MR and the Diagonalist View of Money

Recent debates have led to some fruitful discussions and circled back to a point that Steve Waldman made several months ago.  He referred to the MRists as “Diagonalists” – neither verticalist nor horizontalist, but a hybrid of both.  While I didn’t initially like the term, it is an accurate description of the path we’ve chosen (though we are open to terms that, as Carlos says, don’t sound like a rock band!).

Horizontalists (circuit theorists like Marc Lavoie and Steve Keen for instance) will generally emphasize private credit and ways that policy can influence private credit.  Verticalists (like MMTers) will generally shun policy that works through horizontal money creation in favor of policy that works through the vertical component (consolidate govt work and through the the JG, fiscal policy, eliminate monetary policy, etc) influencing net financial assets.   MR takes a more balanced approach to the monetary system.

The key here is understanding that we are not closed minded to monetary policy or fiscal policy in the approach to maintaining and influencing the balance of financial assets in the economy.  Although MR does not embed specific policy in our approach, we understand that policymakers should remain flexible and open to any and all environments.  The economy is a dynamic system and requires great flexibility in managing.  In this regard, we should never claim that any single policy is a one size fits all policy.  Instead, we take the approach of “better to have and not need than need and not have”.

Perhaps most importantly (and keeping in-line with our focus on operational realities), we must acknowledge that we have a hybrid monetary system with a private credit system (the horizontal component) and the government (the vertical component).  The horizontal component does not exist to serve public purpose.  Rather, it exists because the US monetary system is designed to disperse power away from a centralized government (it just is what it is, whether workable or not, right or wrong).  In this regard, we find the idea of a “money monopolist” misleading and inapplicable to the way our monetary system is structured.   This focus on a “money monopolist” conflates the design of our actual system and eliminates potentially useful policy responses.

So, we’ll be going on a summer tour this year playing in a town near you.  As the creator of the band’s name Steve Waldman is responsible for the band’s bills, tour bus and extracurricular activities.   If someone could send me his billing address we’ll get started immediately.   :-)

* Thanks to Ramanan for pointing out an important distinction here. Vertical and horizontal refer to the varying forms of money creation as described in MMT literature and not the ideas of Basil Moore.  Vertical refers to NFA creation via cumulative budget deficits while horizontal refers to endogenous money creation through the process of loan creation via private banks.  See here for more.  

Comments

  1. Horizontalists … will generally focus primarily on private credit and ways that policy can influence private credit. Verticalists … will generally shun policy that works through the horizontal component in favor of policy that works through the vertical component…

    I don’t think there’s any such dichotomy.

    All policy proposals ultimately aim to have a horizontal effect, via some sort of vertical action.

    • Cullen Roche says:

      Horizontalists are focused almost entirely on the horizontal banking component. MMTers understand both, but all MMT policy proposals are designed to work through the vertical component in an attempt to bring the “state back to center stage”. If you’re familiar with the theory then it’s pretty easy to understand. I am not sure what there is to argue about? Or are you denying that MMT says monetary policy is ineffective and that MMT policies all work through the vertical component?

      • No, all I am saying is that there’s no such thing as a policy proposal that doesn’t involve the vertical.

        Therefore I find the horizontalist/verticalist distinction to be non-existent, when it comes to policy proposals.

        • Cullen Roche says:

          MMT policies like the JG, govt spending, etc all work through the vertical and influence the horizontal in a secondary manner. Pretty cut and dry. You seem to be trying to start an argument where there isn’t one….

          • All policies (MMT or not) aim to ultimately influence the horizontal (i.e. private) sector. That is their ultimate goal. It’s never secondary. There would be no point.

            Not starting arguments. Just commenting on the post. I believe that’s what a comments section is for… :)

            • Cullen Roche says:

              Are you saying that MMT policies originate at the horizontal component? Clearly they don’t. So I don’t know what your point is. Perhaps you’re trying to marginalize the differences between MMR and MMT because you’re realizing that our platform is a better and more flexibile representation of reality? Why fight us? just join us instead? :-)

              • What I’m saying is that all policies originate from the vertical. Isn’t that the point of a policy – to make the vertical change something in order to affect the horizontal?

                Also – thanks for the offer to join the cool kids. I enjoy visiting your club, but I feel my JG-branded t-shirt would be a bit out of place in the clubhouse. :)

                • Cullen Roche says:

                  Some policy works to directly alter the private banking system’s issuance of credit. Other policies work to inject direct govt money into the economy. MMT’s focus is on fiscal policy almost exclusively. What’s to debate about that?

                  Oh, and no shirts allowed in the clubhouse. We’re a low rent club.

                  • Imtheknife says:

                    I think the commenter is confusing vertical *money creation* with vertical *transactions* here.

                • Horizontal policies work by changing the amount of private credit. Vertical policies work by changing the amount of net financial assets. Yes, all government policy is implemented by the government, but that doesn’t mean all policy works to alter the vertical. In fact, horizontal policy that works without any vertical policy is almost certain to cause problems like we’ve seen in Europe.

                • Ben Wolf says:

                  Christ, not this again. You know very well MMT overwhelmingly emphasizes the vertical while mainstream economists emphasize the horizontal. You also know this is exactly what Cullen wrote and that you are deliberately trying (falsely) to characterize it as all-or-nothing.

                  Sorry but you aren’t discussing this in good faith.

                  • Tom Hickey says:

                    Ben, most mainstream economists are Verticalists in the non-MMT sense explained by Ramanan in this thread, i.e., they are monetarists rather than fiscalists. They advocate using the central bank as a command system for managing the economy through interest rate setting to control the horizontal money supply. Fiscalists think that this is anti-capitalist, anti-democratic, and in the final analysis ineffective and inefficient, as all politically imposed command systems are.

                    • Ben Wolf says:

                      I have no idea what you’re talking about. Moetary policies are inherently horizontal in their applications, whether MMTers recognize that or not. Arguing that stimulating aggregate demand via loans within the banking system is a vertical approach is the world turned upside down. By your logic EVERYTHING is vertcal.

                    • Ben Wolf, you miss the point of what I am trying to say. That is probably because we have poorly defined and changed the terms horizontalist and verticalist (me included), such that the debate is now meaningless.

                      So let me start over:

                      I am arguing that there is no such thing as a policy proposal that does not involve the government in some way.

                      When it comes to policy discussion, the government is always “centre-stage” – because we always have to decide whether the government should or should not do an action.

                      The steps to debating whether a policy proposal is economically beneficial should be simple:

                      1) Define whether the government is able to carry out a particular action within the current monetary framework that exists
                      2) Define what the consequences of it doing the action are
                      3) Decide whether those consequences are net positive

                      That is really all that needs to be discussed in an economic sense (politics is another matter).

                      All other discussions about who is horizontal/ vertical/ monopolist/ non-monopolist/potato are semantic issues, which miss the mark and are ultimately irrelevant to any discussion around policy proposals.

    • Cullen Roche says:

      Here’s Kelton:

      “Under the metallist vision, the state takes a back seat to the market. The chartalist theory, however, places the state on center stage”.

      That’s pretty crystal clear. The entire chartalist agenda is about focusing on the state and the way it can implement fiscal policy through the vertical component. No one is saying it doesn’t effect the horizontal component, but the policy and focus under MMT is pretty cut and dry. Not sure where the confusion could be here for you.

      • Kelton is just stating the standard MMT position that direct vertical action is much more effective than trying to indirectly spur the horizontal to do things of their own accord.

        That’s not even an MMT position actually – that’s a broadly Keynesian position.

        • Cullen Roche says:

          I guess MMRists aren’t pure Keynesians then. :-)

          • Fair enough.

          • Tom Hickey says:

            Hey, I said from the get-go that at heart you guys were neoliberals with Austrian tendencies . :)

            • Cullen Roche says:

              I know, we also eat small children for dinner.

              PS – Tom, when are you gonna admit that you’re also an MMRist? We already know you don’t support the JG so you’re partly there. :-)

              • Tom Hickey says:

                Cullen, I am to the left of Communism.

                • Cullen Roche says:

                  Your boy Randy is going off the rails again. I nominate Tom Hickey to do all public speaking on behalf of MMT. Oh, and Warren when he has the time. :-)

                  “1. Attention Deficit Disorder: A couple of comments here, and from what I can tell a huge number of comments on other “Modern Money” blogs that are not called MMT, suffer from ADD. Some people cannot read past a single sentence. I think there are now drugs that help. Try them.

                  So apparently a lot of bloggers (especially those who accept MMT, but without the taxes or the JG—go figure!) latched onto a sentence, plus one word. I said: “So, can we have MMT without a JG? Certainly!” Now that followed a long discussion, including an analogy to a theory of disease and a policy to fight the disease (more in a minute), and followed by the statement by me: “I believe it is a policy mistake to operate a modern money system without a JG—but that is what almost all countries do. MMT allows us to analyze them, and to offer policy recommendations. But if we leave out the JG in our recommendations, we are seriously remiss in our advice.”

                  And what would our ADD disadvantaged friends come away with after reading that? Oh, of course: “Wray admits MMT does not need JG! MMT and JG are not compatible! He’s a flipflopper!”

                  OMG. I cannot recommend anything but drugs. Education or explanation will not work. Please ship drugs to them. Massive quantities. I hear they got 6 figure dollar grants to try to destroy NEP and MMT. Please, allocate some of that money to drugs. They need drugs to counter the ADD. They’ll never be able to destroy MMT without drugs. They come across as completely dishonest and stupid. But I’m sure it is just ADD. Don’t deride them. Send help. Drugs. By the truckload.”

                  • That guy is losing it. I like how he says we accept MMT without the taxes and the JG. Kumbaya, right? He doesn’t even know what MMR is. Haha.

                    • Cullen Roche says:

                      I am honestly a little speechless that he even wrote that. But whatever. I keep telling people. This isn’t about slinging mud or pissing off MMTers. It’s about getting the economics right. MMTers should be honestly interested in pushing these discussions forward so they can strengthen their own position and the readers’ understanding of the monetary system. The whole reason we started MMR was to try to provide readers with a better understanding of the monetary system while removing some of the political distraction that often muddies economic waters. Calling people stupid and asking people to take drugs to improve their mental status (I can assure you my state of mind is sound with drugs!) is counterproductive. I know MMTers like to pretend to be humanitarians, but after the retard comment and the ADHD comments I wonder if there is any group with mental disabilities that Wray will spare during his rampaging rants??? We should pay this sort of stuff no attention. It’s undeserving of comment.

                • “Cullen, I am to the left of Communism.”

                  What does this even mean? :) I don’t get it!

                  • Cullen Roche says:

                    Good question! I would have assumed that means he’s in favor of nationalized banking, but he said otherwise….

                  • Cullen Roche says:

                    It is interesting though….the more you pry the politics out of MMTers the more extreme left you realize they are. Which is fine I guess, but something they’re not very upfront about….and for good reason.

                  • Tom Hickey says:

                    I agree with those who think that a community of actual human beings rather than animals still working toward becoming fully human would recognize their species nature and cooperate and coordinate as a species to make life as good as it possibly can be for all. Remember the motto, of the three musqueteers? It’s “All for one and one for all.”

                    The political challenge that humanity is working on is realizing the motto of the French revolution — liberté, éqalité, fraternité. This is the political trifecta yet to be resolved. It will take increasing collective consciousness among humans to realize it as a species. As yet relatively few have been able to do so.

                    Why is this to the left of Communism? It is the state that Marx envisioned as the goal for a race that is truly free and capable of self-determination as a species, in which all can freely realize their “species-nature,” i.e., humanity, along with individual potential, which is unique. It is also preached in the Gospels and taught in perennial wisdom. It is the ideal that humanity pays lip-service too, although many also scoff at it as ridiculously impractical and highly improbable, if not impossible given what we are. They speak for themselves and reveal what they are.

                    Here is a post by Peter Singer, Professor of Bioethics at Princeton and Laureate Professor at the University of Melbourne, entitled Are Humans Getting Better?

                    http://www.project-syndicate.org/commentary/are-humans-getting-better-

                    As a species we are doing better but we aren’t anywhere near there yet.

                    • :) This sounds much less wacky than “left of communism”. It’s idealistic and hopeful.

                    • Tom Hickey says:

                      “This sounds much less wacky than “left of communism”.”

                      I should clarify that further, Mike S., since this is really key to understanding my personal viewpoint. When I say “to the left of Communism” I mean no “dictatorship of the proletariat.” As Bakunin told Marx, that was a huge mistake. Bakunin warmed Marx where it would lead, which of course it did.

                      My view is going directly to “anarchism” that resolves the trifecta of liberty, equality and community directly at the grass roots level in communities based on consensus instead of hierarchy and authority, which have not been successful in dealing with this trifecta other than by creating illusions through the smoke and mirrors of mass propaganda.

                      I have lived most of my life since the late Sixties, after leaving the military, in such communities and I regard that that type of organization as superior to the hierarchical authoritarian model that prevails in “normal” society. Actually, we say among ourselves that we live in the sane asylum” and sometimes need to out into the “insane asylum” to interact for one reason or another. Then we don a disguise and act “normal” while doing so.

                      It is possible to live like this right now. Millions of people are happily doing so as we speak. And no, most of them aren’t living off the grid, either. This is the basis of Occupy, btw.

                    • Hey bud, this is the sort of sh&t you MMTers need to keep in your crazy cult meetings and never let anyone else know about. Jesus, the more I learn about you guys the more extremist you are!

                    • Well, cool.

                      I had looked up a bit about one of the names I happened to run across when we were emailing, and the contrast in what I saw and what you write about is large.

                      Sounds like it works for you. Not everyone could live like that.

                      Have you read any of the Culture novels by Iain Banks? If you like Sci Fi you might find them interesting. It’s about a communist technological utopia, and their version of the CIA, and much more too.

                    • Tom Hickey says:

                      FDO15, this has nothing to do with MMT and if you don’t like my position, lump it. I don’t like your position either.

                    • beowulf says:

                      FDO15,
                      The world is full of people, across the political spectrum, who wish to use govt to coerce others to behave as they wish. Tom isn’t one of them. As Thomas Jefferson put it, “it does me no injury for my neighbor to say there are twenty gods or no God. It neither picks my pocket nor breaks my leg.”

      • geerussell says:

        If I understand it properly, the paper where the “state on center stage” remark was made was making a commodity money vs fiat argument. Is that the same thing at all as the vertical vs horizontal debate?

        What followed was “Specifically, Chartalists recognize the power of the State to demand that certain payments be made to it and to determine the medium in which these payments must be made.”

        I don’t think there’s any disagreement with that point. Perhaps there’s other literature that more closely aligns with the horizontal vs vertical debate? This one doesn’t seem to touch on it.

        • Cullen Roche says:

          Are you denying that MMT policies originate with the vertical component? Or are you also just trying to start an argument about nothing?

          • geerussell says:

            Neither. I was trying to understand how the metallist vs fiat paper relates to the horizontal vs vertical argument.

            I wouldn’t deny that MMT policies originate with the vertical component, given that they largely concern themselves with fiscal policy. I don’t know how government spending could be talked about other than in vertical terms.

            • Cullen Roche says:

              Chartalism is based on the state theory of money. Isn’t it a bit disingenuous to argue that MMT is not about empowering the state and utilizing the potential powers of the state to influence the market? Whether you think the Kelton comment is taken out of context doesn’t really matter. The MMT view of the world is not inconsistent with her statement in general. Or are you claiming that MMT doesn’t empower the state?

              • geerussell says:

                Sure. I’ll go with that. I’d also say it’s a necessary focus. The vertical component is where the damaging misunderstandings are greatest. It’s where the effort is most needed. Lack of understanding the vertical component is what gives us austerity mongers, deficit terrorists and a president saying the government is like a household.

                • Cullen Roche says:

                  I can agree with that to a large degree. The world is way too fearful of govt spending and distrustful of the powers that govt can utilize.

  2. How about we adapt a term from the Austrian literature and start calling ourselves “bi-levelists”?

    Anyways good post. I’ll have to read on Keen et al more. Hard to imagine many proposals that could be effective using only the horizontal component.

  3. So Cullen leaves MMT. Then James Galbraith says he doesn’t think the JG will work. Then the JG is no longer a requirement in MMT. How long before MMT starts calling itself MMR and adopting all of its positions? Ha!

  4. “Horizontalists (circuit theorists like Marc Lavoie and Steve Keen for instance) will generally focus primarily on private credit and ways that policy can influence private credit. ”

    Hmm… if you read Monetary Economics http://www.palgrave.com/products/title.aspx?is=0230500552 (for example)
    you will find that Marc’s models not even include the government but also the external sector! – the long run effects of fiscal policy and such.

    More generally, the phrase Horizontalist was introduced by Basil Moore to describe the money supply as a horizontal line (although he recognized that supply-demand model is not a good way to describe macroeconomics). It has nothing to do with whether the government “sits on top”. The government is also a participant in the market process but the difference is that it is a crucial sector in the economy unlike the neoclassical world where it just creates inflation.

    The Chartalists unnecessarily mix this horizontal with a horizontal of their own and there is no need to introduce terminology when a separate one existed from long ago – inside money and outside money and widely used by all economists.

    • Cullen Roche says:

      Yes, I don’t mean to imply that horizontalists or verticalists don’t acknowledge all sectors. Lavoie has done fantastic work that is broad. As have the verticalists. MMT is pretty comprehensive in this regard. But is there any question what the focus is?

  5. Dan Kervick says:

    My understanding is that there has already been a long debate on horizontalism and verticalism going back to Basil Moore’s book on that topic. Moore characterized verticalism as the approach favored by monetarists according to which the central bank controls the size of the monetary base; the size of the monetary base determined the broader money via the classical money multiplier; and changes in the supply of broad money are what drives other key macroeconomic parameters. Thus the central bank is thus the key driver of the economy. This approach lives on in a lot of contemporary monetarist and New Keynesian thought.

    MMT clearly does not fall into the verticalist camp, and runs much closer to Moore and the horizontalist camp. It sees the monetary aggregates as endogenously determined, driven primarily by the private sector demand for credit, and recognizes that the central bank accommodates the private sector demand for credit by supplying additional reserves on demand at its target interest rate. But it also recognizes that all forms of money are in a hierarchy of liabilities in which the state’s money is at the top; that the state determines the unit of account; that the state has the unique power to create a demand for its money via the imposition of tax obligations; and that the state is responsible for any net increase of financial assets in the non-governmental sector. So MMT is a fusion of horizontalist and vertical elements.

    • Cullen Roche says:

      MMT focuses almost entirely on fiscal policy. Who are we kidding here? I don’t know what you guys want to call that, but it’s not a fusion of horizontal and vertical. It’s all about empowering the state and leveraging its powers through direct fiscal policy.

      • Dan Kervick says:

        Cullen, monetary policy is also about the use of state power. Any time we are talking about any government policy we are talking about the exercise of government power, aren’t we? Central bank operations, taxation and federal spending are just three policy arms through which the government can influence economic behavior. Regulatory authority is another.

        A society doesn’t even have to have a central bank. Isn’t the fact that we have one at all, and that it is run by government officials, in itself a large manifestation of state power?

        The debate between reliance on monetary policy or fiscal policy is in part just a debate about what will work best. But it is also a debate about whether, in setting macroeconomic policy, to rely on branches of the government that are directly politically accountable through elections, or to rely on a branch of the government which is less directly accountable and more independent of the political process.

        • Cullen Roche says:

          DK, you should know that I am referring to vertical money in the MMT sense of NFA and horizontal money in the sense of bank created money. MMT is focused almost entirely on policy that alters the vertical and NFA. Are you disputing that?

