Friday, October 15, 2010

I'm 61...


...old enough that I don't really have much time to waste. But I did watch the 5-part, 75-minute Warren Mosler interview recently recommended here by Greg.

My reaction? Yeah, okay: Mosler is the kind of guy that (to use the George W. Bush standard) I'd like to have a beer with. Anytime, Warren. I always have time for a beer.

A problem with the money


At 4:48 into Part 3 of the interview, Mosler says:

The monetary system will facilitate the execution of any strategy we want as long as we have the real resources available.

That is right. The economic problem of our time is monetary imbalance, and the problem could be solved quite easily. There is no reason our monetary system should hinder "any strategy" if we have "the real resources" to support it. Mosler and I arriving independently at the same conclusion strengthens this argument.

Belaboring the obvious


But I don't understand Mosler's appproach. Everybody on the planet already knows the dollar is backed by nothing, and is printed into existence. Yet Mosler dwells on that point and tries to recreate the world upon it.

I completely agree with Mosler that fiat money works by different rules that gold-standard money. But there is more to the story than simply suggesting we can print whatever money we need at any point in time. The suggestion creates false illusions inside and ill will outside the MMT (Modern Monetary Theory) camp.

Mosler avoids offering any hint of theory regarding the management of fiat money, but simply suggests over and over that all we need to do is go ahead and spend what we think we need to spend.

And what does he get for it? A following.

Did a helicopter just go by?


Warren Mosler wants a "payroll tax holiday." He wants to stop collecting Social Security taxes. For how long? "Indefinitely," he says (six minutes into Part 2). Forever. With no hint of addressing any concern that Social Security may be going broke.

I do think Mosler's tax holiday would really boost the economy. For one thing, it increases our take-home pay by 8% (that's Mosler's number). For another thing, the benefit to business is twice that much, because employers match the FICA tax that comes out of our paychecks -- and (though he isn't explicit about it) all of that cost is eliminated under Mosler's plan. In addition, the business cost that is reduced is a labor cost. So it is employment that Mosler's plan stimulates.

Mosler wants a payroll tax holiday. But he says nothing of how to pay for it, except that the Treasury should make the payments for us. The "how," of course, is by printing money, or borrowing money, or waiting for money to fall from the sky.

Objection!


To be perfectly clear: I do not object to the view that the economic problem is a problem with the money. I do not object to the view that the solution must include "printing" money. And I do not object to Mosler's plan to stimulate the economy with his payroll tax holiday.

I object to the justification that MMT provides for all of this. The "T" in MMT stands for "Theory." You'd think, with a name like that, that MMT would offer better arguments than "changing numbers up" and "changing numbers down".

Then too, because Mosler lacks a good theory, his solution is a shot in the dark. He is only guessing what solution we need.

Mosler's tax holiday is a solution to the problem of a slow economy. But a slow economy is not the problem. The cause of the slow economy is the problem. That cause is the accumulation of private-sector debt. (See also my 4-page Austeria PDF.) Mosler does not address the problem of excessive private debt, though it would add much to his argument, and would take nothing from it.

I would hope to find Warren Mosler among the first to grasp this concept. Over a beer, perhaps?

5 comments:

Greg said...

Thanks for watching Arthur.

I just want to remind you that there is more to Mosler than what he talked about here.

Here'smy comments on your comments
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"The monetary system will facilitate the execution of any strategy we want as long as we have the real resources available. That is right. There is no reason our monetary system should hinder "any strategy" if we have "the real resources" to support it."

Very important point I think is that this is NOT obvious to many people. We really CAN create as much money as we wish. It will affect prices but thats not the issue for now. The fact is way too many people talk about money like IT is limited, its not only the real resources have limits.
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"Everybody on the planet already knows the dollar is backed by nothing, and is printed into existence."


Do they? I'm not sure.

He wants people to understand what a floating exchange rate currency means.

He's right that we can print when we need it (not just want it) he also recognizes the political process which enables us to determine our needs.


