Tuesday, August 04, 2020


Standing on one foot, the government acts in the workers' interests, that is the entirety of socialism, and the rest is its interpretation.

Why the workers' interests? Why not humanity's interests? Everyone's interests?

In part, the reasoning is, I think, along the same lines as #BlackLivesMatter. The intent of this slogan is not that only Black lives matter. Instead, everyone already agrees that White lives matter, but no small few seem to believe that Black lives do not matter. White people do not need a political movement to protect their lives because their lives are already protected. Black people do need a political movement because their lives are presently not protected by law and custom.

Similarly with socialism, at least in part: all humanity does matter, but billionaires and their supporters and enablers do not need a political movement to get the government to act in their interests. The government already acts in interests of the billionaires, but acts against workers' interests.

But in part, socialism is dissimilar to BLM. I hold as an article of faith that white people's interests are not fundamentally opposed to black people's interests, however presently entrenched the opposition. In contrast, billionaires' interests are fundamentally opposed to workers' interests. The government cannot act in workers' interests without acting against billionaires' interests. The only final resolution to the conflict is to eliminate the billionaires.

Happily, it is at least theoretically possible to eliminate the billionaires without killing anyone: we need only take away their money, not their lives. The billionaires might fight to the death to preserve their power and privilege, but that's their choice, not ours.

A note on capitalization: I use the capitalized terms White and Black to denote socially constructed racialization. In this sense, White interests are fundamentally opposed to Black interests. I use the uncapitalized terms white and black to denote the physical characteristics that we usually use to socially construct race. I personally am white, but I do not see myself (or I do my best to not see myself) as White. Also, the social construction is not symmetric: Whiteness is intrinsically racist, but Blackness is not, because Blackness is a response to White racism.

Wednesday, July 22, 2020

Breakup sex?

In Breakup sex, Steve Randy Waldman makes a curious argument with a colorful metaphor. Progressives' and socialists' "current relationship with the Democratic Party is intolerable." But what choice do we have? Vote for a presumably intolerable Joe Biden, or allow Trump to win. Waldman thinks he as a way out of this terrible dilemma. His answer: vote for Biden and hope things someday improve.

Waldman's first idea is instead of individually deciding whether or not to vote for a Democratic party candidate, we create a social democratic political party which could collectively make the decision to support or withhold votes from a Democratic candidate.

Well, duh. The problem is that we already have several of these organizations, including the Democratic Socialists of America, the Green party, and the Working Families party. These alternative parties are not working now, and there's no reason to believe they will have any effect on the Democratic party in the future.

Of course a big element is that if progressives were to make a collective decision to withhold votes from a Democratic party candidate, Joe Biden is pretty near the top of the list. (Bloomberg might take the number one spot, but not even the Democratic party elite could stand him.) And the Democratic candidates just keep getting worse. Still, even collectively, the argument against dividing the anti-fascist vote still holds. Either the DSA/GP/WFP etc. endorse fascist-lite Biden, or they allow full-on fascist Trump to win. And why will the argument be any different in four or eight years?

Waldman's better idea is to get rid of plurality voting. No shit, Sherlock. Of course, the only reason the Democratic party wins any elections at all is precisely because plurality voting forces progressives to vote for shitty Democrats instead of even shittier Republicans. I don't think the Democratic party or any of its elected representatives will put plurality voting on the table.

We can't escape the death spiral anymore; just voting is not going to change that. We're either going to end up with a fascist state or complete collapse. Both are scary.

Oh, and literal breakup sex is almost always a Bad Idea.

Sunday, July 19, 2020

Blame the Democrats

In There Is No Plan (For You), Hamilton Nolan gets the antecedent right: The U.S. federal government at best just doesn't care about the economic suffering the working class (an a fair fraction of the middle class) is experiencing now and will only get worse as the initial responses expire. At worst, the government, firmly in the control of the billionaire class, sees this suffering as beneficial, increasing the power of the billionaire class and eliminating the power of the working class to resist its descent into near-slavery.

But he misses the conclusion. Nolan claims we should blame the Republican party. Yes, we should blame the Republicans, but only in the trivial sense that the shark does indeed deserve blame for eating swimmers. The Republican party since the 1980s has been fairly upfront that it serves the interests of the billionaire class, and why shouldn't they? The billionaire class pays their salaries.