    • Dan, you are familiar with the MMT sense of vertical and horizontal, right? MMTers are not advocates of directly influencing the horizontal money supply:

      “When the government “spends,” the Treasury disburses the funds by crediting bank accounts. Settlement involves transferring reserves from the Treasury’s account at the Fed to the recipient’s bank. The resulting increase in the recipient’s deposit account has no corresponding liability in the banking system. This creation is called “vertical,” or exogenous to the banking system. Since there is no corresponding liability in the banking system, this results in an increase of nongovernment net financial assets.

      When banks create money by extending credit (loans create deposits), this occurs completely within the banking system and results in a liability for the bank (the deposit) and a corresponding asset (the loan). The customer has an asset (the deposit) and a corresponding liability (the loan). This nets to zero.

      Thus vertical money created by the government affects net financial assets and horizontal money created by banks does not, although its use in the economy as productive capital can increase real assets.”

      http://moslereconomics.com/2010/04/04/tom-hickey-on-mmt/

      • Dan Kervick says:

        Yes, but MMTers do not believe that there is a predictable mathematical relation between the quantity of reserves – the monetary base – and the broader money supply as defined by one of the other monetary aggregates. It is my understanding that Moore took the existence of such a relation – the classic textbook money multiplier – as a centerpiece of verticalism. Monetarism was a verticalist approach par excellence, and was based on the idea that the central bank exerts its influence over employment, production and spending by targeting a quantity of broad money, and that it aims at its broad money target by targeting a quantity of reserves. More recent versions of monetarism seem to lean more on the role of the central bank in setting expectations of one kind or another: inflation expectations or nominal spending expectations for example.

        When the treasury spends in excess of the taxes it collects, it increases non-government net financial assets. But that can also be true of some Fed operations. If the Fed pays interest on reserves, for example, it is making net injections of reserves into the system.

        It seems to me that if there is a characteristic MMT view about central bank policy it is something like this: central bank policy is interest rate policy. So, if we are in an environment in which economic activity is sensitive to interest rate changes in a certain direction, and in which the central bank can make interest rates move in that direction, then the central bank can exert some influence. But MMTers tend to view central bank policy as a very blunt tool in comparison to fiscal policy – which can be targeted at specific sectors, social strata, etc.

        This is not a dispute about government vs. non-government policy. It is a dispute about which kinds of uses of government powers will be more effective.

        As you know, there are approaches to economic policy that take a negative view of all active government policies. These are laissez faire approaches that argue that what the government should do mainly is butt out. The Austrian schools of thought lie in this direction. But the Austrians usually take a dim view of both the fiscal authorities and the central bank – and most regulators- since they tend not to approve of government intervention or management of any kind.

        • Cullen Roche says:

          DK, you’re familiar enough with MMR and our positions to know that we aren’t against govt exerting some powers. But we don’t take, what I would call an extreme MMT view, by claiming that influencing the horizontal money supply via monetary policy is totally ineffective. In this sense, MMTers want to purely alter the vertical money supply. I am not saying that’s wrong. I am just saying we don’t take such a narrow view of the way things work.

          • Dan Kervick says:

            MMTers do focus on government making what Warren Mosler calls “vertical” injections on money which increases NFA’s. But the point of this is to boost economic activity – spending, consumption, production, credit expansion, hiring – by offsetting demand drains caused by high savings desires coupled with an inadequate government deficit. It’s a Keynesian approach to boosting aggregate demand.

            Monetarists also seek to boost aggregate demand. But they prefer approaches that are supposed to work through the central bank channel, including generating the supposed “hot potato” effect by injecting bank reserves. So in Warren’s sense of “vertical”, the two approaches are equally vertical; they both rely on the government’s role as money creator in a fiat monetary system. The disagreement is mainly over which one works better. MMTers, as you know, tend to doubt that the kinds of transmission mechanisms posited by monetarists actually exist.

            • Cullen Roche says:

              DK – you understand the sense in which I am referring to horizontal money and vertical money. I don’t know why you’re trying to start a pointless debate over an already conflated point. And yes, we agree to a large degree that the Sumner view of altering AD is not optimal, but that doesn’t mean his view is totally wrong. In fact, I’ve had many discussions with David Beckworth on this matter where we essentially agree on worthwhile policy. QE and NGDP targeting could work if implemented in a particular way and in the right environment. I personally don’t think they’re using the right approach or in the right environment for it, but that’s another matter….

  6. A Verticalist is someone who thinks that the money supply is vertical in supply-demand diagrams. In other words, the money stock is what the central bank determines to be at all times. This terminology has little to do with fiscal policy by itself.

    The trouble is that the mmters began with mixing this with inside and outside money. I absolutely avoid vertical and horizontal as substitutes for outside and inside money. in fact i have never used it that way from the start.

    • Cullen Roche says:

      Yes, I am using it in the MMT sense of vertical money creation (govt money creation) and horizontal money creation (bank money creation). I guess I’ve fallen into an MMT terminology trap….

      • Cullen Roche says:

        FDO just posted this. You’re probably familiar with it Ramanan:

        “When the government “spends,” the Treasury disburses the funds by crediting bank accounts. Settlement involves transferring reserves from the Treasury’s account at the Fed to the recipient’s bank. The resulting increase in the recipient’s deposit account has no corresponding liability in the banking system. This creation is called “vertical,” or exogenous to the banking system. Since there is no corresponding liability in the banking system, this results in an increase of nongovernment net financial assets.

        When banks create money by extending credit (loans create deposits), this occurs completely within the banking system and results in a liability for the bank (the deposit) and a corresponding asset (the loan). The customer has an asset (the deposit) and a corresponding liability (the loan). This nets to zero.

        Thus vertical money created by the government affects net financial assets and horizontal money created by banks does not, although its use in the economy as productive capital can increase real assets.”

      • he he … MMTers should learn syntax and grammar.

        Also, “Tom Hickey on MMT” is not the best way to present it. It involves merging the resident and nonresident sectors. From the point of view of the domestic private sector, exports create as much as financial assets as government expenditure. the consolidation of these two sectors is completely disingenuous. It is completely hollow. Serves no public purpose.

        • Cullen Roche says:

          Good point Ramanan. I hadn’t thought of it that way and obviously I agree with you 100%. Being against trade surpluses is another form of being in favor of vertical money creation. It’s all about empowering the state in MMT. No secrets there.

          Btw, did you read Randy’s latest? MMT badly needs a PR rep before allowing some people to hit the “publish” button. This sort of commentary is doing MMT nothing but harm. More ad hominems from an MMT founder and respected economist? This stuff is downright petty.

          “1. Attention Deficit Disorder: A couple of comments here, and from what I can tell a huge number of comments on other “Modern Money” blogs that are not called MMT, suffer from ADD. Some people cannot read past a single sentence. I think there are now drugs that help. Try them.

          So apparently a lot of bloggers (especially those who accept MMT, but without the taxes or the JG—go figure!) latched onto a sentence, plus one word. I said: “So, can we have MMT without a JG? Certainly!” Now that followed a long discussion, including an analogy to a theory of disease and a policy to fight the disease (more in a minute), and followed by the statement by me: “I believe it is a policy mistake to operate a modern money system without a JG—but that is what almost all countries do. MMT allows us to analyze them, and to offer policy recommendations. But if we leave out the JG in our recommendations, we are seriously remiss in our advice.”

          And what would our ADD disadvantaged friends come away with after reading that? Oh, of course: “Wray admits MMT does not need JG! MMT and JG are not compatible! He’s a flipflopper!”

          OMG. I cannot recommend anything but drugs. Education or explanation will not work. Please ship drugs to them. Massive quantities. I hear they got 6 figure dollar grants to try to destroy NEP and MMT. Please, allocate some of that money to drugs. They need drugs to counter the ADD. They’ll never be able to destroy MMT without drugs. They come across as completely dishonest and stupid. But I’m sure it is just ADD. Don’t deride them. Send help. Drugs. By the truckload.”

          • :)

            Yes read that.

            Also he seems to be changing definitions of a sovereign currency.

            “MMT and full employment. MMT explains why sovereign countries can afford anything for sale in their own currencies. (Note that I presented sovereign currencies as a continuum—from fixed to floating rates. Unlike some MMTers I want to include all nations that issue their own currencies.”

            In that definition even Hungarian Forint is sovereign – but it’s future is highly uncertain.

            I noticed this six figure thing again – it appeared last week or so as well. In fact, in the saving-net-saving confusion exchanges LRW asked me how much money I get paid – couldn’t have been more hilarious!

            • Cullen Roche says:

              Yes, bizarre comments on being sovereign. Not sure what the point of that is.

              Also, I must have missed something. What is this nonsense about a 6 figure grant???? According to online donation records, the only people who have received grants of any kind are the professors at UMKC from a certain wealthy individual living in the USVI. :-) Also, if this 6 figure grant shows up at your house please forward it on. I have bills to send to Waldman for funding our bus tour, which I guess is now going to involve massive quantities of drugs as per Dr. Wray’s suggestion!

  7. Cullen, You say that altering the amount of horizontal money involves “potentially useful policy responses.”

    What “useful policy responses”? I suggest they don’t exist. But I’m always open to persuasion.

    • Cullen Roche says:

      Hi Ralph. You don’t think that monetary policy is at all useful? Do you think it’s a coincidence that an inverted yield curve causes an economic slow-down almost 100% of the time it occurs? I think the Fed can very clearly influence the demand for credit, the horizontal money supply and hence economic activity. I’ve said for almost two years now that QE would have been more effective if the Fed had pinned the price of 30 year bonds at something near 1%. This would have had a ripple effect across the entire credit spectrum and almost certainly would have boosted investment. Of course, being in a balance sheet recession, this is a sub-optimal policy choice currently, but you get my point hopefully….I don’t think monetary policy is the purely deadbeat policy that MMT often portrays it to be…..

      • I think monetary policy ALONE (i.e. without complementary fiscal measures) has big defects as follows.
        1. The ideal price of borrowed money (like the ideal price for steel, peanuts and everything else) is the free market rate – not some central bank manipulated rate.
        2. The idea that there is a close relationship between the interest rate and the actual availability of credit has been blown out of the water by the current low rates combined with reluctance of banks to lend (certainly in the UK).
        3. Low interest rates encourage bubble blowing: spending money on assets. In contrast, fiscal policy if done properly, boosts spending over virtually the entire economy.
        4. In a recession, or at least the early part of a recession, more investment is exactly what is NOT NEEDED. That is, in the early part of recessions, there is surplus capital equipment lying idle.
        5. Radcliffe Report on monetary policy in the U.K. published in 1960 concluded that ‘there can be no reliance on interest rate policy as a major short-term stabiliser of demand’.
        6. The evidence is that there is no relationship between central bank rates and credit card spending.
        7. Keynes said, “I am now somewhat skeptical of the success of a merely monetary policy directed towards influencing the rate of interest…it seems likely that the fluctuations in the market estimation of the marginal efficiency of different types of capital…will be too great to be offset by any practicable changes in the rate of interest.” Keynes’s General Theory – near the end of Ch 12.
        I went into these points in more detail here:
        http://ralphanomics.blogspot.co.uk/2012/03/sixteen-reasons-why-mmt-is-right-on.html

        • Cullen Roche says:

          Ralph,

          I totally agree that monetary policy needs to be supported by fiscal. I am not saying otherwise, nor have I ever stated otherwise. The policies are best when worked in tandem. That said, I don’t take your view that monetary policy is as inept as you imply. Fiscal policy is not our only option and in fact, one could easily argue, without some form of automatic policy measure like the TC Rule, the MMT ideal world of relying on Congress to change taxes is purely naive and would be horribly ineffective. One of the strengths of monetary policy is that it can be enacted without a change in the legal structure. Like it or not, that’s the world in which we live.

          Cullen

          • Tom Hickey says:

            “One of the strengths of monetary policy is that it can be enacted without a change in the legal structure. Like it or not, that’s the world in which we live.”

            Not speaking as an MMT’er here, since this is more widely held position, even on the right: Congress has taken the easy way out and delegated too much of its power to a politically independent Fed board that is essentially a command structure for managing the economy. Libertarian/Austrians get this loud and clear, for example, and its an areas where they and fiscalists (“Keynesians”) agree. It is politically and economically unsound. Either Congress should assume its constitutional responsibility, or cut the private banking sector loose to manage itself and take the consequence of risk that it assumes.

  8. Dan Kervick says:

    No. Just pointing out that MMT approaches and monetarists approaches are both aimed at injecting NFAs into the private sector economy. The monetarists don’t use the term “net financial assets” – they just say “money”. But monetarists have typically called for injections (or extractions) of reserves through quantitative operations as a a key tool of policy. Some latter-day monetarists even call for the central bank to conduct its own fiscal operations by spending directly into the non-financial sector of the economy, but many now seem inclined to lean more on the central bank’s supposed ability to influence expectations of nominal spending, apart from any concrete actions it takes to inject reserves. To the extent such an influence over expectations exists, it must be a residual effect holding among people who believe the central bank exerts some other kind of direct control over economic activity.

    The other issue you’ve already cleared up. “Verticalism” has a fairly well-defined meaning now in economics, connected with the exogenous money view, the money multiplier and a vertical supply curve for credit. And MMT is clearly not in that camp. But as you say, Warren Mosler speaks of government spending as a “vertical operation”, which is a different use.

    • Cullen Roche says:

      Hmmm, not sure about that DK. Sumner for instance, just wants to perform QE and asset swaps in order to alter expectations. He does not say the Fed should actually perform forms of fiscal policy. I actually recommended to him that QE should involve the Fed buying munis thereby allowing the Fed to fund state spending, but he said he didn’t like that idea. So their view is distinctly different from the MMT view which involves direct govt spending and NFA injection.

      • Dan Kervick says:

        Yes, I can’t keep up with all of the variations on market monetarism. But I know someone in their universe was floating some weeks ago the idea that the Fed should be authorized to create some facility for conducting countercyclical spending operations of the kind we usually associate with fiscal policy – that is, spending the goes beyond the purchase of financial assets, and includes spending on infrastructure, transfer payments to households, etc.

        My concern here, isn’t about whether or not it would work. From a purely economic point of view, if it is a net injection of spending, it doesn’t matter which agency of the government does it. Fiscal policy is fiscal policy, even if conducted by a man on Mars. I just don’t like the idea of taking even more control of spending away from the political branches of government, and giving it to an unelected agency which deliberates in secret and has limited accountability. That’s how countries go down the road to losing their democracies.

        • geerussell says:

          They’re a strange breed. I’ve tried, really tried to wrap my head around their ideas but it’s like they’ve constructed a sandbox model where G and T don’t exist, from which they generate scenarios where central bank expectations are the animating force of the entire economy. It’s just bizarre.

          • Cullen Roche says:

            I’ve had a series of email exchanges with them that partially changed my view on them. They’re actually not that far from where the MMR perspective is. Now, if you take the MMT view and abhor monetary policy at all costs then you’ll never see where the MM’s are coming from. That’s partly why I wrote this post. MMR and MMT are VERY different in terms of our views on the efficacy of monetary policy and policies that fall outside of the realm of changing NFA’s through govt budget deficits. But in order to understand where the MM’s are coming from you have to be more flexible in your views with the understanding that policy doesn’t only work by changing NFA’s. But I know MMR and MMT are viewing the world thru two different lenses here so….

            • studentee says:

              Mike Sankowski had a series of posts over at TC arguing why “monetary policy sucks.” Who “abhors” monetary policy? MMT takes the general position that monetary policy can be effective under certain circumstances, but that fiscal is much more effective and clear in its effects

              • Cullen Roche says:

                I’ve also argued about the ways in which monetary policy sucks. So what. That doesn’t mean I’ve created a set of policy agendas that are designed around fiscal policy while throwing monetary policy totally out the window….

                • studentee says:

                  Where does an MMT’er say that monetary policy should be thrown out of a window? I’ve only seen Fullwiler stress that it has mixed results and is often ineffective, and the arguments from Mosler that using interest rate policy to stabilize an economy ignores interest payments.

                  • Cullen Roche says:

                    Gosh, you do know that MMTers want to set the Fed Funds rate at zero right? That eliminates the primary tool of monetary policy….

                    • studentee says:

                      “Gosh, you do know that MMTers want to set the Fed Funds rate at zero right? That eliminates the primary tool of monetary policy….”

                      I don’t believe all MMT’ers want this. Warren favors this; I’ve never seen Fullwiler, Wray, or any of the other economists say they favor this.

                      Warren wants to set the interest rate to zero, permanently. He wants to use of a tool of monetary policy to achieve an outcome he believes is best.

                • studentee says:

                  And setting a permanent rate of 0 is in fact a form of monetary policy. There is no *not* monetary policy (Nick Rowe and other MM’ers repeat this). If you have a central bank, you must have a monetary policy. Warren has particular intentions with that policy.

                  • Cullen Roche says:

                    Ah, caught yourself there. Nice. So, a permanent 0% rate is permanent Monetary policy. That’s clever. Sure, eliminate moving the FFR as a policy variable and claim that’s a “policy” tool. Come on. You don’t really believe that do you???

                    • studentee says:

                      Go ask Nick Rowe if that is a monetary policy. It clearly is.

                    • Cullen Roche says:

                      Go ask Nick Rowe if he thinks it’s monetary policy if we stuff the Fed in a box and ask it to never do anything with policy ever again? :-)

                    • studentee says:

                      He would call it a policy. Sumner would agree. They wouldn’t like it, of course.

                    • Cullen Roche says:

                      More word games….

                    • studentee says:

                      How is this a word game? Setting a 0% rate is a policy. It’s not a proactive policy, but it is a policy. I’m not sure you understand what the word policy means. The status quo, doing nothing, are always policies.

                    • Cullen Roche says:

                      Sure, just like taking a key and swallowing it is a “policy” for finding the treasure box it opens….Whatever you want to call it….

                    • studentee says:

                      What does Professor Fullwiler think? I’m pretty sure he disagrees. And a 0% rate is still a policy.

                  • studentee says:

                    A rate set at zero has particular macroeconomic effects. It’s not rendering monetary policy nonexistent. A treasure box is opened.

                    Still waiting on other MMT economists who argue for this rate.

                  • studentee says:

                    “Okey dokey”

                    Glad we agree.

                    But do ask Sumner or Rowe if they consider this monetary policy.

                    • Cullen Roche says:

                      Who care if it’s “policy” or not. It’s eliminating the future potential to alter this policy variable in any way that could potentially influence the economy. You’re just being difficult here and playing games….

                    • studentee says:

                      Again, only Mosler (as far as I know) suggests this. Mosler’s suggestion is a form of monetary policy; it’s just relatively static. There are no word games here.

                      You said MMT wants to set the rate permanently to zero. Which other MMT economists suggest this?

                    • Cullen Roche says:

                      First thing I googled:

                      “Our preferred position is a natural rate of zero and no bond sales. Then allow fiscal policy to make all the adjustments. It is much cleaner that way.

                      And all those bright sparks in the central bank could be redirected (retrained) to studying cancer cures or engage in something else that is useful.”

                      -Bill Mitchell

                      As far as you know! :-)

        • Tom Hickey says:

          “But I know someone in their universe was floating some weeks ago the idea that the Fed should be authorized to create some facility for conducting countercyclical spending operations of the kind we usually associate with fiscal policy – that is, spending the goes beyond the purchase of financial assets, and includes spending on infrastructure, transfer payments to households, etc.”

