to foster some debate between us on a constructive level with the aim of demonstrating that the common enemy is mainstream macroeconomics and that progressive thinkers should target that school of thought rather than looking within...hopefully, this initiative will broaden the debate and bring more people up to speed on where the real enemy of full employment lies...The modern monetary system is characterised by a floating exchange rate (so monetary policy is freed from the need to defend foreign exchange reserves) and the monopoly provision of fiat currency. The monopolist is the national government. Most countries now operate monetary systems that have these characteristics...the monetary unit defined by the government has no intrinsic worth...The viability of the fiat currency is ensured by the fact that it is the only unit which is acceptable for payment of taxes and other financial demands of the government.The analogy that mainstream macroeconomics draws between private household budgets and the national government budget is thus false. Households, the users of the currency, must finance their spending prior to the fact. However, government, as the issuer of the currency, must spend first (credit private bank accounts) before it can subsequently tax (debit private accounts)... Taxation acts to withdraw spending power from the private sector but does not provide any extra financial capacity for public spending...As a matter of national accounting, the federal government deficit (surplus) equals the non-government surplus (deficit). In aggregate, there can be no net savings of financial assets of the non-government sector without cumulative government deficit spending...contrary to mainstream economic rhetoric, the systematic pursuit of government budget surpluses is necessarily manifested as systematic declines in private sector savings...Unemployment occurs when net government spending is too low. As a matter of accounting, for aggregate output to be sold, total spending must equal total income (whether actual income generated in production is fully spent or not each period). Involuntary unemployment is idle labour unable to find a buyer at the current money wage. In the absence of government spending, unemployment arises when the private sector, in aggregate, desires to spend less of the monetary unit of account than it earns. Nominal (or real) wage cuts per se do not clear the labour market, unless they somehow eliminate the private sector desire to net save and increase spending. Thus, unemployment occurs when net government spending is too low to accommodate the need to pay taxes and the desire to net save...Unlike the mainstream rhetoric, insolvency is never an issue with deficits. The only danger with fiscal policy is inflation which would arise if the government pushed nominal spending growth above the real capacity of the economy to absorb it...government debt functions as interest rate support via the maintenance of desired reserve levels in the commercial banking system and not as a source of funds to finance government spending...there is no intrinsic reason for...

Billy Blog; blogs Archive; Debate; Spirit.

Sun 2010-05-16 15:59 EDT

billy blog >> Blog Archive >> Doublethink

Yesterday I read an article by Noam Chomsky -- Rustbelt rage -- which documents the decline of the American dream and extends the malaise to Chinese workers. The hypothesis is that the workers in each country signed up for what they thought was a social contract where if they worked hard they would enjoy secure retirements. Then the meltdown undermines their jobs and they are forced to live on pitiful pensions. And while they watch the top-end-of-town enjoying the benefits of billions of bailout money from government the beneficiaries of these bailouts are leading the charge to take the pensions of the workers and turn them into ``financial products'' (privatised social security). This raises the concept of doublethink (a term coined by George Orwell) -- which ``means the power of holding two contradictory beliefs in one's mind simultaneously, and accepting both of them''...I see a lot of that in the mainstream economics debate...whatever suits their political agenda on any particular day. There is no consistency in their attacks -- they shift and slither and creep as facts get in the way.

Billy Blog; blogs Archive; Doublethink.

Thu 2009-09-17 09:31 EDT

Why capitalism fails - The Boston Globe

Stephen Mihm

Mainstream economics rediscovers Hyman Minsky; ``Instability,'' he wrote, ``is an inherent and inescapable flaw of capitalism.''...Minsky drew his own, far darker, lessons from Keynes's landmark writings, which dealt not only with the problem of unemployment, but with money and banking...Minsky argued that Keynes's collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff...Minsky spent the last years of his life, in the early 1990s, warning of the dangers of securitization and other forms of financial innovation, but few economists listened. Nor did they pay attention to consumers' and companies' growing dependence on debt, and the growing use of leverage within the financial system... Minsky...argued for a ``bubble-up'' approach, sending money to the poor and unskilled first. The government - or what he liked to call ``Big Government'' - should become the ``employer of last resort,'' he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else's wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

Boston Globe; Capitalism Failed.