The real blame should go to the Democratic party, for failing to protect the country, and the working class, from the openly predatory Republicans. In just the same sense, the real villain in Jaws (1975) is not the shark, who is just acting according to its nature, but Mayor Vaughn (Murray Hamilton) who not only fails but actively interferes with the effort to protect the citizens of Amity.

Tuesday, July 14, 2020

The Pandemic and the Democratic Party

The Democratic party should be screaming at the TOP OF THEIR LUNGS against Trump's and Republican governors' mismanagement of the pandemic response. They should be proposing bills, even if the Republican legislators block them and executives veto them. They should be filing lawsuits in every available court. They should be aggressively organizing whatever protests can be safely conducted during the pandemic. They should be in the news media EVERY DAY with op-eds and articles saying that this or that must be done and must be done right fucking NOW to control the pandemic.

And, as a major political party, they should have the organizational ability to do all of the above.

The Democratic Party should do all of the above because it is their patriotic duty to do so. I'm not a big fan of patriotism, but if anyone has a patriotic obligation, a major political party that (supposedly) wants to govern is at the top of the list.

More importantly, the Democratic Party should do all of the above because it would be incredibly politically successful. They could, if they chose, completely destroy the Republican Party, and secure decades of Democratic Party governance. Machiavelli is spinning in his grave at the Democrats' basic political ineffectuality.

(All of the above applies also to the mounting protests against egregious police violence.)

It's not like I'm some great political genius, and it's not like the Democratic Party employs only exceptionally stupid people to enact its political agenda. This is not rocket science or brain surgery.

Instead, the Democratic party has decided to just let Trump and the Republicans do their thing and kibbutz from the sidelines, letting the Republicans twist in the wind. Unfortunately, it leaves hundreds of millions of Americans twisting in the wind.

This strategy might just win them the Presidency in 2020, even with all of Biden's handicaps. But it won't win them a veto- or filibuster-proof majority in the Senate, and it won't destroy the Republican party. Instead, it will leave the Republicans strong enough to resist the Democratic party agenda in the 20s.

It might be that the Democratic party really is that incompetent or stupid: Hanlon's razor, n'est ce pas? Or it might be that part of the Democratic party's goals is the preservation of the Republican party, because the Democrats' ideology and policy considerably overlaps the Republicans: the Democrats cannot destroy the Republican party without abandoning the overlap. Either way, stupidity or malice, the Democratic party refuses to aggressively further the interests of the majority of the American people.

But I think it is malice: the Democratic and Republican parties both actively endorse the power of the billionaires.

The billionaires at best do not care about — and at worst approve of — the deaths of millions of working Americans and the permanent damage tens of millions more have and will suffer.

Therefore, the Democratic party does not care about these deaths and suffering, except that they make Trump look bad.

If Biden wins, he will at best have a narrow majority in the Senate. The pandemic will still be raging in the U.S., and the economic effects will start spiraling out of control.

I predict that the Biden administration will undertake a few token and largely ineffectual measures to address both the health and economic effects of the pandemic, not out of any real concern for American workers, but to establish a trivial differentiation from the Republican regime. Otherwise, the Biden administration — like the Obama administration — will continue to transfer wealth and political power to the billionaires. A continuing pandemic helps that effort, so the Biden administration will not take effective measures against it.

Regardless of who wins, the next four years are going to be a real shitshow.

Friday, July 10, 2020

Quiggen on MMT

John Quiggen is awesome. His book, Economics in One Two Lessons should, I think, be required reading for everyone (and I assign it for extra credit in my Principles of Macroeconomics classes). But his recent post, The General Theory and the Special Theories, shows that he doesn't quite get Modern Monetary Theory. Or, at least, he doesn't get it in the same way I do.

I am not any kind of "official" spokesbeing for MMT. I don't have a PhD and I don't publish. I'm not affiliated with the Levy Institute or UMKC. I've never met or corresponded with Kelton, Mitchell, Mosler, Tcherneva, Wray, etc.

I have, however, read a lot of the MMT literature, both peer-reviewed and popular. And I have a Master's degree in economics, and I teach undergraduate economics, so I'm not entirely illiterate in economics. The best I can do is put my interpretation of MMT alongside Quiggen's.