          As commenters have explained on Sumner and Beckworth’s site, this way exceeds Fed powers and is blatantly illegal. Bernanke refused to do something that was way less blatant than this when asked by Paulson because it was “fiscal.”

          • Cullen Roche says:

            Technically, the Fed can do fiscal and be well within their legal framework. For instance, they can buy municipal bonds.

            • Tom Hickey says:

              Yes, this was pointed out to them. But IIRC, they don’t like the Fed buying state bonds or munis (as some MMT’ers have suggested) since it “monetizes” government debt — state and local government but still government.

  9. Tom Hickey says:

    Cullen, you say, “Perhaps most importantly (and keeping in-line with our focus on operational realities), we must acknowledge that we have a hybrid monetary system with a private credit system (the horizontal component) and the government (the vertical component).  The horizontal component does not exist to serve public purpose.  Rather, it exists because the US monetary system is designed to disperse power away from a centralized government (it just is what it is, whether workable or not, right or wrong).  ”

    If the banking system is completely private as you claim, then what is government doing providing LLR and deposit guarantees? If the banking system is completely private, then this is exactly the scam that Ron Paul claims it to be and the relationship should be severed and the Fed ended, since it exists to set rates and provide liquidity neither of which government has any business doing in a private banking sector.

    The US should go to a system of free banking with banks creating their own units of account and the Treasury issuing government money directly without issuance of tsys, which alone is acceptable at government payment offices, using that money to fund itself since it doesn’t need to tax or borrow for funding. Then the public private distinction is clear, as it should be if the banks are indeed completely private.

    Otherwise, the private banking sector should pay government a huge fee for unlimited liquidity and guarantees. Otherwise it is a unjustifiable subsidy, i.e., give-away.

    In capitalist system there is supposed to be quid pro quo, the quid pro quo that the banks now provide for liquidity and guarantees is submitting to government regulation. They are not completely private but actually very tightly regulated in principle if not in practice.

    • Cullen Roche says:

      That’s a little extreme Tom. I see no reason why the current construct is not consistent with private banking. Just like I am allowed to roam the streets freely. Granted, I am not allowed to roam the streets putting holes in people’s heads. It’s society’s responsibility to keep its members in check. Just like its our responsibility to keep our banks in check. Unfortunately, the current regulatory framework doesn’t do that very well. The point is, you can have a banking system that exists for private profit and still regulate it appropriately. You don’t need to take it to one extreme or another….There’s a balance here….

      • Tom Hickey says:

        “You don’t need to take it to one extreme or another….There’s a balance here….”

        Agreed. But now the financial sector is getting a free ride. I say “financial sector” because banking is traditionally a fiduciary institution involving financial intermediation. Now, much of the financial sector has been folded into banking and given a free ride (privatize gains and socialize losses).

        Large financial institutions have been folded into banking and even have a guarantee against insolvency, including lax regulation and oversight, lack of accountability, and even immunity against investigation and prosecution for illegal activity. As a result private banking has become a crime center, as Black, Tavakoli and other have documented. Even the FBI reported rampant fraud in the mortgage market in 2005, by the time it was obvious to everyone except the “regulators.”

        That’s “private banking” now. It is a travesty. I don’t think that I am exaggerating here. This is not balance.

        • Cullen Roche says:

          Tom,

          I am not saying it’s currently “balanced”. I am saying the opposite. I have been banging the drum on tighter regs for years now. That’s my point. You can have pvt banking with regs. And yes, they need to be tighter than they are now….No disagreements there.

          Cullen

          • Tom Hickey says:

            Cullen, I am going beyond that and saying, end the free ride.

            • Cullen Roche says:

              What does that mean though? Are you on board with Mitchell’s nationalization idea?

              • Tom Hickey says:

                Not really. I would like to see a two-tier system.

                My own view is that government should (1) run “retail banking” Giro style, (2) issue retail savings bonds at a constant fixed rate on demand and quit issuing tsys, which are operationally unnecessary and constitute a subsidy, and (3) fund the residential single-family resident-owner mortgage market directly with a low fixed rate transferable mortgages and a reasonable down and the means to repay, while (4) cutting the financial sector loose to assume risk and take the consequences, (5) imposing limited regulation other than strict oversight to outlaw cheating. I would also like to see (6) financial rent taxed in such as way that encourages productive contribution and discourages rent-seeking behavior. We need to get back to the basics, saving and investment, rather than putting so much focus on financial engineering that promotes growth of the financial sector through rent-seeking.

                This would (1) limit the monthly nut that households have to pay for housing, (2) encourage saving and investment, and (3) encourage circular flow and discourage extraction. This would separate household banking from commercial banking and finance, meeting the needs of households while allowing the private sector to actually play at capitalism.

                • Cullen Roche says:

                  Sounds pretty close to nationalization. Why not go full bore and create one vertical? You know it’s consistent with the state theory and that the state theory renders the horizontal unnecessary. I don’t understand why MMT tries to take a middle route on some things that lead to inconsistent views. You want a money monopolist and to empower the state, but you don’t actually do the things necessary to achieve this….I think Bill Mitchell is the only one of you all who has really thought this through and fully admitted to himself that MMT’s logical base case is one fully vertical component with nationalized banking….Instead, you all seem to be trying to convince yourselves that banks serve public purpose and that the banking system is fully integrated with govt and consistent with public purpose (Warren has actually told me that he thinks banks serve public purpose, which is a skewed view of reality in my opinion). It’s clearly not the case. The Fed might be part of the govt, but it’s a slave to private banks. Why not fully integrate banking into the vertical? It’s the only logical conclusion in MMT unless you can accept that banks don’t serve public purpose and you’re willing to live with it (which it seems most of you are not)….

                  • Tom Hickey says:

                    There are good reason to go to direct issuance only, but in my view that puts too much power and control in the hands of the government, just as free banking alone puts too much power in the hands of those at the top of the private sector. There needs to be a balance between “the criminals in government and the criminals outside government” as one of my mentors used to say.

                • beowulf says:

                  I like the cut of Tom’s jibe. The more rents we tax, the less of everything else had to be taxed.

                  • Tom Hickey says:

                    An added benefit of negative reinforcement of undesirable behavior. :)

                    You’ll notice it’s basically Michael Hudson’s idea of taxing economic rent and leaving gain from productive contribution — primary investment and work — alone.

                    • beowulf says:

                      When he wasn’t freeing slaves, General Butler was something of a proto-MMRer. :o)

                      “It is said that the banks furnish now the best currency this country ever saw, because it is the same in New Orleans, Boston, New York, and Chicago. But what is the currency? It is the notes of the bank. What makes them equal all over this country? It is the indorsement of the United States… Therefore, as the United States is primarily responsible for all the circulation, we ought to supply the currency to the people and receive the profit of doing it…

                      But I ask gentlemen to apply to this question their own acute judgments and tell me, if they can, where is the fault in the reasoning; because the only valuable purpose that can be served by this discussion is to elicit what we all desire to arrive at— the best system of finance, to do what? To lessen the burden of taxation and to relieve the loyal, true-hearted, but over-burdened people from this so great weight of taxation.”

  10. “Verticalists (like MMTers) will generally shun policy that works through horizontal money creation”

    But who, for god’s sake do you refer as the leading MMTers ? Here is Wray’s Undertanding Modern Money (yeah the book title with which the MMT label was created) page 111 :

    “In some sense, the verticalists and the horizontalists have each captured some elements of the money supply process. One can conceive of a vertical component of the money supply process that consists of the government supply of fiat money (…)
    On the other hand, the bank-money-supply process is horizontal; it can be thought of as a type of ‘leveraging’ of the hoarded vertical fiat money.”

    MMT is “diagonalist” since the beginning of the founding fathers !

    The more I read about MMR the more convinced I am there’s no analytical difference between MMR and MMT, only emphasis and political sensitivity. It reminds me the Colloque Walter Lippmann, back when I was extensively researching through the history of liberalism.

    Then (1939), the few remaining liberals (European sense) gathered and abjured all their dogmatism, their anti-State approach, all their ideological misdeeds. The situation was dire for them : the Great Depression wrecking their authority havoc, socialism (USSR, third Reich, fascist Italy, various dictatorships) rising everywhere, global war about to burst. For dumb liberals advocating laissez-faire, free-trade and announcing peaceful wealthy paradise, that was quite a hiccup. Their question was “Did we miss something somewhere at some point ?” and the answer was two-fold : one side said merging liberalism and socialists insight was mandatory, like Lippmann himself. They got something very convincing albeit fuzzy. The other side said liberals got it all right all along minus some minor mistakes and imprecision, but should pursue the grand clarity of liberty through those hardships. When the Mont-Pèlerin inherited the Colloque Lippmann after the war, the synthetic approach was still quite strong, but already fading away in favor of ideological purity. A sparkling case is Milton Friedman : in his june 1948 “A monetary and fiscal framework for economic stability” article in The American Economic Review volume 38 n° 3, he advocated for full employment through no state-budget financial constraints and automatic stabilisers, a very MMR proposal. Yet, at the end of this very article, he slipped some liberal remarks into the proposal :

    1 to rein in the Sate (liberal obsession), something more fearsome is needed, if not the full-fledged gold standard, at east the balanced budget.
    2 the proposal is too much breakthorugh for the common people and should be hidden from him until the caste of economists decides freeing the people from unnecessary hardships is good for him.

    Later, as we know, the debate quality receded to the point of Friedman being the staunch public budget hawk he got famous to be, and everyone imposing counter-productive austerity on the private sector.

    This liberal spirit is in my view the driving force behind MMR, the only true difference with MMT. Here I quote CNBC’s John Carney, who saw through the debate’s foam with his same-spirit connection :
    “John Carney aligns with MMR (…) For the record I should say, I’m way more libertarian than the MMR guys. Maybe I’m Neo-MMR.” http://www.cnbc.com/id/46547514

    Your are the new Colloque Walter Lippman/Mont-Pèlerin Society, fomenting the same deadly anti-community mindset. I, a MMTer, never want to nationalize the banks, or suppress them, nor I want 0 interrest rates, nor I want unchecked State, nor etc. One thing that lead me to MMT is the balance between liberal and socialist insights. I’ve been struck, when I was a liberal trying to underpin his beliefs, to acknowledge that the most interesting thinkers were always people jumping across the liberal/socialist gap as a counterporductive one, Léon Walras, J. M. Keynes, Joseph Schumpeter, Maurice Allais. They’re all more liberal than socialists, but give credits to socialism on a regular basis and prefer to assimilate their critics instead of simply denying it laissez-faire style. Often, they’re caricatured by the liberals as much more liberal than they actually were, or much more socialist in the case of Keynes.

    I prefer to remain balanced, although a bit complex. Than a mindless zombie Tea-Party activist to be. Glad we MMters helped you to rebalance your minds.

    Regards,

    JBB

    • Cullen Roche says:

      JBB,

      I can see that you’re not interested in a good faith discussion so I’ll just refer you to a few comments from MMTers and MMRIsts. I am being perfectly consistent here with the MMT language regarding vertical and horizontal. It’s a little surprising that MMTers are trying to change the meaning of the terms they use in an effort to marginalize what I’ve written. Here’s a quote from Mosler’s website:

      “When the government “spends,” the Treasury disburses the funds by crediting bank accounts. Settlement involves transferring reserves from the Treasury’s account at the Fed to the recipient’s bank. The resulting increase in the recipient’s deposit account has no corresponding liability in the banking system. This creation is called “vertical,” or exogenous to the banking system. Since there is no corresponding liability in the banking system, this results in an increase of nongovernment net financial assets.

      When banks create money by extending credit (loans create deposits), this occurs completely within the banking system and results in a liability for the bank (the deposit) and a corresponding asset (the loan). The customer has an asset (the deposit) and a corresponding liability (the loan). This nets to zero.

      Thus vertical money created by the government affects net financial assets and horizontal money created by banks does not, although its use in the economy as productive capital can increase real assets.”

      You might also refer to the same terminology in Bill Mitchell’s website. This is MMT 101 according to BM. Maybe you need a refresher course on the basics of the theory you so vehemently defend!? http://bilbo.economicoutlook.net/blog/?p=332

      MMTers are not diagonlists. Unless that is, they went and changed their whole agenda to serving monetary policy overnight and didn’t tell anyone! MMTers are verticalists (in their own words) always focusing on the powers of the state and the ways it can alter NFA through direct spending oriented policy.

      As for MMR and MMT being the same. Well, you might want to familiarize yourself with this page then. We are not at all the same. In fact, it’s becoming clear that we are very very different. http://monetaryrealism.com/how-is-modern-monetary-realism-different-than-modern-monetary-theory/

    • Cullen Roche says:

      Oh, and Wray’s use of the word “leveraging” is a real terminology abuser. Marc Lavoie already nailed them on this one:

      http://www.boeckler.de/pdf/v_2011_10_27_lavoie.pdf

      “We start with the terminology problem which is easiest to settle. Neo-chartalists have come to speak of a vertical and a horizontal component of money, adding that the horizontal component was some leveraged amount of the vertical component. There are many instances of this: “One can conceive of a vertical component of the money supply process that consists of the government supply of fiat money; money drops vertically to the private sector from government…. On the other hand, the bank-money-supply process is horizontal; it can be thought of as a type of ‘leveraging’ of the hoarded vertical fiat money” (Wray 1998, p. 111); “Horizontal activity represents leveraged activity of a vertical component …. The creation of bank loans and their corresponding deposits is a leveraging of the currency….” (Mosler and Forstater 1999, p. 168). A figure, illustrating this leveraging of a vertical component is also presented by Wray (1998, p. 112) and by Mitchell and Muysken (2008, p. 214). The use of this terminology has certainly created some confusion in the minds of heterodox authors, for instance Keen, as is evident from Fullwiler’s comment quoted earlier, as well as Parguez and Seccareccia (2000, p. 120) and Febrero (2009). Indeed, heterodox authors, relying on the book of Basil Moore (1988), usually associate a verticalist component with an exogenous money supply, while leveraging is associated with the money multiplier story that Mosler had himself previously discarded. For those who have spent enough time reading the works of neo-chartalist authors, it is clear that these authors don’t endorse anything close to exogenous high powered money or a money multiplier mechanism. Personally, I don’t see how anything can be gained by making references to vertical components or to leveraged horizontal components, but these expressions keep being used. They ought to be left aside.”

      This gets to one of the primary problems here. MMT has to bring the horizontal money back into the vertical in order to stay consistent with the idea that the state is the money monopolist. Otherwise, you just have banks creating new money at will and the money monopolist idea is obviously bunk under this view. So Wray and others use this term leverage to imply that there’s a relationship where there really is none. Again, this exposes the myth of the money monopolist that MMT likes to use. MMRists vehemently disagree with this idea of a money monopolist and the justification of the state price fixing based on this false perception.

      • I answer to both of your two replies here.

        In MMT, fed’s overnight monetary policy is passive *for a chosen target rate*. Choosing a target rate is not passive. As changing credit supply via central bank’s monetary policy with interest rates is so often repeated in the mainstream, we’ve better to do than to explain that changing interest influence the money supply. (not without ambiguity, by the way, see Wray 1998, p. 108). Moreover the monetary policy simply “fine-tune” the fiscal policy : if a unreally stupid government with a competent central bank decides to have a deficit sized half the GDP, whatever happens, the central bank can hike the interest rates as high as it wants, it won’t do much against hyperinflation. Conversely, if the economy is amidst a balance sheet recession, rates crushed against the zero lower bond, borrowing abysmal for long, the central bank cannot counter a stupid government with a zero deficit or even a surplus. Monetary policy is just not that strong and that overplayed, that we tend to overlook it and focus on fiscal policy when doing some publicizing.

        That’s always how I understood MMT. But I definitely give you credit that, ignoring Warren Mosler for long (I went to MMT with Bill Black then Wray and then Mitchell), I didn’t know about a zero-interest policy against banks, starve-the-beast style, that Mosler has advocated. Mosler is not all MMT (and the zero interest rate policy is clearly not a mandatory part of MMT), and just like most of the others, and just like me, you can claim yourself a MMTer without advocating such a thing.

        A quick reply to http://monetaryrealism.com/how-is-modern-monetary-realism-different-than-modern-monetary-theory/

        I’ve always thought about the world being both descriptive and prescriptive, in an very ambiguously entangled manner. Look at this very surreal notion called honour. How do MMR ‘prescripts’ a more ‘neutral’ stance ? With a better ‘description’. Everyone tends to see and to say what he wants to see. You’re not fooled by that in MMT ? Excellent. Don’t be in MMR and everywhere : one can always add ignored elements or dismiss minor ones and change the direction of the whole. And everything can get corrupted, unfortunately.

        The JG is a price buoy both when prices are falling and rising : i.e. a price anchor. Fair enough, it’s weaker preventing rises than preventing falls in prices. That’s why we advocate for a countercyclical budget as a whole. Rising taxes will perform better than the shrinking JG pool alone, when prices are rising. Just like any other shrinking countercyclical spending… The JG just makes unemployment fighting and price stabilisation more effective and much more humane, and solve the Philips curve debate that led to our era of big unemployment, large underemployment, and slow growth. Just that.

        I’ve discussed with Wray about international trade. He’s very vague and advocates ‘fair trade’. MMT is a monetary theory, not an international trade theory. It sheds some necessary lights on the latter, like the silliness of avoiding all deficit in favor of trade surplus (i.e. looking for foreign public deficits), but don’t and can’t encompass all the international trade issue. Wray told me MMTers disagree in that topic, and for the better in its view. As far as I’m concerned, I’m a protectionist… and a MMTer. Definitely don’t think a deficit is a good enough international strategy.

        Yes, state monopoly over the currency is not all about a gun on our head. That oversimplifies many things. Actually, states are very subtle arrangement of ideals, persuasions, interests and coercions. Yes, the sate cannot impose money on the people without at least some consent. But when the people prefers paying arbitrary paper-money of the necessary taxes than digging gold (or even digging for nothing) to make the state’s money work, well, with a bit of coercion, the state can make this collective contentment an individual taxation. State money and private money got even more intertwined in the case of banks, with private banks money-credit convertible at par with state’s money. Now, if this is enough for you to dismiss the fact that the US dollar, is a creature of the law, with a monopoly of the state, and that bank failing to get it in time *just go bankrupt*, then, yes, MMR is different form MMT. The gun on your head argument isn’t a core MMT component either. Let’s put it another way : did you ever paid a tax disapproving what your government you elected did, just because IRS and policemen won’t accept your civil disobedience ? Yes ? You’re a MMTer, congratulations !

        Yes the horizontal component is unnecessary. State money could live on without banks credit, in contradiction with mainstream bullshit. It’s not desirable : then one would need to fist save state’s money, or gather enough savings from everyone, to then invest, instead of simply contracting credit and start his investment asap. It’s not MMT, it’s ‘100 % money’ theory. You could had that state money isn’t necessary either, he could simply requisition the resources he needs, in an even less subtle and efficient way… None of those two proposals are core components of MMT : if you disagree with them, relax, advocate against them and claim to be a MMTer withoutany trouble.

        MMR and MMT are diagonalists. With MMT thinking it to be slightly more vertically sloped than MMR. Wow, what a great rationale to divide our tiny forces against the mainstream.

        Again : I’ve been thinking all that from the first time I tried to figure out MMT on each of these issues. I always considered the slight nuances as results of the diverse sensitivities of MMTers (there’s no such thing as a perfectly immutable doctrine across people and across time) and I never felt the need to make a brand new movement out of my own sensitivity. And yes, I have not the ‘right faith’ : I’m not building my personality above the state or the community but inside it.