How much of the MMT camp have you really examned? Bill Mitchell? Randall Wray? Marshall Auerback? Rob Parenteau? Jamie Galbraith? Scott Fullwiler? Most of the ill will outside the camp comes from people putting ideas into the heads of MMters like "We can spend whatever we want"

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"Warren Mosler wants a "payroll tax holiday." He wants to stop collecting Social Security taxes. For how long? "Indefinitely," With no hint of addressing any concern that Social Security may be going broke."


SOCIAL SECURITY CANT GO BROKE!! Just like the US govt cant go broke. Now I'm defining broke as running out of money, maybe there is another definition of broke that might apply.

How can you say you agree with Mosler in your very first paragraph that we can execute any monetary strategy as long as we have the resources and then protest that we cant execute a strategy of issuing 2000-5000$/month to all citizens over the age of 65 allowing them to buy food and shelter.?

Are you afraid we wont have the food and shelter available, that they will be taking this form the younger working citizens.? If you think that is likely down the road, then how will taking more of their money today make those resources available in the future

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"I do think Mosler's tax holiday would really boost the economy.......... So it is employment that Mosler's plan stimulates."


Yes and that is his PLAN!

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I urge you to spend time at Bill Mitchells site. The reason they generally focus on the changing numbers is to illustrate the operational nature of spending in the govt. They dont NEED your taxes to spend, you need their number changing in order to have anything to pay taxes with!!



"Then too, because Mosler lacks a good theory, his solution is a shot in the dark. He is only guessing what solution we need."


This is really not a fair statement to make since you've really not explored the totality of his writings on these subjects and he most certainly DOES address the problem of excessive consumer debt. Take less out the paychecks of working folks (payroll tax holiday) and get people working so they can pay their bills (a Job Guarantee)! Fix banks form the bottom up!

Visit his site some and leave him some questions.
I think you'll find it enlightening.


Cheers

The Arthurian said...

"How can you say you agree with Mosler ... that we can execute any monetary strategy as long as we have the resources, and then protest that we cant...?"

I did not say we can execute any monetary strategy. I said the economic problem is monetary in nature (as opposed to "real resource" based).

I also said the problem could be easily solved. But that does not mean we can do anything. We have to do things that correct the monetary imbalance.

So, what does Mosler say about the problem of excessive consumer debt? I mean, other than proposed solutions. Does he identify causes?

Greg said...

Let me modify it this way. The economic problems are always real in nature. There are monetary problems too that will affect the real economy but our focus should always be on real resources. Money is a man made pricing mechanism. This means we should never say (as a country) we dont have the money. So while we cant DO anyhting(we cant build a time machine yet) we CAN afford anything which is doable. As Randall Wray says we COULD afford to have wine flowing through all the drinking fountains if we dedicated enough of our land to growing grapes but there would be a real cost to this.

Well one of the standard consumer debt stories I've heard told by both Bill Mitchell and Warren Mosler goes like this;

We used to be able to do more consuming out of our incomes back when we had full employment policies (1940s to mid 70s) and ran steady budget deficits that supported private sector saving. The Reagan revolution started eroding much of the income that went to workers and we found ourselves using debt as a means to support our consumption. The beginning of the end was when Clinton ran the budget surpluses, which assured the private sector would de-save to pay down the deficit. The housing bubble and the credit bubble of the 2000s is what kept the economy alive but as you know it came crashing down.

So MMT definitely properly apprised the role of private credit in our demise. The take away they have tried to get people to understand is that the only way the private sector can pay down debt and continue to have some saving and some consumption is for the govt to run large deficits. The austerity measures being pushed by neoliberals will fail miserably because they will force a move towards govt budget surpluses and remove any support for private sector deleveraging and saving.

Piet Poet said...

he actually posted a comment on your blog in 2010 .. are you aware of that?

http://www.youtube.com/watch?v=ba8XdDqZ-Jg

Modern Money & Public Purpose 2: Governments Are Not
Households
ModernMoneyNetwork·16 videos
13thou in 11 months

he does the first half hour, then it's the turn of Stephanie Kelton ... discussion afterwards ..

Piet Poet said...
This comment has been removed by the author.