        Best regards,

        JBB

        • Cullen Roche says:

          It sounds like you’re trying to marginalize our differences for unknown reasons. Either way, after Wray’s comments I will never associate myself with these people. They’re truly worse than Rothbardians. That personality trait alone is enough to differentiate us. The operational and prescriptive stuff is just more to disagree about. It’s becoming clear that MMT is trying to “broaden the tent” to appease the likes of James Galbraith (who is clearly not an MMTer) and others. In doing so they’ve made the definition of MM THEORY so vague that anyone and everyone should claim MMT as their own. Now, if you understand how the system operates you believe in MMT? It’s become absurd. The whole thing that differentiates MMT is the prescriptive. That IS Moder Monetary Theory…..Wray doesn’t even know what his own theory is anymore. And he’s changing the idea of it to simmer the political tension and spread his gospel….

          • Fair enough, I have digged into MMT only for three years, so far. I can’t tell precisely enough how sectarian – or not – were early leading MMTers. As far as I can tell, they’ve been very open those past three years, and I notices much of the usual scholar urbanity in Understanding Modern Money and Full Employment Abandoned (the two biggest earlier works I read about MMT). I’ve several Austrian advocates and cannot confuse them with MMTers. I’ve seen bits of sectarianism among casual commenters promoting MMT, but nothing abnormal compared to what I’ve witnessed among the mainstream, and far less prevalent that in the most liberal schools, like Austrians. Nothing rothbardian, like you say.

            Maybe the very beginning of MMT was much tougher and bitter, that’s likely. The fact you acknowledge they’ve grown more tolerant and open-minded is excellent omen to me, making me even closer to them.

            have a nice day.

            Jbb

  11. Bob Salsa says:

    Vertical, horizontal, diagonal – it seems to be adding up to a spiral; perhaps out of control?
    It reminds me of William James’ story of the squirrel on the tree and the man who circles the tree to better observe the squirrel; but, the damn squirrel keeps rounding on the tree so the man never gets his full glimpse. Did the man circle the squirrel? From the man’s perspective, yes; from the squirrel’s, no. Pragmatism would tell you the squirrel’s viewpoint was the better for his efforts yielded successive utility; the man’s, not so much, hey?

    We have the MMR’s often-stated attempt of achieving a greater purity of description without the contamination of prescription, and yet, when it comes down to brass tack, the focus on the opinioned difference of the merits of horizontal monetary prescriptions. My head spins.

    I would note that it seems those who remain within the horizontal seem to whine a lot of about the lack of solutions. It must be similar to how the man felt about never glimpsing the squirrel.

  12. Tom Hickey says:

    Agree that it is an oversimplification, but I can say as an educator that this is a problem all educators face in presenting complex ideas simply. It is difficult to impossible not to oversimplify in summarizing a complex idea in a paragraph or two.

    As you know, most academic exposition is in refereed journals, most of which are inaccessible to the public, both physically due to expense and also mentally due to inadequate background. An area in which I am familiar is the study of religion, for example. The scholarly material has been confined to journals until recently and as a result what was preached from the pulpits was nothing but a “pious fraud.” But now some scholars are bringing the scholarship out publicly in summary form, and other scholars are accusing them of “confusing the laity.”

    Moreover, most introductory and even intermediate level college texts are pretty gross simplifications of the material. While I am not an economist, from what I gather one does not actually encounter what economists would call professional economics until grad school, when one has the background and tools. Same in most fields.

    So a complaint that a one paragraph summary of the highlights of MMT is simplistic isn’t surprising to. Why don’t you (generic) write up you one or two paragraph explanation and improve upon it, if you think you can do a better job of it.

    I certainly don’t claim to be the expert. That was a comment I happened to make at Warren’s, BTW, and Marshall asked Warren to promote it, which he did.

  13. geerussell says:

    I’m entirely open to the possibility there’s something I’ve missed in the MM policy toolbox. My understanding of it goes something like this:

    1) Announce a target (flip a coin for ngdp or inflation)

    2) ???

    3) The economy moves to the target.

    When pressed for what happens in the middle there, is there *anything* they offer other than pushing on the string of low rates/high liquidity?

    Sure, some of them are now talking about growing a fiscal arm on the Fed but isn’t that just conceding the point that fiscal policy is what’s needed?

    • Tom Hickey says:

      I’ve asked them about a transmission mechanism. The answer is “expectations.” That is the monetarist position.

      • Cullen Roche says:

        Yes Tom. They don’t have a transmission mechanism other than expectations. They could change that easily. I’ve recommend that they use QE to buy long bonds and directly change the moneyness of credit to more closely reflect govt money, but Sumner says that would cause hyperinflation….Well, sure, if you did it permanently! But not in the right doses….Too bad it’s not the right environment for that kind of policy though with the BSR and all….

        • geerussell says:

          When you talk about long bonds what kind do you have in mind? Muni? Corporate?

          • Cullen Roche says:

            I’m talking about crashing the 30 year bond yield. Bernanke knows he can do this. He just hasn’t done it. He wants to support real estate and investment, but he won’t actually attack the part of the curve that matters most to it. This is certainly not my preferred policy approach in this environment, but I have a hard time seeing how this wouldn’t be much more effective than tinkering with short rates as they’re doing now. He needs to come out and name a price on the 30 year. Pin that sucker at 0.5% and make it near cash.

            And yes, they could do fiscal in other ways like buying munis, but we’re not being realistic there. They won’t do that.

            • There is a large variety of 30yr bonds out there. You should probably specify that you mean 30yr “TREASURY” bond yield.

              Regarding Dr. Wray, I wonder if it is just that his sense of humor doesn’t come across well in his writing?

              • Cullen Roche says:

                Yes, specifics are good. That’s what I meant. Thanks.

                I’d rather not even comment on the Wray stuff. He’s lost all credibility in my opinion. I have been trying to keep the comments on point here, but MMTers seem intent on personal attacks on other sites. That’s fine. If that’s their last tactic to prove their point then the war has already been lost. They should regroup and refocus. They’re not helping their cause with that sort of commentary. In fact, they’re killing MMT.

                • I can understand why someone who had spent most of their career building MMT might be a bit upset that some young upstart came along and took things in another direction. However, if I were them, I’d feel more like a proud father watching his kid leave the nest.

                  • studentee says:

                    But Cullen isn’t taking things in another direction. He’s specifically claiming that the entire MMT economic literature is just an excuse to lobby for the JG. That the entire literature is a bad faith argument. If it was simply the case that Cullen thinks that the vertical channel isn’t very relevant, or that monetary is in fact very effective, or that the JG is not a theoretically sound argument; and thus that the MMT economists were wrong about these things and he’s challenging them on it, that would be one thing and that would be fine.

                    But he has instead accused all MMT economists of being political hacks. There’s a difference.

                    • Cullen Roche says:

                      Political hacks is a bit extreme. Not the terminology I would use. Most economics is driven by politics. Austrians are driven by conservative tendencies. Keynesians are driven by liberal tendencies. Monetarists tend to be conservatives. MMTers tend to be liberals. Is this somehow a big news flash to you?

                  • studentee says:

                    First sentence should be

                    “But Cullen isn’t [just] taking things in another direction.”

            • Tom Hickey says:

              “I have a hard time seeing how this wouldn’t be much more effective than tinkering with short rates as they’re doing now. He needs to come out and name a price on the 30 year. Pin that sucker at 0.5% and make it near cash.”

              That would collapse the yield curve, screwing savers and favoring borrowers. What would that do to assets, including commodities, which are now an asset class. This is the problem with monetary. It gooses assets, which enriches, the wealthy, which then affects goods prices, which leads to falling real wage and wage pressure, which then the cb squashes as “inflationary.” The wealthy get wealthier, and workers get what, trickle down?

              This is why Keynesians favor fiscal which puts the injection in at the bottom and it works its way up into saving by the wealthy, instead of just staying at the top as with monetary.

              There’s reason that fiscalists are fiscalista and monetarists are monetarists. It’s a “class-thing.”

              • Cullen Roche says:

                I’ve never been against fiscal. And certainly not in the last few years. Just pointing out that this policy would be more effective than what they’re doing now, which is the equivalent of nothing….

                • Tom Hickey says:

                  Disagree that they are doing “nothing.” What they are doing is evident and they declared this their purpose. They are distorting asset markets by their own admission, driving “prices higher than they would otherwise be” to prop up housing and to create a wealth effect through appreciation especially in equities. Is this the way we want a cb (read government) to be managing the economy? Especially when fiscal is available. Why doesn’t Bernanke just come out and say that fiscal in needed and he can’t do it legally. Instead he is talking up fiscal discipline. This is gross malfeasance and the expected outcome of a command approach.

                  • Cullen Roche says:

                    Ahhh, yes. The wealth effect. I agree Tom. Bernanke seems to think that driving up nominal asset values will somehow translate into real wealth. As if jamming the price of Apple up to $1,000 without real fundamental change in the company fundamentals will do anything. When I say they’re doing nothing I mean they aren’t changing the fundamentals in the economy through their asset swaps. We all know Kalecki and we all know that it’s the budget deficit that is driving all those iPad sales. Not the mythical expectations changes through QE…. :-)

            • geerussell says:

              Ok, I follow now. Just like other QE operations it certainly seems like it would be as you describe, well within Bernanke’s power if he wished to do so. If that policy were adopted and 30-yr rates were pegged at .5%, what would be the expected economic benefits?

              • Cullen Roche says:

                The benefits would be mostly the wrong ones now. Probably a big boost to private investment in real estate and business borrowing and not the injection of juice we need which is really a lower and middle class fiscal injection to help fix balance sheets and help strengthen the middle class. But it would “work” in that it would probably get growth going again. From the Bernanke perspective, it’s odd that he hasn’t done this because he seems to have this skewed view of the world where helping bankers and rich guys is a good thing.

                Obviously, if you believe in the BSR then this is all wrong. Promoting more debt accumulation right now is just wrong. We really do need more fiscal. But we’re not gonna get that so Bernanke stepping on the QE gas via long rates might be the best shot to actually keeping the economy out of a rut. Although it probably just kicks the can so given the policy approach we’re damned if we do and damned if we don’t.

  14. What about the problems caused by too much leveraging or horizontal money? Isn’t that the reason why MMT prefers vertical policy prescriptions? Isn’t that the main point of Minsky’s FIH? Too much horizontal causes debt positions that eventually become ponzi until the bubble bursts…if that is true then wouldn’t you prefer vertical policies to work against such extension of private debt?

    • Cullen Roche says:

      We have a credit based monetary system. There’s no getting around that. I think it’s naive to argue that monetary policy is totally inept. Especially outside of a balance sheet recession. One of the main reasons why MMT has gained a lot of momentum in recent years is directly because of the BSR. It exposed the flaws of a credit based system and the need for fiscal support. Europe has also exposed this. Good monetary policy needs good fiscal policy. I’m not denying that. Never have, never will. But I don’t agree with this notion that monetary policy will be ineffective for ever and ever just because it’s been ineffective during a balance sheet recession.

  15. Cullen,

    Have you seen this post by Garth?

    econrevival.blogspot.com/2012/05/lets-all-talk-past-each-other.html

    • Cullen Roche says:

      Don’t read that website. So no. But it seems he’s making the same mistakes that many have made here. I am using the terms horizontal and vertical in the MMT sense. They don’t seem to be aware of their own terminology. The same terminology that Warren uses and Mitchell uses in their 101 texts and “mandatory readings”.

      Also, on the monopolist stuff – the author does not seem to be aware that MMT builds their JG argument directly from the monopolist argument claiming that because the govt is the monopolist of its currency then it’s the price setter. Pavlina wrote a detailed paper on all of this connecting the state as price setter to the JG.

      Monopoly Money: The State as a Price Setter
      *
      By Pavlina R. Tcherneva
      CONTENTS
      1. Introduction
      2. Colonial Africa: An Introductory Model of a Tax Driven Currency
      3. Further Historical Examination of State Currency
      4. Present-Day System: The Integration of the Banking System and the State
      5. Mathematical Model: Analyzing the Implications of the State as a Single Supplier
      of that Which it Demands for Payment of Taxes
      6. Conclusion: The Employer of Last Resort Option

      Connect the dots….Monopoly money, state as price setter, conclusion ELR. It’s rather simple really. The author clearly doesn’t even understand MMT….We’re not just “talking past one another”. We are disagreeing on points that the author just flat out doesn’t understand.

      Again, some MMT commenters are not familiar with the theory they so loudly defend….

      • yeah commented there about the nonexistence of monopoly which he agreed.

        • Cullen Roche says:

          “And I think this is a legitimate point raised by Roche as I believe Wray confuses things further by trying to tie JG with MMT on this basis of ‘monopoly’.”

          It’s not just Wray that does this. It is all of them. They’ve all justified the JG on the basis of a money monopoly. The funny thing is, I don’t even necessarily disagree with the idea of a JG. I disagree with the basis upon which it is justified and presented. As though “there is no alternative”. It’s not a sound economic argument and Garth seems to agree. So, we’re not talking past one another at all. Wray and MMT just has this wrong. That’s it. If they want to build up the JG then they should build it up on its merits as a beneficial economic program. Or better yet, sell it as a moral position. Personally, I am much more sympathetic to it as a moral position….Every person on this earth deserves a job. But don’t pitch that to the world on the basis of some faulty monetary construct….You do more harm than good in that. Convince us it’s a sound policy based on its merits as an economic program. I for one, have not been convinced….

          • completely agree.

          • studentee says:

            “They’ve all justified the JG on the basis of a money monopoly.”

            I really, really don’t understand this argument. There are many other reasons that some MMT’ers “justify” the JG.

            • Cullen Roche says:

              You guys really aren’t up to snuff on MMT. It seems that I am the only MMT expert around these parts. Here’s Mosler on the monopolist topic:

              “It’s about recognizing ‘JG’ is the ‘base case’ for fiat money in general….So how does a monopolist, in the base case, do this?

              ….Monopolists are price setters (vs price takers) in that they set the price/terms of exchange for their ‘commodity’ and let quantity adjust.”

              And the paper by Pavlina:

              http://www.epicoalition.org/docs/Pavlina_2007.pdf

              Pretty self explanatory really. Not sure why you still don’t get it….And I never said there weren’t other arguments that MMTers make for the JG. This just happens to be one of the primary ones….

              • studentee says:

                “It’s about recognizing ‘JG’ is the ‘base case’ for fiat money in general….So how does a monopolist, in the base case, do this?

                ….Monopolists are price setters (vs price takers) in that they set the price/terms of exchange for their ‘commodity’ and let quantity adjust.”

                Monopolists can decide to act like monopolists, or they can decide to not act like monopolists. They can decide to just buy things at the market price, or they can set the price. Mosler is making the argument that a smart monopolist acts in a certain way, and sets the price in certain markets, allowing quantity to float.

                But I don’t understand exactly the meaning of base case. He’s making the argument that the government should set a nominal anchor by setting the price of something. He has chosen the minimum wage labor. It’s interesting, because the currency is then tied to labor (a “labor standard”), and in fact starts to resemble non-“fiat” systems such as a gold standard.

            • Tom Hickey says:

              Let’s take the federal government v. the state governments. Both can set a minimum wage, but only the federal govt is in the financial position to offer a JG that creates a buffer stock of unspecified size. That would greatly strain a state in time of crisis when tax revenue shrinks and unemployment expands. State governments are currency users and are, moreover, requited to balance their budgets yearly. The federal government is not operationally constrained and can fund the requirements of a JG the way it funds everything, through currency issuance. That is what “fiat currency” means.

              • Yes. I was trying to make that point the other day. I don’t think making minimum wage law is comparable to being able to pay for (without constraint) a JG. It’s not an argument for or against the JG, just an argument for the uniqueness of the situation.

  16. Alright. That’s it. I’m tired of it. It’s been mentioned over and over again so many times and I don’t know what you all are talking about.

    What is the TC Rule? :) (seriously)

  17. Cullen Roche says:

    I’d prefer not to talk about the Wray piece. Thanks. If we can just leave the personal stuff out of this that would be great. But I do appreciate the support so thanks.

  18. Thanks. Didn’t realize it was on this site. Appreciate it.

  19. Cullen, I do think you misinterpreted my post (seems to be a lot of that going around). I generally agree with you about Wray’s unfortunate use of terminology.

    You say: ” the author does not seem to be aware that MMT builds their JG argument directly from the monopolist argument claiming that because the govt is the monopolist of its currency then it’s the price setter”

    Actually, half of my post was talking about and citing exactly that (bad) logic that Wray uses. So you see, I do know a little bit about MMT :).

    In other words, you should recognize that I agree with you on the JG issue. MMT vastly oversimplifies and confuses it.

    That said, you are imop taking Wray out of context as I don’t think he’d disagree with you that money is significantly endogenous and he’s said so many times, and the paper I cite references the bank-created credit and it’s significant role.

    The problem you both have is exactly as I stated. You talk past each other.

    • Cullen Roche says:

      You said this Garth:

      “Wray equates MMT understanding of money monopoly with Minsky’s jobs guarantee (employer or last resort) idea. Though, to my knowledge, he never ties the two together.”

      But if you understand the money monopolist argument and the price setter function and then understand how MMT ties this to the JG (which they do very specifically in their work) then it’s clear that your statement is not correct. They do explicitly “tie the two together”. So no, I am not misrepresenting your comments or talking past Wray. You just misinterpreted this important point in the MMT literature. They specifically tie the monopolist to the JG.

      • studentee says:

        In Understanding Modern Money, Wray makes the argument the government has an influence on prices when purchases things from the private sector and imposes taxes. He argues that the government paying market prices for goods has an inflationary nature. He never says the government *must* set prices, but that it *could* set prices. And he argues that the government providing a nominal anchor is a good thing (most macroeconomics believe this). He thinks setting the price of minimum-wage labor and making it a marking clearing wage is a good idea.

        • Cullen Roche says:

          Pavlina called the govt the “price setter” based on the idea of the money monopolist. Not my words. You’re arguing with the wrong people. It’s the MMTers who need to get on the same page on this stuff. Not you and I. They’re all over the place on this. I see Wray claiming on the NEP page that you can separate the theory from Modern Monetary Theory. Do you even see what an absurd contradiction that is????

          • studentee says:

            Whatever, I don’t care about that. The government has an influence on prices, correct? The government can set certain prices, correct? You admitted yesterday that the government can enact a JG. Because governments like the US can always afford to pay the fixed JG wage, as a “money monopolist,” it can never run out funds, then the government can continually fix this price and clear the market. Nominal anchor, less unemployment, etc. Back to cost-benefit analysis of the JG versus other policies, where the argument should be

            Please confirm for me that Wray says in Understanding Modern Money that government action has an influence on prices but that it does not always act as price setter. He makes the argument that it “can” and “ought” to act as a price setter in certain markets.

            • Cullen Roche says:

              Round and round we go! Good day to you.

              • studentee says:

                • I understand Cullen’s reasoning, but I think it’s flawed. It really comes down to a difference in how ‘money monopoly’ is defined.

                  Cullen sees a money monopolist as an entity that controls price via controlling supply. While that is true, I think his argument is flawed because that is only one option that a monopolist can choose.

                  Cullen clealry disagrees :) …but I think of a money monopolist as having a choice: 1) control price, and lets quantity supplied float, or 2) set quantity supplied, and let price float.

                  In the U.S. the federal government ‘as a money monopolist’ has chosen option 1. It has decided to arrange the economic order where the quantity supplied of money “floats” (banks create money), but the U.S.Gov (via the Fed) sets the price (the FFR).

                  The U.S.Gov could just HAVE easily, or in the future change course an just AS easily, decide to pursue option 2: set quanity supplied, and allow price (the interest rate) to float.

                  The fact that the U.S.Gov HAS THE CHOICE between those two options is what makes me think it is indeed a money monopolist. All monopolists have the choice between the two options.

                  **sorry for repeating myself Cullen

                  • Cullen Roche says:

                    You still don’t have my argument correct. The govt does not set the price or quantity of credit. It outsources the vast majority of its money creation to private banks and has no control over the quantity or price of this money. So there’s no money monopoly. Simple. Not even if you take a small sliver of the money supply and try to claim that it’s all connected somehow (through “leverage” or a hierarchy or whatever). The fact is, the govt does not control price or supply of credit money. The horizontal component is free wheeling here….No monopoly.

                    • studentee says:

                      If the gov’t wanted to, it could control supply of reserves. Instead, it chooses to set the price of reserves. To which price of credit is added.

                    • Cullen Roche says:

                      The govt does not set the spread. They can influence it. Can’t control it. Sorry to burst your bubble there.

                    • studentee says:

                      Nowhere did I say that the government sets the spread. The private market sets the spread, on which the government’s price is based. You do continually assume that everyone you are arguing with is an idiot.

                    • Cullen Roche says:

                      No, you’re quite smart, which is why you’re fun to talk to. :-)

                • studentee says:

                  “It really comes down to a difference in how ‘money monopoly’ is defined.”

                  I’m not even sure how relevant this is vis-a-vis the argument for the JG. Clearly, the government has unlimited funds to pay workers. It has unlimited funds to buy anything. It does buy many things, and when it purchases things at a market it price may contribute to inflation. It is not providing a nominal anchor. Wray argues that it should provide a nominal anchor, to pin down the price level. He suggests we provide that nominal anchor by pinning down the price of minimum wage workers for a variety of reasons.

                  Call it monopoly or not, but the above is true.

                  • Cullen Roche says:

                    Not a price anchor. It’s a price buoy. Big difference. Covered all this a million times. Just one more thing MMT conflates.

                  • Studentee,

                    I actually agree with you there. That’s another point of confusion for me as well. I don’t see why whether the U.S.Gov is a pure money monopolist even really matters. (so I’ve been arguing the money monopolist as seperate issue)

                    BUT… I admit I’m not familiar with the original literature. I’m willing to debate the issue based on logic, but Cullen often says that the MMT literature does base the JG on the money monopolist argument. If that is true, I simply do not yet understand why MMT does that because I’m not familiar with the original literature.

                    But again, from merely a point of logic, it doesn’t really matter if the U.S.Gov is or isn’t a money monopolist. All that is needed is TO BE UNCONSTRAINED i implementing the JG, is a sovereign currency issuer. And i think Cullen basically agrees… because he admits the U.S.Gov CAN implement the JG, he just says stop basing it on the money monopolist. Instead base it on moral or other ground.

                    • Cullen Roche says:

                      Correct. Of course we can “afford” to spend on the JG (as in, we won’t “run out of money”). I just don’t see the money monopolist as a sound economic argument. Trust me, I could be convinced otherwise. But I just don’t find this form of argument (the money monopolist reasoning) sufficiently convincing. In fact, I think it exposes other flaws in the framework. I personally would eliminate the term monopolist from MMT. But that’s just me.

                    • Cullen… on that point (so far), I’m in agreement with you. The money monopolist argument seems unnecessary and irrelevant for arguing the JG. Again, all that is needed is a sovereign currency issuer (which maybe MMT argues a sovereign currency issuer IS by definition a money monopolist??)

                      But I still disagree with you (for now) about whether or not the U.S.Gov is actually a money monopolist. I think it is… but it’s chosen to not act like one.

                    • Cullen Roche says:

                      I think we agree completely on that JK. The govt COULD take full control of the horizontal. That’s a nationalized banking system. China basically has this. The USA does not.

                  • studentee says:

                    “Not a price anchor.”

                    This is a non-response to my argument re: price setter, monopolist. Wray *claims* that that the ELR wage would be a price anchor. It would certainly set the price for a certain segment of the labor market. Maybe it would not be effective at restraining wages across the spectrum, depending on the correlation of workers’ human capital. But the government can set the price for this particular “commodity.” I don’t see how the fixed wage would at least limit some inflation. Maybe it would not be perfect.

                    And you ignore the disinflationary impact of the JG on the supply side: improved human capital and the always beloved productive capacity when Americans are able to work and improve their skills regardless of macroeconomic conditions.

    • Tom Hickey says:

      Cullen is correct. Randy does acknowledge that the idea of a JG/ELR was Minsky’s and he makes explicit that the MMT JG different from Minsky’s.

      The MMT JG is based on the buffer stock of employed concept. Governments use buffer stocks to set prices within the band that they choose. The band of the MMT JG wrt is a constant fixed rate that serves as wage floor/price anchor, similar to paying IOR sets an interest rate floor and serves as the benchmark interest rate.

  20. studentee says:

    “Ignore the MMTers just like the rest of mainstream economics is learning to do.”

    Where do you guys get this idea? Who is paying attention to MMR? John Carney?

    • Cullen Roche says:

      Who ever claimed anyone cared about MMR? The only ones who seem to be obsessing over MMR are the MMTers.

  21. studentee says:

    “When banks create money by extending credit (loans create deposits), this occurs completely within the banking system and results in a liability for the bank (the deposit) and a corresponding asset (the loan). The customer has an asset (the deposit) and a corresponding liability (the loan). This nets to zero.”

    How is this not Warren Mosler describing the importance of credit money?

    “Unless that is, they went and changed their whole agenda to serving monetary policy overnight and didn’t tell anyone!”

    What does *any* of this have to do with monetary policy?

  22. Bob Salsa says:

    Cullen Roche
    “And I think this is a legitimate point raised by Roche as I believe Wray confuses things further by trying to tie JG with MMT on this basis of ‘monopoly’.”
    It’s not just Wray that does this. It is all of them. They’ve all justified the JG on the basis of a money monopoly..

    No, they ‘justify’ it with the desire for full employment. They ‘tie’ it to monopoly to indicate the power of the government issurer to make it happen.

    It’s one thing to circle the tree and be frustrated with not getting a full glimpse of the squirrel (‘horizontalist’). It’s another to stand outside the circle, fix a bead on the squirrel and shoot the danm thing certain (‘verticalist’). It’s a whole different matter to care less about the squirrel but arguing with anyone within earshot that walking around the tree, while not as potent as shooting a gun, can accomplish something or another…maybe (‘diagonalist’).

    • Cullen Roche says:

      You’re just playing word games. Of course they want FE.

      • Bob Salsa says:

        Yep, in all regards, but it is at the heart of the dispute.

        It’s not different values, it’s the priority of the values. Their’s FE, yours minimizing the state.

        In a dispute, James’ pragmatism would say “what works best” but assumes a common objective. That assumption does not exist here, therefore, any resolution is replaced with talking past one another, personal attacks, and, oh yes, lots of playing word games – lots.

        • Cullen Roche says:

          Where did I say minimize the state? Are you even remotely familiar with my work? I have been in favor of much greater bank regulation and govt spending for years now. It seems you’re throwing me under the bus just because I don’t fully support the JG. And I never said I didn’t support FE despite some people’s continual lies and misrepresentations. I do support FE. I just don’t change the definition to mean no involuntary unemployment. If that irks you then fine. But don’t try to pin me as some small govt hack.

  23. What I meant Cullen was that they give no reason logically as to why a monopolist of money (even if that is how they say it) leads to the JG as the only/best policy….I really don’t see how this is any different than what you are saying. I meant there is no obvious ‘positive’ tie that makes this so. JG is still a normative policy decision given their assumptions. The Tcherneva paper certainly doesn’t provide a significant tie together in my book. It simply presents a series of options, one of which is the JG option ….again, just because the math works doesn’t make it the ‘best’ option.

    Perhaps you misunderstand my phrasing…perhaps I should have said “tie together…. to any reasonable satisfaction.”

    • Cullen Roche says:

      No, Mosler says the JG is the “base case” because the govt, as the currency monopolist create unemployment by taxing. If it doesn’t set the price of its currency and let quantity float to meet full employment then there is unemployment. Mosler is very specific about this. So, the monopolist has to set the price and offer to hire the unemployed. That’s what monopolists do. They set prices. This is a very clear point and there’s a direct tie between the two. No confusion here.

      • studentee says:

        “No, Mosler says the JG is the “base case” because the govt, as the currency monopolist create unemployment by taxing.”

        Involuntary unemployment potentially exists in any monetary economy. I don’t think that Warren has ever said that the private sector cannot achieve the mainstream definition of full employment on its own. Of course, MMT’ers have a different definition of full employment.

        “If it doesn’t set the price of its currency and let quantity float to meet full employment then there is unemployment.”

        Please cite, this is a strange argument. If it doesn’t set the price of its currency and let quantity float, then there may be inflation. Not sure why he would think setting the price of carrots would result in full employment

        “Mosler is very specific about this. So, the monopolist has to set the price and offer to hire the unemployed. That’s what monopolists do. They set prices. This is a very clear point and there’s a direct tie between the two. No confusion here.”

        Mosler, and Wray, make the argument that the the government is not acting as a proper monopoly. The government has an effect on prices, and can set prices if it wishes. Sometimes, it does not set prices. Right now it is not setting prices (except on reserves, but this is tangential). The base case for enlightened government is to set a nominal anchor. MMT generally favors the minimum wage as that nominal anchor.

        • Cullen Roche says:

          Sorry Studentee, but I don’t have the time to teach you MMT here nor do I have any interest in teaching anyone MMT. You clearly don’t understand the entire argument. That’s not my fault. Your anger is badly misplaced and you’ve severely misinterpreted the MMT position despite your aggressive and at times hostile defense of it….Perhaps deep dive into it some more….

          • studentee says:

            Please explain where I’m wrong. I’m using Understanding Modern Money as my resource. What I’m saying I believe meshes with the argument Wray makes.

            But say that I am misrepresenting MMT–what’s remains wrong with my argument?

            • Cullen Roche says:

              As I said, I can’t teach you MMT right now. But I would recommend you read some of Mitchell’s work on the employment buffer stock and also his work on vertical vs horizontal. You don’t seem to be very clear on either facets. I provide a few links above….Hope that helps.

        • Ben Wolf says:

          Mosler, Wray and Mitchell make fairly clear their desire for government to step up and utilize its monopoly power, i.e. they want to see a change in how the system behaves. I’m not sure I understand what you’re objecting to.

      • Cullen, seriously, I’m not arguing that many MMTers don’t believe that. I’m AGREEING with you on this point. But that is not what I meant by a ‘tie’ between monopoly and JG. They may have a technical tie given their equations and certain policy goals in the short term, but that doesn’t make it a logical tie that MUST be since fiscal policy is ALWAYS a normative decision that has ramifications that simply can’t easily be mathematically modeled. I think you’d agree with me on this. JG is a sufficient condition, not a necessary one.

        You don’t have to be defensive – I’m agreeing with you about JG for God sakes.

        • Cullen Roche says:

          I am not at all defensive. There’s nothing to be defensive about. I am not sure that MMTers would entirely agree with you on this point though. Warren says the JG is the “base case” because the govt caused the UE. So, if the monopolist doesn’t set price, let quantity float and hire the unemployed then it’s causing unnecessary hardship. Or so that’s the MMT argument in a nutshell. As Wray says, if you understand how the system works then it’s “reprehensible” to not be in favor of the JG. They seem to be wavering on the necessity of the JG a bit in recent days, but that’s a different point….They’re very precise about this. The monopolist must set price and hire the unemployed that it causes to be unemployed….The tie is very direct.

          Oh, and if you disagree with the JG and the monopolist argument then you can’t really call yourself a Modern Monetary Theorist. After all, the theory IS the JG…. :-)

    • Bob Salsa says:

      If one looks at this from the angle of the “tie” being the monopolist-of-money as the tool to placate the motivation (FE), it would seem incumbent on a critic of that tie to provide a better (more powerful, more certain) tool to tie to the desired objective.

      If anyone here comes up with one, I can provide Bernake’s phone number.

  24. Hell – I can write a paper with a mathematical model, limit it to 6 cases, find the one case that maximizes the equation and call it the winner….that’s not what economics should be about….

  25. Cullen Roche says:

    And there’s Joe Firestone once again misrepresenting. He loves that one quote I used where I said unemployment wasn’t always bad. Of course, he took it totally out of context and I later made it very clear, in comments directly to him, that I am in favor of full employment and that my personal experiences proved nothing. I even wrote a post making it very clear that I am in favor of FE, but Joe still trots out that line. We’ve gone back and forth about that quote a number of times, but he still trots it out when he wants to misrepresent me.

    http://pragcap.com/i-am-in-favor-of-full-employment

  26. studentee says:

    Here this individual is defining verticalist as being in favor of fiscal policy.

    MMT recognizes the importance of the horizontal circuit (banks create money). They work in the tradition of Minsky–how could they not?

    • Cullen Roche says:

      Vertical is not my term. It was created by MMTers. Again, read Mitchell and Mosler on this. It’s becoming clear that you’re not all that familiar with the theory you’re defending….

      • studentee says:

        I was simply pointing out that this individual is confusing terms. Being in favor of the “vertical” does not mean they don’t understand the “horizontal.”

        • Cullen Roche says:

          Those “individuals” are named Bill Mitchell and Warren Mosler. :-)

  27. My issue with your comments above is exactly what ‘studentee’ is saying. You are misrepresenting Wray’s understanding of the endogenous portion of the monetary system and simultaneously you seem to be unfamiliar with post-Keynesian structuralism….please drop the word “diagonolism”….and consult any monetary post-Keyensian paper from 1992.

    • Cullen Roche says:

      Again, I did not redefine the word vertical in the MMT literature. MMTers defined it as the cumulative deficit (ie, govt creation of NFA via deficits). It’s not the Basil Moore terminology. You guys clearly aren’t familiar with the MMT terminology….

      • studentee says:

        “Again, I did not redefine the word vertical in the MMT literature. MMTers defined it as the cumulative deficit (ie, govt creation of NFA via deficits).”

        Where do they define the word vertical as the cumulative deficit? The cumulative deficit is simply the national debt. How could this be their definition of the word “vertical”? The vertical is just a thing?

        • Cullen Roche says:

          Come on. This is MMT 101 and 103. The VERY VERY basics.

          http://bilbo.economicoutlook.net/blog/?p=332

          http://bilbo.economicoutlook.net/blog/?p=381

          • studentee says:

            No where in those links is vertical defined as some stock of cumulative NFA’s. You were simply messy with your wording. There is no stock called the “vertical.” Mitchell is clearly describing the vertical channel. It need not be deficit-creating or surplus-creating.

            • Cullen Roche says:

              Wrong again.

              “The government deficit (treasury operation) determines the cumulative stock of financial assets in the private sector.”

              Or as Mosler’s mandatory readings say:

              “When the government “spends,” the Treasury disburses the funds by crediting bank accounts. Settlement involves transferring reserves from the Treasury’s account at the Fed to the recipient’s bank. The resulting increase in the recipient’s deposit account has no corresponding liability in the banking system. This creation is called “vertical,” or exogenous to the banking system. Since there is no corresponding liability in the banking system, this results in an increase of nongovernment net financial assets.”

              Pretty cut and dry.

              • studentee says:

                How does “…exogenous to the banking system” mean the cumulative stock of NFA’s? They aren’t even the same type of word.

                • Cullen Roche says:

                  Govt creates NFA through vertical transactions. I am not sure what you’re confused about….MMT’s preferred policy approach is vertical through NFA creation. So do the math….

                  • studentee says:

                    This is what you said:

                    “Again, I did not redefine the word vertical in the MMT literature. MMTers defined it as the cumulative deficit…”

                    This is wrong.

                    • Cullen Roche says:

                      The cumulative deficit is created via vertical transactions. Again, MMT 101.

                    • studentee says:

                      But it is not something called the “vertical.” Aren’t we trying to get our defintions straight here? In that sentence, you said “cumulative deficits” = “vertical.”

                    • Cullen Roche says:

                      It’s vertical transactions that create the cumulative deficit….

                  • studentee says:

                    Yup.

                    But “vertical” does not equal “cumulative deficits” as you said earlier.

                    • Cullen Roche says:

                      Round and round we go….

                    • studentee says:

                      Just admit the quote was wrong, Cullen. It’s not a big deal. You continue to complain that MMT’ers are imprecise in their language, and I clearly found a place where you were imprecise in your language. Let it go.

                    • Cullen Roche says:

                      The term is from MMT literature so if I am being imprecise then so are they….So sure, we’re all imprecise. :-)

                    • studentee says:

                      Show me the quote where he says the word “vertical” means “cumulative deficits.” Just give up on this one.

                    • Cullen Roche says:

                      Do you know what vertical transactions are? Do you know how cumulative deficits are created? 1+1=….

                    • studentee says:

                      Again, the method of creating the cumulative deficits is through the vertical channel. The deficits do not equal “the vertical,” as you had written. You really can’t be this dense.

                    • Cullen Roche says:

                      Okay, call me a name or someone else and you’re done. I won’t warn you again. You’re fine with the persistence. But I will not have you MMTers coming here calling people names. Save it for your other sites. This is not a playground for angry men.

                      Where did I say the deficit “equals” the vertical? I don’t believe that’s what I said….

                    • Sutdentee, no need to call him dense and a halfwit. Stick to the issue. The reason all of us are on here debating this is because we are all genuinely interested in the material. Insulting the host is not good manners. You’re “in his house” afterall.

                    • Cullen Roche says:

                      You don’t have to treat me like you’re in my house. Everyone is welcome here. We should all stay civil. And yes, we’re just seeking answers. That’s been my goal since day 1. It was when we stopped talking about answers and started getting political that I got turned off. And now several people have made me out to be some evil person just because I disagreed with getting involved in their politics. A shame really.

                    • studentee says:

                      I never called Cullen a halfwit. He seems at least three-quarters witted. I should have said stubborn instead of dense.

                    • Yes, you did:

                      “studentee May 3, 2012 at 6:34 pm
                      It’s a joke you halfwit.”

                    • studentee says:

                      No that was not towards Cullen. ‘Twas in poor taste, however

                    • Cullen Roche says:

                      I’m a forgiving man so no worries. And no, contrary to Joe Firestone’s endless misrepresentations, we don’t ban people here. Well, actually, we’ve started moderating a guy named Phil who’s a MMT proponent, but he went totally insane here one day so it was kind of a necessary action….Other than that one guy though….Never happened. Joe’s name gets hung up in spam because he insists on writing a weird name and email, but that’s not our fault….

    • Cullen Roche says:

      Here’s Mitchell on it. He uses the cumulative deficit definition as well (consistent with everything I’ve said). So don’t ask me to stop using terms. Ask the people you’re defending….

      http://bilbo.economicoutlook.net/blog/?p=332

      http://bilbo.economicoutlook.net/blog/?p=381

  28. Cullen Roche says:

    Geez. I can see this is starting to get very very nasty. Someone on their side is just making up blatant lies about us now, huh? I had heard about this nasty rumor through the grape vine. I actually emailed a high ranking MMTer about it to ask why they were spreading this nasty rumor about us. So no, it’s ridiculous and absurd that anyone would even make something up. MMTers are playing very dirty here by making stuff like that up….

  29. studentee says:

    It’s a joke you halfwit.

    • Cullen Roche says:

      Actually, it’s not a joke. Someone emailed me about it this morning with quotes from high up MMTers. They really think we got funding….They’re playing dirty politics now.

      • studentee says:

        “Someone emailed me about it this morning with quotes from high up MMTers.”

        Cullen, this is ridiculous. Just come out with the names.

        • beowulf says:

          Cullen, this is ridiculous. Just come out with the names.

          They called him Machete, but he blogs as Ramanan (“If you’re going to hire Machete to kill the bad guy, you’d better make damn sure the bad guy isn’t you!”)
          http://youtu.be/R10ljA0-sHs

          “I noticed this six figure thing again – it appeared last week or so as well. In fact, in the saving-net-saving confusion exchanges LRW asked me how much money I get paid – couldn’t have been more hilarious!” (upthread)

          • Interesting discussion at NEP-MMP on the six-figure.

            So do you think I can sue LRW of accusing me of taking money :-)

    • beowulf says:

      “It’s a joke you halfwit.”
      Good Lord, you guys just can’t stop with the mocking of the mentally disabled.

      Its no longer a joke when third parties (like Peter above) are asking if its true. It’s not of course. If it were, we would have first set up a 501(c)(3) nonprofit so our unaccountably generous benefactor(s) could take a “six figure dollar” tax deduction.

  30. studentee says:

    You have said that the MMT literature is bad faith argument to justify the JG. Not that they are merely wrong, but that they only seek specific political goals, and to hell with logic or consistency. This sounds hackish to me

    “MMTers tend to be liberals. Is this somehow a big news flash to you?”

    This is a non-argument. Edward Harrison believes that MMT describes the current system quite well. But he is an economic conservative, no?

    • Cullen Roche says:

      I can’t speak for Ed Harrison. I think he understands banking and the fact that govt’s can’t run out of money. These ideas aren’t unique to MMT. They just are. There’s no theory involved in the way the system actually works. What makes MMT a theory is the theoretical part. The theoretical part is the policy approach to achieving FE and PS. There’s no theory in the operational stuff. That’s why it makes no sense for MMTers to claim you can separate the JG from MMT. The JG is the theoretical aspect.

      As for politics. Hell, I think market monetarists use NGDP targeting to create a warped view of reality. I also think Austrians use the gold standard to create a warped view. Keynesians use govt spending to create a warped view. And MMTers use the JG to create a warped view. I am an equal opportunity political hater. I’ve ripped on all of these schools at some point. But no one gets their panties in a bunch quite like the MMTers…. :-)

      • Tom Hickey says:

        Cullen, Ed Harrison has written several explanatory posts on MMT including MMT for Austrians. He makes clear that he is not a full-on MMT’er because he doesn’t think that that they pay enough attention to the Austrian concept of malinvestment, for instance.

        • Cullen Roche says:

          Yes, Ed is in our MMR chat group. Not sure I’d call him a full bore MMRist (I can’t speak for him), but he’s certainly not an MMTer. He certainly understands the operational realities of our monetary system. But again, there’s no theory there. It’s our world. The theory in Modern Monetary Theory is in the achievement of FE and PS. That’s the JG. And that’s why no one seems to be able to understand how you can separate the theoretical part of MM Theory from MM Theory. Take out the JG and you don’t have MM Theory. You have something else. So it makes no sense to say that you can take the JG out of MMT.

          • geerussell says:

            Ed Harrison is a sharp guy. As I watch the latest edition of the Roche-Wray kerfluffle unfold I’m reminded of he said during the Keen-Krugman tiff:

            I just think each person has a button that you can press that causes them to go ballistic, especially if one feels someone is slagging them off unfairly. I know I have those buttons and I know exactly what some of them are.

            I regret that this has devolved but it IS an outgrowth of personalising the issues instead of sticking to the substance.

            • Cullen Roche says:

              I don’t think I’ve personalized any of this or at least I haven’t intended to (I’m not perfect though so maybe I am wrong). The goal for me has always been the same – to provide an honest and objective view of the monetary system. When I realized that the JG, a very politically charged policy, was an embedded piece of MMT I realized that I could not promote this idea and that I had overlooked some elements of the theory that might not be operationally accurate. That’s when I started digging deeper and found the flaws in the ideas of the money monopolist and the state theory. So, honestly, I am glad this happened because I think MMR provides a more realistic understanding of the monetary system. That’s always been my goal. Ask Mike or Carlos. I am not in this for personal gain. If I were I would have taken their advice and started calling this Roche Monetary Theory or something. I have no desire to get my name in textbooks. Hell, I even tried to dish the responsibility of MMR off to JKH, but he didn’t want it any more than I did. I only want to help people understand the monetary system so they can better choose the policies THEY want. That’s always been my goal….I don’t want to tell people how to live their lives or what policies they need to push. Some claim we should. I just don’t think that’s our responsibility. So none of this has been personal for me though I can understand how MMTers take it personally. Just like Bob Murphy took it personally when I said Austrian econ was wrong….No difference. It doesn’t mean Bob Murphy is a bad guy or that we need to have a fist fight…..It just means we disagree. I disagree with some MMT positions. I’m not an evil doer because of that….

              • beowulf says:

                “Ask Mike or Carlos. I am not in this for personal gain. If I were I would have taken their advice and started calling this Roche Monetary Theory or something.”

                My advice was he write a book called “MMT and Me: Cullen Roche explains how he invented Modern Monetary Theory and how it can make you money”.
                :o)

                • Cullen Roche says:

                  Now that was an opportunity missed! Now if only we can figure out a way to divy up this 6 figure grant that we got from that conservative think tank. The money is burning a hole in my pocket!!!! :-)

  31. studentee says:

    A quote from you:

    “Again, I did not redefine the word vertical in the MMT literature. MMTers defined it as the cumulative deficit”

    This is wrong.

    • Cullen Roche says:

      What I’ve said many times here is that the vertical creates the cumulative deficit. You’re just playing word games. If you want to claim I was wrong then fine. If that helps you sleep at night….

      • studentee says:

        I’m not “playing word games.” You were clearly wrong when you said:

        “Again, I did not redefine the word vertical in the MMT literature. MMTers defined it as the cumulative deficit”

        (Do you deny that you wrote this? It’s right up there). I don’t think it’s a big deal, but you were wrong. You are the one who insists on being super specific about every term all the time in these debates.

        • Cullen Roche says:

          Yes. I was imprecise. But I just assumed you understood my point. Clearly, that was not the case. The vertical is not the cumulative deficit. But it does lead to the cumulative deficit. It’s like saying that weight lifting will make big muscles. Obviously, weight lifting is not big muscles. I didn’t know I had to spell it out for you….But you didn’t even know the term vertical could be applied here until we started talking so I should be more aware that not everyone here actually understands MMT. My fault.

  32. studentee says:

    “But you didn’t even know the term vertical could be applied here until we started talking so I should be more aware that not everyone here actually understands MMT.”

    Where do I show that I didn’t understand what vertical meant? I’ve read Understanding Modern Money twice. You were imprecise. I pounced. I was never confused, I just wanted to make sure that everyone was getting their terminology correct.

  33. Oilfield Trash says:

    Studentee (Nomial anchor JG and min wage)

    You asked

    Can someone else point out where my argument is incorrect?

    My effort to answer this.

    The government cannot know for sure what nominal anchor to set due to backward-bending supply curves.

    Neoclassical economists draw upward-sloping individual and aggregate labor supply curves, but in fact it is quite easy to derive individual labor supply curves that slope downwards – meaning that workers supply less labor as the wage rises.

    The logic is easy to follow: a higher wage rate means that the same total wage income can be earned by working fewer hours. This can result in an individual labor supply curve that has a ‘perverse’ shape: less labor is supplied as the wage rises. Economists normally get around anomalies like this by dividing the impact of a higher price into its income and substitution effects – where this time the price of labor is the hourly wage. The substitution effect necessarily means that you’ll provide more labor, since each hour of leisure that you forgo gives you a higher return.

    This ruse works when you’re considering normal commodities: you simply notionally alter a consumer’s income. However, this is no use when considering labor supply, because while it’s quite easy to notionally add or subtract income from a consumer – thus varying uniformly the amount of things that he can consume – it’s not possible to add or subtract hours from a day: you can’t magically give a worker twenty-eight hours in a day, or take away four.

    As a result, it makes no sense to separate the impact of an increase in the wage rate into its substitution effect and income effect: the fact that the substitution effect will always result in an increase in hours worked is irrelevant, since everyone will always have twenty-four hours to allocate between work and leisure.

    Since an increase in wages will make workers better off, individual workers are just as likely to work fewer hours as more when the wage rate increases. Individual labor supply curves are just as likely then to slope backwards – showing falling supply as wages rise – as they are to slope forwards.

    At the aggregate level, a labor supply curve derived by summing many such individual supply curves could have any shape at all. There could be multiple intersections of the supply curve with the demand curve. There may be more than one equilibrium wage rate, and who is to say which one is valid?

    There is therefore no basis on which the aggregate amount of labor that workers wish to supply can be unambiguously related to the wage offered. I would think that this would make it very difficult to determine what nominal anchor the JG needs to offer to establish FE.

    You might be able to say that putting a floor to this process via a minimum wage could actually make the labor market stable and decrease unemployment, but I could just as easy argue that if the goverment cannot determine the correct wage rate the nominal anchor chosen could make it better, worse , or have no effect at all.

    Didactic policy positions should be based upon robust intellectual or empirical foundations, rather than the flimsy substrate of mere fancy.

    • studentee says:

      No one’s wages are increasing beyond the current minimum wage. The JG simply makes it the market clearing wage. Unless you’re worried about the backwards bending labor supply curves of those currently making less than the legal minimum wage? Black market workers? This is the only possible scenario I can see where total hours worked would actually decrease. I don’t consider it relevant.

      The purpose of the JG is to let people who want to work work. It’s about ending *involuntary unemployment* at the minimum wage. Maybe some individuals will choose to remain unemployed. That’s their business.

    • The logic is easy to follow: a higher wage rate means that the same total wage income can be earned by working fewer hours. This can result in an individual labor supply curve that has a ‘perverse’ shape: less labor is supplied as the wage rises.

      Without empirical evidence, I’m as inclined to believe that as believing in Ricardian equivalence. The above seems to assume that employers are willing to allow the quantity of labour purchased to “float” – that is, they are willing to offer as little or as much labour to a particular employee as he/she desires, at the given wage rate for that particular job. That seems unrealistic in the extreme. Most employers will, for a variety of logical reasons, want employees for a minimum amount of set hours per period. The choice rarely exists for a worker to drastically vary their labour time commitment, especially in the downward direction. “Overtime” exists in many industries, “undertime” does not. As such, it certainly seems that there is an employer-imposed “floor” on quantity supplied. Therefore the theoretical proposition that a worker could decide to work less if he/she received a higher wage seems to be an entirely unrealistic proposition. The only time this floor is modified is when it is specifically legislated – for example, legislated maternity leave in some countries.

      You might be able to say that putting a floor to this process via a minimum wage could actually make the labor market stable and decrease unemployment, but I could just as easy argue that if the goverment cannot determine the correct wage rate the nominal anchor chosen could make it better, worse , or have no effect at all.

      Although I agree that a “classical” labour curve cannot be meaningfully derived, that is not fatal to either minimum wage rise or to a JG scheme. The minimum wage already exists as a reliable anchor point, since a non-zero amount of labour is already “offered” and “purchased” at this point, and all other jobs are essentially priced by implicit reference to the minimum wage.

      Prior to even considering any sort of employment/JG programme though, the effect of raising the minimum wage should be examined as a powerful tool to deal with unemployment – especially when the unemployed are skewed (as they most usually are) to individuals whose skill set matches minimum wage jobs. The empirical evidence is that countries with higher minimum wages have no negative impact on employment, whilst strong centralised wage bargaining is actually correlated with lower unemployment.

      Within this framework, there is then no need to be able to pinpoint a labour market “clearing” point on a demand-supply diagram for the purpose of either setting a minimum wage or offering a JG.

      Didactic policy positions should be based upon robust intellectual or empirical foundations, rather than the flimsy substrate of mere fancy.

      Agree, except I would say “Didactic policy positions should be based upon robust intellectual AND empirical foundations, rather than the flimsy substrate of mere fancy.”

  34. Cullen Roche says:

    Good comment at the NEP site exposing the contradiction in many MMT comments. I find it funny that Neil Wilson is so quick to defend Wray’s position when he was one of the most vocal proponents of the JG being necessary to MMT so many months ago. For some reason he’s not saying Wray’s position is wrong….Hmmmm.

    “Okay, I am also still confused here. I’ve been doing some research on this and found a number of quotes on this from earlier this year.

    Bill Mitchell:

    “The reality is that the JG is a central aspect of MMT because it is much more than a job creation program. It is an essential aspect of the MMT framework for full employment and price stability.”

    Pavlina Tcherneva:

    “The JG is not just an afterthought to MMT but a crucial component that has so far offered the most coherent counter-cyclical economic stabilizing mechanism.”

    Neil Wilson:

    “Discussing MMT without the Job Guarantee is to discuss some other economic theory, and one without any stability anchor to nominal prices.”

    It does appear that Wray is parting ways with his colleagues here. Can someone clarify this contradiction?”

  35. Dunce Cap Aficionado says:

    You know, a guy goes to sleep for 8 hours and there’s 100 new comments on a thread to catch up on….

  36. Cullen Roche says:

    Someone over at NEP points out that Keynesians like Mankiw and Krugman see the world very differently and still call themselves Keynesians. Do MMTers (Keynesians themselves) even know what differentiates a Keynesian? It is counter-cyclical policy. Yes, Mankiw and Krugman both believe in counter-cyclical policy of either tax cuts or spending increases. So, what differentiates an MMTer from everything else. THE JOB GUARANTEE! It is their big policy bazooka. It is the policy that achieves their goals of FE and PS. In fact, the JG is the only differentiating factor between the state theory, sector balances and post-Keynesians in general. If you don’t believe in the JG you’re not a MMTer. It’s that simple…..

    • geerussell says:

      So, what differentiates an MMTer from everything else.

      The claim that there’s no intertemporal government budget constraint. The deficit hawk/dove/owl distinction trump JG preference.

      • Cullen Roche says:

        Geerussell, anyone who understands the monetary system knows there’s no govt budget constraint for a country operating an autonomous currency. There’s NOTHING unique to MMT about this. A currency issuer can’t run out of money or go bankrupt in a currency it can print. Alan Greenspan has been saying this for 25 years. You guys are now trying to claim that anyone who understands the monetary system is an MMTer. That’s just wrong.

        As Wray says, the monetary system is just what it is. The operational realities are the operational realities. Understanding that doesn’t make you an MMTer. It just means you understand the operational realities. The theory in Modern Monetary Theory is all in the application of this understanding. That’s the JG. Simple.

        • geerussell says:

          I’m not saying the monetary system a secret known only by MMT or that everyone who understands it is an MMT’er.

          I’m saying it’s a position on government deficits/debt that is a chasm with a tiny group of of owls on one side debating within inflation-constrained policy space and on the other side, the rest of the world as hawks and doves arguing over whether the national debt has to be paid now or paid later in a revenue constrained policy space.

          That particular chasm is the defining element casting the long shadow of affordability over every policy debate.

          • Cullen Roche says:

            Okay, but we know they’re wrong. It’s verifiable. You can’t go bankrupt in a currency you can print. Buffett knows it. Greenspan knows it. Stiglitz knows it. They’re all MMTers now, huh? Anyone who can go the next step and connect the dots can easily understand that inflation is the true constraint for an autonomous currency issuer. MMT does a superb job of highlighting and explaining this, but it does not mean they OWN this understanding. It just is.

            MMT is a THEORY that offers policy prescriptions based on an understanding of the monetary system. They do not own the understanding. They own the prescriptive beliefs. I don’t know why you guys are suddenly trying to move the goal posts here. This was all made very clear to me many months ago and now that MMR is gaining traction and Galbraith says he doesn’t support the JG you all are flip flopping on your perspective. Pavlina, Bill and Neil Wilson all made this very clear many months ago. Take out the JG and you don’t have MMT. Simple.

            • geerussell says:

              I’m still not saying that they are MMT’ers or that MMT “owns” those concepts. I think we can agree to agree :) What I’m saying is that whether you know about those concepts in your heart of hearts is irrelevant if it doesn’t translate into leaving the deficit hawk/dove camp.

              Repudiating deficit hawk/dove thinking isn’t unique to MMT but the number of people/groups/schools that share such a position is tiny.

              • Cullen Roche says:

                The fact that the MMT understandings of the world are not broadly accepted has nothing to do with this. If, in 10 years, everyone understands these concepts the political lines will still be drawn. Conservatives will say that we can’t go bankrupt, but we can hyperinflate. Their story won’t change much if at all. They won’t suddenly be MMTers will they? But you guys seem to be trying to claim they will be. That’s just ridiculous. And in 10 years when this debate flares up again MMT will have to clarify what makes MMT Modern Monetary THEORY. The JG.

                I’ll give you guys a bit of advice now. Make the JG part of MMT. Be VERY clear about it. Follow Bill Mitchell’s lead. He’s the only one in the MMT camp who is consistent. Otherwise, this confusion will continue to discredit the people who espouse this message. You look like a bunch of confused flip floppers who can’t stay consistent about anything….Get your message clear and concise and then spread it. The endgame for MMT is the JG. Now go convince the world we need it….CONVINCE PEOPLE LIKE ME! But I’ll tell you one thing – the inconsistency is losing people like me. I am drifting further from MMT with every single day because of these shenanigans….And I am not the only one….

          • Tom Hickey says:

            Off the top of my head — I can’t recall off hand where Randy says this — there are two unique features that characterize MMT as a theory. First, the way it combines previous knowledge is a unique contribution that distinguishes it from other schools of PKE, and the MMT JG, which is based on Minsky’s JG but is unique to MMT due the notion of the BSE/price anchor.

            • Tom Hickey says:

              I should add that I am not sure Warren would put it the way Randy does (if I am correct about that). Again IIRC, he considers “Soft Currency Economics” as launching what would become MMT, and it says that the key insight there is the sovereign currency issuer as currency monopolist. The rest flows logically from that.

            • studentee says:

              Wouldn’t you characterize the focus on NFA’s as a key contribution of MMT? I believe JKH said something along those lines once.

    • studentee says:

      No, they are New Keynesians. Mankiw prefers tax cuts, Paul Krugman prefers spending. They prefer tax cuts for different groups. They at differing points believe that unemployment is caused by different things. For example, the importance of national debt in both economists’ minds seems drastically different. Maybe this isn’t as large a distinction as JG vs. non-JG, but it’s not obvious it isn’t.

      “Okay, but we know they’re wrong. It’s verifiable. You can’t go bankrupt in a currency you can print. Buffett knows it. Greenspan knows it. Stiglitz knows it. They’re all MMTers now, huh? Anyone who can go the next step and connect the dots can easily understand that inflation is the true constraint for an autonomous currency issuer.”

      There are other important differences between mainstream economists and post-Keynesians, including the treatment of the natural rate of interest, whether firms maximize profits or margins, how banks work, etc. Stiglitz, Buffett wouldn’t be considered MMT’ers. This doesn’t differentiate MMT from other post-Keynesians, but does differentiate them from that list of people you provided.

      I do believe the preference for permanent deficits based on Minskyian arguments is unique to MMT. Not sure what other post-Keynesians are following in the Minksy tradition to level that MMT is.

      • Cullen Roche says:

        Nice contribution. You added the word “new” to my comments. Thanks. :-)

        • studentee says:

          There is a difference between old Keynesians, new Keynesians, neo-Keynesians, etc. We are trying to get specific here correct? Isn’t this entire thread about making sure we are super specific about which camp represent which beliefs?

          And what about my comments concerning other differences between post-Keynesians and the mainstream? Are you still claiming that recognition of the US’s unlimited currency creation abilities is the only thing separating those thinkers from becoming MMT’ers?

        • studentee says:

          And your response to this:

          “I do believe the preference for permanent deficits based on Minskyian arguments is unique to MMT. Not sure what other post-Keynesians are following in the Minksy tradition to level that MMT is.”

          ?

          • Cullen Roche says:

            So more policy lopped on top of the JG. What’s your point? I thought the prescriptive part of MMT was separate from the descriptive? But here you are saying they’re intertwined again….Can you guys make up your mind?

            • studentee says:

              You were making the claim that the only difference between MMT and all other schools of economic thought was the JG:

              “So, what differentiates an MMTer from everything else. THE JOB GUARANTEE! It is their big policy bazooka.”

              I believe this is incorrect. That was my point.

              You were also wrong about acceptance of no budget constraint as being the only thing separating Stiglitz et al from being considered MMT’ers. Just trying to make sure everyone is getting everything correct at all times.

              • Cullen Roche says:

                Semantics. The JG is the primary policy response in MMT. You’re not clarifying anything. You’re just playing word games as usual.

                • studentee says:

                  Cullen, have you ever played word games? I have; they can be quite fun. I do a daily crossword puzzle. However, what I’m doing here is not word games.

                  Your argument:

                  “So, what differentiates an MMTer from everything else. THE JOB GUARANTEE! It is their big policy bazooka.”

                  My counter argument:

                  “I do believe the preference for permanent deficits based on Minskyian arguments is unique to MMT. Not sure what other post-Keynesians are following in the Minksy tradition to level that MMT is.”

                  How is this word games? Please stop assuming everyone who disagrees with you is arguing in bad faith.

                  • Cullen Roche says:

                    Sorry, but that’s not the MMT position so you’re once again trying to play words games.

                    “Recall that Friedman had wanted a balanced budget at full employment, which is fine so long as a nation has balanced trade” – LR Wray

                    A balanced budget is not a permanent deficit.

                  • studentee says:

                    “Sorry, but that’s not the MMT position so you’re once again trying to play words games.”

                    Okay, so getting the MMT position incorrect is word games? Which counterargument are not word games? You’ve accused so many people in various threads of semantics and word games that I’m worried I won’t be able to finish my crossword puzzle without thinking of you.

                    Simply add a trade deficit as one of the qualifying conditions for my “permanent deficit” claim. It’s about NFA, clearly you understand what I’m trying to say.

                    Anyways, the importance of Minsky and his understanding of financial markets to MMT is also something I believe is unique to MMT. So, not just JG.

                    • Cullen Roche says:

                      Oh right. Add a trade deficit. Minor point. :-) Seems you guys are always forgetting to care about that foreign sector. :-) And no, I have no idea what you’re trying to say or achieve here. You sound like someone whose religion has been insulted. Also, you guys don’t own Minsky. But what’s the point of all this? We know your beliefs. So go spread it to the world like all good religions do. Consider me an atheist who isn’t buying in. :-)

                    • studentee says:

                      “Also, you guys don’t own Minsky.”

                      No one claimed ownership. But no other school of economic thought has incorporated Minsky as deeply into their theory.

                      “We know your beliefs. So go spread it to the world like all good religions do. Consider me an atheist who isn’t buying in.”

                    • studentee says:

                      “Seems you guys are always forgetting to care about that foreign sector.”

                      Cite please.

                    • geerussell says:

                      Minsky is everywhere these days, I saw Larry Summers include Minsky when asked to name the economists whose thinking influenced his thinking in developing a response to the crisis. Obviously the results vary in terms of yielding useful policy :)

                    • Tom Hickey says:

                      “Also, you guys don’t own Minsky.”

                      That’s true, of course. But it counts a great deal in the profession that Randy was a PhD student of Minsky and has published extensively about him.

                    • Cullen Roche says:

                      Oh right. I forgot. Wray “taught him MMT” and he just passed before he could start spreading the lessons of his student to the world. :-)

                • studentee says:

                  And your comment about Stiglitz being a true MMT’er remains false.

                  • Cullen Roche says:

                    I was being facetious obviously. Jesus….

                  • studentee says:

                    You said:

                    “You can’t go bankrupt in a currency you can print. Buffett knows it. Greenspan knows it. Stiglitz knows it. They’re all MMTers now, huh? Anyone who can go the next step and connect the dots can easily understand that inflation is the true constraint for an autonomous currency issuer.”

                    No MMT’er (or post-Keynesian for that matter) would consider knowledge of unlimited printing ability as being sufficient for becoming an MMT’er (or Post-Keynesian).

                    Then you said that the only difference between people who have knowledge of monetary operations, currency sovereignty and MMT’ers is the preference for the JG. I believe this is also incorrect.

                    • Cullen Roche says:

                      We are VERY familiar with your BELIEFS. Belief is all MMT seems to have these days. It’s like a religion gone terribly wrong….

                    • studentee says:

                      “We are VERY familiar with your BELIEFS. Belief is all MMT seems to have these days. It’s like a religion gone terribly wrong….”

                      This is a non-response, and somewhat embarrassing.

                    • Tom Hickey says:

                      “No MMT’er (or post-Keynesian for that matter) would consider knowledge of unlimited printing ability as being sufficient for becoming an MMT’er (or Post-Keynesian).”

                      It’s the dictionary definition of “fiat.” Anyone who doesn’t get this is either stupid or being disingenuous.

      • Tom Hickey says:

        I believe that Minsky is focal. Some include him in PKE, others don’t. This is a reason that MMT differentiates itself from PKE.

        Some take the criterion of being PKE is following Paul Davidson. It is well-known that MMT economist including Warren disagree with PD over some things.

    • Tom Hickey says:

      New Keynesians and other “bastard Keynesians” synthesize New Classicalism and old Keynesianism, chiefly now by accepting REH and DSGE, which Post Keynesians and subsidiaries/offshoots like MMT reject.

  37. Oilfield Trash says:

    AK

    The above seems to assume that employers are willing to allow the quantity of labour purchased to “float” – that is, they are willing to offer as little or as much labour to a particular employee as he/she desires, at the given wage rate for that particular job.

    You seem to be treating labor as a standard commodity. Labor demand and supply is an inverted commodity. Employers do not supply labor they demand it.

    The demand for ordinary commodities is determined by consumer incomes and tastes, while supply is determined by the costs of production. However, unlike other commodities, no one actually ‘consumes’ labor: instead, firms hire workers so that they can produce other commodities for sale. Secondly, unlike all other commodities, labor is not produced for profit – there are no ‘labor factories’ turning out workers according to demand, and labor supply certainly can’t be said to be subject to the law of diminishing returns.

    These two peculiarities mean that, in an inversion of the usual situation, the demand for labor is determined by producers, while the supply of labor is determined by consumers. Demand reflects firms’ decisions to hire workers to produce output for sale; supply reflects workers’ decisions about how long to work, on the basis of their preferences for income on the one hand and leisure time on the other.

    Therefore a extreme condition does not have to exist to derive individual labor supply curves that slope downwards – meaning that workers can supply less labor as the wage rises.

    I have to to let the rest of your thought rattle around in my head some more.

    • studentee says:

      If the JG wage was set at $40/hour, then yes, income effects could very well dominate substitution effects. But we’d have myriad other problems at that point as well. I don’t see how this argument is relevant.

    • Tom Hickey says:

      “Therefore a extreme condition does not have to exist to derive individual labor supply curves that slope downwards – meaning that workers can supply less labor as the wage rises.”

      Theoretically, but not actually in practice. Workers compete for jobs and one of the requirements is to meet the demands of the employers, which is to deliver the hours demanded. Workers cannot chose to work for less hours and expect to keep their job, and salaried workers are not on 24/7 call due to the proliferation of cell phones. Many if not most salaried workers are expected to be available for more than 40 hours for example, and being salaried there is no overtime, hence, no added expense to the employer.

      The economy notion of a choice between work and leisure is just wrong according to PKE. That is not the way things actually work. Employment doesn’t increase because workers suddenly prefer more leisure to work as New Classical models assume.

  38. Oilfield Trash says:

    Studentee

    The purpose of the JG is to let people who want to work work. It’s about ending *involuntary unemployment* at the minimum wage. Maybe some individuals will choose to remain unemployed. That’s their business.

    I think MMT’ers would say the JG is needed for FE and PS. If you are not interested in PS then why do you not just make the agruement to pay everyone a yearly income with benefits equal to minimum wage who is unemployed and forget about finding them something to do.

  39. Robert Rice says:

    Let’s assume there’s some underlying conspiracy by the MMTers, as is seems to be the thesis they have impure motives. Let’s assume MMTers are closet socialists, seeking to increase the central planning of labor and central planning in general. Let’s assume they are a nefarious group–devil worshippers, whale butcherers, and kitten drowners. None of this matters if our concern is whether the JG is a good or bad idea or whether their beliefs are true or false. Wray could be Hilter reincarnate, Osama bin Laden’s twin, and none of that would matter, except to encourage us to do what we should be doing anyway and carefully examine his ideas.

    There is a lot of talent here from the top down being wasted on whether so and so is in such and such clique. Economics is a science, and as a science it shouldn’t be operating like Protestant Christianity, with its ever increasing denominations, cliques, factions, and clubs. None of that matters. “I’m a follower of Keynes!” “I’m a follower of Hayek!” I’m a follower of myself, and you should be a follower of yourself (Jesus might disagree, but he should worry about cleaning up his own mess). This culture of hero worship is like an infection–everybody worrying about getting their proper credit and being the one who’s right so they can have their time in the spotlight. Being right doesn’t make you smart, and being mistaken doesn’t make you dumb. All that matters is a good heart with an open mind toward identifying true and false propositions, sound and unsound arguments, and building true propositions into a coherent, consistent worldview by means of inference. Who’s in which cult, and what that club’s rules are, is idle chatter.

    Enough with “group” building and seeking to be the public hero; focus on what matters. Follow the example of the Seals who don’t feel the need for individual credit by taking out bin Laden. Someone said recently they all killed him, not just one man (even though one man pulled the trigger). Let’s focus on what’s true and what’s beneficial for the sake of us all, for the sake of our respective countries, for the sake of ourselves. It would be the right thing to do.

    • Cullen Roche says:

      Let’s not be ridiculous. MMTers aren’t nefarious. But their message is very clear and politically charged to a certain degree. I don’t agree with that approach. It’s nothing personal. I want to spread the general understandings of the monetary system. I want to help the world better understand these concepts so we can make more informed decisions. Personally, I believe the politics of MMT gets in the way of that message. That’s been the whole motive behind MMR. To separate the policies from the understanding. Read my primer. You won’t find a single policy discussed in there. Just a broad understanding. The policy is for the people to decide. Not men in ivory towers. We might opine on policy at times, but you won’t find us embedding anything and forming a cohesive theory around it. MMTers are busting my balls for not doing that. Whatever. I don’t think it’s my responsibility to solve the world’s problems or even begin to have confused delusions of grandeur that we can solve the world’s problems. That’s the way it should be and that’s the way I will spread the message.

      • Cullen, I started getting into MMT/MMR in the last several months. I started out on your site pragcap. I enjoy it alot and I like your style and your points. I also read NEP and Bill’s blog. I’m still wading through the debate over JG. I do think it is a shame that there has been so much hostility between both groups, not putting blame on either. I would love to see the energy focused on the real problem, which is poor understanding of how things work.

        However, I think that it is incorrect to seperate politics from economics. Economics is so filled with politics, government and history. What you are writing is contrary to what nearly all policy makers and mainstream economists are saying to the public. So while facts should not have a bias, these are in essence saying that our current policy is incorrect and we should adjust policy to reflect reality. Not to mention there are plenty of posts on this site and pragcap that do talk on policy. So I think its disingenuous to say you don’t have any political leaning one way or the other and critique MMT for having one.

        Anyway, I like your blogs and check them daily, I hope that both MMT and MMR can find common ground and focus on what is the serious problem, which is lack of understanding of the economy causing bad policy.

        • Cullen Roche says:

          John, thanks for the comment. I agree. It’s impossible to totally separate politics from economics. But we don’t need to embed policy proposals in our work. You’ll find that I achieve this in my writing. I don’t write about what I want. I write about what is. If that’s political then so be it. Personally, I don’t think it’s my responsibility to write about the way the world should look. Some economists feel the need to impose their beliefs and policy ideas in everything they do. Fine. I have ideas and recommendations of my own, but I never embed them in a comprehensive policy agenda or theory of the way the world should look. MMR isn’t about policies. It’s about what is. If people want to create things like the TC Rule or my Innovation Initative based on this understanding then fine. But MMR will never represent a policy agenda designed at achieving economic ends. We’re in this just for the educational value. To teach people how it all works. That’s it.

          • Fair enough, I def use your post about understanding the monetary sytem as a good template when trying to educate others (as well as NEP’s primer), so I appreciate what you do on that level. I guess having studied economics with a public policy approach in college, I tend to want to derive policy from any standpoint. I do think it would be fun to pick your brain for your political opinions, but I respect your desire to not dive into that.

            • Cullen Roche says:

              Don’t get me wrong – I have my personal opinions. I just don’t agree with the idea of creating a school of thought under one umbrella which makes these ideas “all or nothing” as MMT has done. I think the world is too dynamic for such an approach. It’s better to understand how the world works and take a multi-strategy approach when it’s appropriate. Sometimes monetary policy works, sometimes fiscal policy works, sometimes a dash of Austrian is necessary. There’s no “one size fits all” approach to this and I think it’s inappropriate to approach the world in such a manner. In that regard MMR is ONLY a set of understandings and nothing more….It’s up to the reader to take it to the next level and decide on policy.

              • To be clear, we’re glad to suggest policies. We’re also glad to have policies suggested to us, as we’ve shown with David Beckworth and Warren Buffet and Vickery.

                MMR doesn’t have a set of policies you need to endorse, and we fully recognize every policy has strengths and weaknesses. There is no perfect policy.

  40. geerussell says:

    Make the JG part of MMT? It’s already there. The point I’m driving at is the debate over the relative merits of the JG isn’t at the forefront outside of a tiny backwater where it’s taking place.

    The larger picture, the gap between (MMT, MMR and maybe five other people) and the rest of the world is the deficit/affordability issue. Not only is the JG not “in the way of that message” it never even gets to be debated with the rest of the world because like everything else that involves spending it gets shut down at afforability.

    I think it’s more than a little unrealistic to imagine that the JG is the thing standing in the way of the rest of the world getting the message about deficits.

    • Cullen Roche says:

      Randy just said this weekend that you can have MMT without the JG. Now you’re saying it’s “there”. This is what I am talking about. Which is it? Is the JG part of MMT or can you have MMT without the JG? Sheesh….

      • geerussell says:

        A lot of people at the time pointed out that it wasn’t a change in position as you claimed (the whole context thing) and he underscored that point in his own follow up so we’ll just agree to disagree on that.

        • Cullen Roche says:

          And a lot of other people made it clear that the JG was what made MMT a theory. Specifically, Mitchell, Tcherneva and Wilson. So there’s obvious confusion. You guys are trying to blur the lines to make MMT more palatable to everyone when the truth is that MMT is all about achieving a set of policies. So there’s nothing to agree about except that you all are very confused and inconsistent.

  41. Oilfield Trash says:

    That is just the point

    At the aggregate level, a labor supply curve derived by summing many such individual supply curves could have any shape at all. There could be multiple intersections of the supply curve with the demand curve. There may be more than one equilibrium wage rate, and who is to say which one is valid?

    There is therefore no basis on which the aggregate amount of labor that workers wish to supply can be unambiguously related to the wage offered.

    I would think that this would make it very difficult to determine what nominal anchor the JG needs to offer to establish FE.

    If the JG can not determine how to set the price (moving it up not so hard, but I have a whole lot of issues if they were to try to move it down) to push the aggregate amount of labor that workers wish to supply it can never be a succesful policy for FE.

    • studentee says:

      We’ve seen empirical evidence that supply curve is quite normal for those seeking minimum wage work (hundreds of thousands unable to find minimum wage work in publicized hirings at Starbucks and McDonalds over the past year). Are you making the claim that if the government offered unlimited jobs at the minimum wage, this could actually *decrease* total unemployment?

      To be clear, the minimum wage exists right now. Workers are not legally allowed to work less for a wage less than it. The JG simply clears the market at this wage. Wages are not moving anywhere.

  42. Oilfield Trash says:

    It is not my arguement that the JG is needed for FE and PS. The point I am making is if the JG misprices the wage rate to low or to high (which is likley the case since they can not know what it is) it will destabilize prices. You can accomplish the same thing by just giving unemployed workers some amount of yearly income and avoid finding something for them to do.

  43. studentee says:

    The wage would be set at the minimum wage. People clearly want to work at the minimum wage, and cannot get work at the minimum wage. That’s good enough for me.

    “You can accomplish the same thing by just giving unemployed workers some amount of yearly income and avoid finding something for them to do.”

    Accomplish what “same thing”? Remember, this is about finding jobs for people.

  44. Robert Rice says:

    Cullen,

    For clarity’s sake, I did not write MMTers are in fact a nefarious bunch. Mine was a thought experiment which demonstrates even assuming the worst ethics or motivation is irrelevant to what matters.

    It is worth noting you do accuse them of being “politically charged” in an effort to discredit them. “They have a political agenda, but we over here, we don’t have a political agenda.” The implication of course is somehow your claims are more trustworthy than theirs because you keep yourself, allegedly, free from prescriptive motivation. When the response to arguments for the JG is “they have a political agenda”, this is an informal fallacy, one we are all very acquianted with. It is an attack of the person not the argument, an ad hominem rather than an examination and rebuttal. Motivation is not relevant to the truth value of propositions. Now, you may have responded elsewhere to the JG argument itself, but then what is your point now with fixating on motivation? Motivation can become relevant *after* an argument has been refuted. If someone will not acknowledge the truth, then the question becomes why. In that context, noting motivation can be useful as a secondary and much less important matter. Is this your concern?

    In fairness, I’m no less concerned with the ad hominems slung your way Cullen. You may have gotten a bit of a raw deal out of this, which is sad given you brought a lot of publicity to important ideas, to ideas they espouse. And while they may appreciate the publicity, they may also simply disappreciate your, what they may feel is an unfair treatment of the JG. This seems to be Wray’s sentiment.

    And for the record, I do understand why you personally would be concerned with all of this, since you’ve been more or less excommunicated because of your skepticism over the JG. But again, being a part of the group ultimately doesn’t matter, and not being a part doesn’t matter. All that matters is what I noted previously.

    The objective of my comments was as an appeal to all involved. There is a very real opportunity given the current political environment to make progress in the knowledge of economic truth. This will lead us to good policy making, which we need. I would encourage us all to focus on this. It will take a united effort to demonstrate to the masses the U.S. government is not overly indebted and we do not have to worry about harmful levels of inflation with money creation and deficit spending, only with an excess of these. Those two false beliefs are the economic scourge of this generation. These beliefs need to be rebutted amongst the populace and our government. We could have real austerity within a year to 18 months. It’ll be perfectly apparent how “important” whether the JG is a critical component of MMT is in the not terribly distant future if we aren’t careful. Wray’s consistency is interesting as it relates to your excommunication, but that’s really all. What’s really of interest in all of this is, what are the true beliefs and how shall we use that knowledge to the benefit of us individually and collectively. Let’s focus on this.

    • studentee says:

      “…to your excommunication,”

      It was a self-exorcism.

      • Cullen Roche says:

        Sorry, but that’s not the way this all went down. For instance, it became quite clear that I wasn’t MMT when Mitchell, Wilson and Tcherneva all said the JG was central to MMT.

        Bill Mitchell makes the point today that the buffer stock anchor of the Job Guarantee is central to MMT. It is not just an add on.

        So if you’re not with the Job Guarantee idea, then you’re not talking MMT. You are talking about some other economic theory that lacks a stabilising nominal price anchor system.

        http://bilbo.economicoutlook.net/blog/?p=17528

        Funny that Wilson is backing up Wray in his post from this past weekend even though Wray says you can have MMT without the JG. The two aren’t even on the same page, but still like holding hands for some reason. Could it possibly be that they know it’s all about the JG in the end? Of course they do….

        http://pragcap.com/the-fundamental-difference-between-austrians-and-mmters/comment-page-1#comment-93554

  45. studentee says:

    Neil Wilson is not an MMT economist.

    I have problems with the JG, with the acceptance of massive trade deficits, etc. Maybe I’m not a super pure MMT’er, but I don’t care so much about labels, or purity, or whatever.

    There’s a great quote from Scott Fullwiler, in which he says that MMT is a very fluid thing now that’s it’s become relatively popular. It won’t ever be pure. I think that’s reasonable and that’s a good thing.

    Your quest for purity on the part of a disparate group of people is an absolute waste of time.

  46. Oilfield Trash says:

    Your joking right? I mean you can not in good faith be argueing that the JG can clear a unlimited aggregate demand for labor with a fix amount of aggregate labor supply with a fixed wage rate.

    • studentee says:

      Yes. It will clear the market for those unable to find work at the minimum wage who wish to work at the minimum wage.

      But your statement barely makes sense, and could be reworded so I can better understand. How does one “clear a demand for labor”?

      • Oilfield Trash says:

        You stated

        The JG simply clears the market at this wage. Wages are not moving anywhere.

        I do not think the JG can clear all unemployment at a fix wage.

        • studentee says:

          It will clear all involuntary unemployment. Some people won’t want to work a minimum wage public sector job. That’s their business. The JG does not aim to eliminate frictional unemployment.

          • Cullen Roche says:

            Actually, the Fullwiler simulation shows that it doesn’t clear all involuntary unemployment. In fact, it’s a pathetic buffer stock and no more useful than an unemployed buffer stock. Oh well. Details suck.

            • studentee says:

              Please show this to me. I’ve asked for your simulation data, but you don’t seem forthcoming.

              • Cullen Roche says:

                I’d love to hand you everything on a silver platter, but really, that’s not the way I operate. Probably has something to do with the entrepreneurial spirit and the multitude of businesses I’ve built over the years. Also, you’re not a very friendly person and I’ve learned not to do business with people who aren’t friendly. Lo siento.

                • studentee says:

                  “Probably has something to do with the entrepreneurial spirit and the multitude of businesses I’ve built over the years.”

                  God, you suck.

  47. Oilfield Trash says:

    The JG is not about providing jobs, it is about putting a floor on income. The goverment can do the same thing by just providing the income floor to the unemployed without the need to provide the job. No need for the JG just call it IG(income garantee).

    • studentee says:

      “The JG is not about providing jobs, it is about putting a floor on income.”

      This is so clearly incorrect it does not warrant a response.

      • Tom Hickey says:

        Ditto.

        The MMT JG is the buffer stock of employed and wage floor as price anchor.

  48. studentee says:

    “And no, I have no idea what you’re trying to say or achieve here.”

    You said:

    “So, what differentiates an MMTer from everything else. THE JOB GUARANTEE! It is their big policy bazooka.”

    I responded:

    “There are other important differences between mainstream economists and post-Keynesians, including the treatment of the natural rate of interest, whether firms maximize profits or margins, how banks work, etc.”

    and

    “I do believe the preference for permanent deficits based on Minskyian arguments is unique to MMT. Not sure what other post-Keynesians are following in the Minksy tradition to level that MMT is.”

    I am here to help clarify where you are wrong in your claims. You were wrong here. You’ve littered this board with incorrect claims.

    • Cullen Roche says:

      Oh, so you’re the Cullen Roche police? Nice to know you’re here to save the day. :-)

      You said MMT wants permanent budget deficits. I pulled a quote showing Wray says a balanced budget is “fine”. So you were wrong. You’re not doing your job very well. :-)

      • studentee says:

        I was imprecise/wrong in that claim. Under certain conditions, the government should allow for a surplus. Generally, however, net savings is good for the private sector, for Minsky-derived financial instability reasons. I learned this from MMT. Not sure where else the argument has been developed in such detail.

        “Oh, so you’re the Cullen Roche police? Nice to know you’re here to save the day.”

        Well, I did cite for 1st degree misrepresentation of an economic school because of “your MMT=JG and only the JG claim.” I believe my citation will hold up in court. I will assume Beo will represent you in court, both because he is a lawyer and because you guys are both MMR’ers, and thus must think with the same hive-mind at all times. He should have perfect knowledge of your reasoning at the time of the infraction.

        • Cullen Roche says:

          It’s not my misrepresentation. It’s also Pavlina, Mitchell’s and Neil Wilson’s. So if I am “misrepresenting” then they’re “misrepresenting”. Maybe you’re the police of everyone in MMR and MMT? Maybe you know all of this better than anyone? Oh wait, that can’t be right because I just reviewed your comments at Pragcap from the last few years and noticed that I taught MMT and the basics of modern banking to you in large part. Oh well.

          • studentee says:

            Cullen, again, the specific misrepresentation that you made:

            “So, what differentiates an MMTer from everything else. THE JOB GUARANTEE! It is their big policy bazooka.”

            This is incorrect, unless you can show me a quote from one those three that says something along the lines of “we are exactly like other Post-Keynesians e

            “Maybe you’re the police of everyone in MMR and MMT? Maybe you know all of this better than anyone?”

            “Oh wait, that can’t be right because I just reviewed your comments at Pragcap from the last few years and noticed that I taught MMT and the basics of modern banking to you in large part. Oh well.”

            Ha. Did you really go and look at those old threads? Perhaps I asked you questions occasionally. But everything that I know about MMT and modern banking I learned from the MMT economists, JKH, and KRS-1.

            • studentee says:

              Agh. Should be:

              “This is incorrect, unless you can show me a quote from one those three that says something along the lines of ‘we are exactly like other Post-Keynesians except for the JG.'”

            • Cullen Roche says:

              I think our interactions are done.

              • studentee says:

                I consider this conceding the argument.

                Also, please ban me.

                • Cullen Roche says:

                  Consider it winning the argument, slamming the dunk home and winning the championship. You guys are gonna change the world with this attitude!!!!!!!

                  And no, you’re not banned. Sorry.

              • studentee says:

                Cullen, you are a parasite. You have spent your life working in a parasitical industry, working with parasitical people, and the only good you’ve done in this world was spread knowledge of MMT and PKE. Yet when spreading that word, you were still a parasite, as your blog made money off the important ideas of others. You then proceeded to reject many of those ideas, because unemployment and pulling oneself up by one’s bootstraps. You started a new “economic school of thought” which is entirely parasitical of MMT. The only people who care about MMR are MMT’ers. ‘Twill likely always be such.

                You have not, and will never, have an original thought in your entire life.

                Please ban me. I am a stressed out medical student, and would deny myself access to this particular clown show.

                • Cullen Roche says:

                  It was only a matter of time before you blew up and embarrassed yourself. This comment proves everything I’ve been saying about you guys. You’re a hate filled group lashing out at even those who mainly agree with you.

                  Take care Studentee. Take a break. Have a beer. Stop worrying about MMT. You won’t regret it….oh, and stop representing MMT like this. It looks awful….

                • beowulf says:

                  “Please ban me. I am a stressed out medical student, and would deny myself access to this particular clown show.”

                  I hope you’re going into pathology. You have the bedside manner of a serial killer.

                  • “I hope you’re going into pathology. You have the bedside manner of a serial killer.”

                    That’s funny.

                  • studentee says:

                    The specialty that you’re looking for is in fact “surgeon.” I know many charming pathologists. Often more empathetic individuals end up as pathologists because they find it difficult to be around sick and dying people all the time.

                    In your line of work, the credited response would “the court manners of struggling shitlaw solo.”

                    • beowulf says:

                      ‘Shitlaw solo” is an oxymoron, “shitlaw” firms are those that treat (and pay) their associates like crap. “Solo” means no partners or associates.

                      Also, “surgeon” isn’t actually a specialty. Most states issue doctors a “license to practice medicine and surgery” (“medicine” isn’t a specialty either).
                      The residency in surgery is a gateway to several clinical specialties. These include, but are not limited to, general surgery, cardiothoracic surgery, colorectal surgery, endocrine surgery, oncologic surgery, pediatric surgery, plastic surgery, transplant surgery and vascular surgery.
                      http://www.columbiasurgery.org/cli/career/specialties.html

                      Free legal advice– if you insist on tampering with live humans, go work for the VA. Federal doctors are immune from malpractice lawsuits.

                • You’re going to be a doctor and Cullen is in financial services. Man, what is wrong with this world that it ends up so backwards like this.

                  is there something in the DNA of an MMTer that makes them a raving lunatic?

                  • Cullen Roche says:

                    Studentee’s in an admirable line of work. And he’s right that I chose a line of work that was not exactly the most giving. But I’ve also gone to great lengths to give back through teaching, informing the public and trying to steer my industry in a different direction than the one that it is often vilified for. Some people are claiming that MMR was started with bad intentions, but that’s totally wrong. We started it specifically because we just wanted to teach and give back and let OTHERS decide policy….

                    Also, I couldn’t have been a doctor. I’m not smart enough. :-)

                    • beowulf says:

                      Checking his IP address, I see you guys live near each other (same county at least) Hug it out! :o)

                    • studentee says:

                      I was really just trying to get banned.

                      How about this:

                      You, Cullen, have a terrible taste in angling. You will never catch a fish in an original way in your entire life. Fly-fish or you’re a sad little fish philistine.

                      But seriously, the reason I’m so impassioned about the JG is that we need a reserve army of harpoon-wielding workers to eliminate Asian carp from blue ribbon trout streams. If that isn’t something worth flaming out on a message board for, I don’t know what is. Under your plan, harpoons and carp-harpoonists face involuntary unemployment on an unacceptable level.

                    • Cullen Roche says:

                      1. I don’t ban people. I put people’s comments on moderate at times, but you have to act really stupid to do that. I banned a guy once at Pragcap, but he emailed me and apologized and has since become a great commenter.

                      2. I am an awful fisherman. It’s one of the main reasons I fish. It’s a hard sport. If it wasn’t challenging it wouldn’t be any fun. :-)

                      3. I understand your passion for the JG. But I do think your recent actions have been both unfortunate and way over the top. Many MMTers have been overreacting about MMR since its inception and saying things that have actually set MMT back in my opinion. But our position it rather clear. We never rejected the JG. I never said I couldn’t support the JG. I said that the data provided thus far didn’t prove that it did what was claimed. And I further found that the reasoning upon which the JG is based is rather flimsy and not a totally realistic view of the world (I mean, the idea that banks serve public purpose in my opinion is borderline crazy and really a huge hypocrisy in MMT). I view the JG much like I view NGDP Targeting. It’s an embedded part of an unproven policy agenda. So there’s A LOT of skepticism with that territory.

                      Further, I just don’t agree with the idea of embedding policies in an understanding of the economy. It’s not my responsibility to spread my beliefs to the world. And MMT’s beliefs just aren’t compatible with the world we have. That’s the bottom line. I have lots of controversial beliefs, but I don’t think it’s my job to force them on the world. You have to respect what other people believe, what they’ve built, where we are and what can be done within that realm of reality. So, no matter how great and well intentioned these ideas are they don’t have a prayer of passing. You might as well spend all of your time just getting the basic MMT ideas passed so people first get comfortable with the fact that govt spending isn’t always bad. But I feel like MMT builds a policy agenda expecting the world to come to them. I don’t agree with that perspective. You have to conform to the world we have and hope to influence it as best we can. The JG is a pipe dream today. And a massive distraction to an otherwise excellent view of the world. So I think it’s a mistake to embed policy in MMT, but it turns out MMT is largely policy so it is what it is and hence we have MMR.

                      Lastly, we are not bad people. I told Warren from day one that his message was perhaps the most important in the world and that I wanted to help spread it. I really believe that. Now, I don’t agree with the way the message is spread by MMTers (that’s become kind of obvious), but I still believe that Mosler Economics is hugely important (even if I disagree with some facets of it). Remember, if Mike, Carlos, JKH and I were actually influencing public policy the world would be INFINITELY better than the one we now have which is dominated by neoliberals. So yeah, I know you’re frustrated, but don’t throw us under the bus. We’re not here to destroy MMT or the world.

                      Since you live in San Diego maybe you can blow off some steam some time and come whack me in the back of the head with a paddle some time when we’re in 200 feet of water. :-)

                  • studentee says:

                    Once again, you should always know that you will never add anything of any importance to any conversation in your life. You are useless, the younger Timmons brother from the Sandlot, the bumbling idiot henchman of the Cullen Roche club, so dense one could strap floaties to your arm wrap you in a lifejacket and you’d still sink in a saltwater pool.

  49. Oilfield Trash says:

    So you are saying the current Min wage does not put a floor on income? I mean anyone who can get a Min wage job is making the same per hr rate. The JG is just a social safety net for workers and it insures them that no matter what happens in the job market they can count on some min level of income with employment.

    • studentee says:

      The point it to keep people working who want to work but cannot find jobs at the minimum wage. There are other tangential benefits that some MMT’ers stress more than others. I’m generally agnostic about the income-provision aspect of the JG. But I should be careful, because as an official representative of MMT, if I say anything that contradicts what an MMT’er said somewhere at some point, the entire edifice could come crumbling down.

  50. Oilfield Trash says:

    I will agree that we should be looking a any policy that increases incomes faster than prices can increase. I just do not know if the JG would do this, and it seems that some MMT’ers have the same doubts.

    • Tom Hickey says:

      The JG acts as any automatic stabilizers does, expanding with economic contraction and shrinking with economic expansion. Are unemployment benefits inflationary now or even at full employment, when some people still lose their jobs involuntarily. The difference between the JG and unemployment insurance, basic income guarantee is that people willing and able to work have a job offer guaranteed to them.

  51. Oilfield Trash says:

    Tom

    I can not tell if you are agreeing with studenttee or not but if you are please help me understand how

    The MMT JG is the buffer stock of employed and wage floor as price anchor.

    If the wage floor is used as a price anchor how that also does not put a min floor on incomes for workers.

    • Tom Hickey says:

      As minsky pointed out in proposing a JG (and I suppose Milton Friedman could have in proposing a BIG), the “minimum wage” is zero for someone who is involuntarily unemployed, as we are seeing now in the case of those whose unemployment benefits have run out.

      The MMT JG counters the NAIRU/Taylor rule approach to regulating inflation on the basis of a supposed natural rate, using a buffer stock of unemployed to suppress wage pressure. Secondly, the buffer stock of employed means the termination of involuntary unemployment in that there is an automatic job offer for anyone willing and able to work. Thirdly, it sets the price of the wage floor as constant (not indexed). Being constant it doesn’t set a ceiling, too, as commodity buffers do.

      I don’t think it says anything about a minimum wage. The minimum wage requirement could be abandoned with the MMT JG, and workers could have the choice of accepting less then the publicly guaranteed wage floor in the private sector if offered. At least some would if they figured it provided an opportunity for advancement in the future, just to get a foot in the door.

  52. Oilfield Trash says:

    Cullen

    I have not seen the Fullwiler simulation, but the results do not suprize me at a fixed wage rate.

    • Cullen Roche says:

      The JG actually doesn’t prove to do much if anything in the Fullwiler simulation. http://pragcap.com/mmt-job-guarantee

      It doesn’t prove to be a more liquid buffer stock. Doesn’t provide more growth than pump priming. But does prove to not generate inflation. Granted, this is just a simulation, but it doesn’t prove to be any better than standard pump priming with a large govt workfare program attached. So the JG position looks like a moral position and not a sound economic position, which has been my point for months….And that’s fine. Except MMT doesn’t present it as that. They present it as an economically beneficial program….

  53. Dan M. says:

    CR,

    Driving up the nominal value of some assets while the debt on our balance sheet keeps a fixed nominal value tends to have a repairative effect on balance sheets, though limited, and, also, if a currency or bond is viewed as a poor store of wealth, it will increase velocity if conditions are right, leading to an increase in demand.

    However, I think we agree that these are secondary to bigger things right now. Our balance sheets and debt-service cash flows put us in rough shape, so I guess I’d say that we’re beyond the slight balance-sheet repair that QE accomplishes, and velocity & horizontal money expansion will only increase if we’re not at the edge of a balance sheet & debt-servicing cliff.

    Since QE is simply an asset swap, I tend to view it as a velocity-maniputation tool, not a quantity-based tool… even though it makes M1 skyrocket… I’m an accountant though, so I visualize things in terms of balance sheets and payment stability, not whether something on your balance sheet is called cash vs a bond. You can’t make people move their financial assets (velocity) in hopes of economic activity if they feel like they have much too little of it to simply service their debts. Investment won’t occur without increased demand… so the fed is “pushing on a string.”

    This isn’t a lecture or even disagreement, but me stating my thoughts for your and others’ analysis, which always proves informative.

    Any disagreement here? Just rechecking where I’m at with all this.

    Thanks again!

    • Cullen Roche says:

      Hey Dan,

      Yeah, I don’t disagree with that. Nice thoughts. Thanks.

    • “I’m an accountant though, so I visualize things in terms of balance sheets and payment stability, not whether something on your balance sheet is called cash vs a bond. You can’t make people move their financial assets (velocity) in hopes of economic activity if they feel like they have much too little of it to simply service their debts. Investment won’t occur without increased demand… so the fed is “pushing on a string.””

      Yep. And then add in the money-like properties of cash, and all of a sudden the lines are very blurred between cash and bonds. It’s a good point about QE – in some ways, it can be viewed as an attempt to influence “velocity”.

  54. Oilfield Trash says:

    Tom

    Let me go at it this way, can you give me a link to any creditable study that shows that the benefits of the JG out weights the cost to implement manage and maintain the program. I would even read one from studentee if he has one laying around.

  55. Tom Hickey says:

    Probably Scott Fullwiler’s simulation is a good place to start, since Cullen has issues with it. Scott gives a brief description and provides a link here.

    http://tinyurl.com/7oa2xfc

    The definitive work is W.F. Mitchell and J. Muysken (2008). Full Employment Abandoned: Shifting Sands and Policy failures,. Edward Elgar:Cheltenham. Revised: January 2009.

    • If Scott is reading this comments section… thanks for driving down to KC for the talk tonight!

  56. FDO15

    Hey bud, this is the sort of sh&t you MMTers need to keep in your crazy cult meetings and never let anyone else know about. Jesus, the more I learn about you guys the more extremist you are!

    FD – keep it cool. Really.

    We live in a democracy, and Tom isn’t evil.