Quiggen claims that "Modern Monetary Theory (MMT) is, in essence, based on the assumption that the economy is always in what Keynes called a 'liquidity trap'"; in other words, it applies only under special circumstances, when the "natural" rate of interest is below the zero lower bound.

I disagree. Modern Monetary Theory is, in essence, based on the observation that a sovereign-currency issuing government creates currency, the foundation of the social permission to allocate real resources. Therefore, the government is not required to obtain currency (or money) from those who already have it to get the social permission to allocate resources. The government's social permission both to allocate resources and to manage the money system comes from its political legitimacy.

More technically, MMT scholars conclude (not assume) that monetary policy is never an effective method to employ unused resources. Mainstream Keynesian economists generally believe that monetary policy is ineffective only in a "liquidity trap" (where the real interest rate "wants" to be negative), so this confusion is perhaps understandable. But Quiggen's assertion and the actual MMT position are different.

Quiggen complains that "The problem with this special theory is that a successful application implies destroying the conditions under which it works. Once the economy reaches full employment, any increase in public expenditure requires a corresponding reduction in private expenditure." Well, yes, and MMT advocates always add this proviso literally in the same (or next) breath as the assertion that well-targeted fiscal policy can reach full employment.

Quiggen nitpicks that "MMT advocates, like Stephanie Kelton kind-of admit" that progressive taxation is necessary to reduce private expenditure, "but continuously seek to dodge the point." Maybe Quiggen kind-of has a point, and maybe MMT advocates should emphasize that really big infrastructure projects such as the Green New Deal will require increased taxes to distribute the necessary reduction in real private consumption. I honestly don't know what specific policy positions MMT advocates should emphasize; I'm not at all a specialist in public policy debate. However, the right mix of tools to manage private consumption versus inflation seems to me more like implementation details than deep theoretical issues.

Quiggen states that:
MMT advocates Nersiyan and Wray* suggest that the Green New Deal can be financed without “taxing the rich” . . . relying instead on “well-targeted taxes, wage and price controls, rationing, and voluntary saving”
But this interpretation misses a key theoretical point about MMT. MMT advocates argue that large public works programs such as Green New Deal will necessarily be financed the way all government spending is financed: by creating the currency. Financing, i.e. getting the money, isn't ever a problem for the government; the problem is fairly distributing the opportunity cost of using money creation to divert real resources, with inflation (perhaps) the most problematic way of distributing opportunity cost.

Quiggen does not include a link; presumably he's referring to How to Pay for the Green New Deal.

And I honestly don't know whether households in top decile or percentile even use as many resources as a huge public spending program such as the Green New Deal would require, even if we reduce their consumption to the 20th percentile. I'm pretty sure we cannot provide universal health care just by reducing the real consumption of the ultra rich; we cannot return all the purchasing power middle-income households already forego by paying private insurance companies.

Other than quibbles about the gory details about optimal tax policy, I really don't understand why Quiggen seems to dislike MMT at a theoretical level.

Saturday, July 04, 2020

The fundamental problem with MMT

Robert P. Murphy has a mostly negative review of Stephanie Kelton's The Deficit Myth. Murphy appears to be a member of the Mises Institute, so I assume he believes that the government cannot do anything good, other than to protect the property of the wealthy. Even before reading, I was pretty sure he would disapprove in principle of the whole MMT project of making it easier for the government provide for social welfare. Still, Murphy avoids the OMG! hyperinflation hysteria so common to vulgar critics of MMT, and ideological bias is no guarantee of error, so I want to look at his criticism in more detail.

Murphy presents a laundry list of mostly unconnected objections to MMT, so I'll just present a corresponding list of rebuttals over at least a couple of posts, perhaps more.

The Fundamental Problem of MMT

Murphy begins his objections by stating MMT's "fundamental problem":
regardless of what happens to the "price level," monetary inflation transfers real resources away from the private sector and into the hands of political officials. If a government project is deemed unaffordable according to conventional accounting, then it should also be denied funding via the printing press.
I'm still really struggling to understand this objection. Clearly, Murphy thinks that monetary inflation is something different from a general increase in the price level, the usual definition of inflation. But I don't know what that is. (Murphy kind of expands on the point below.) Presumably, because MMT is all about the government creating currency as needed, I think Murphy considers the creation of additional currency by itself to constitute monetary inflation.

Now it is definitely true that when the government creates money to purchase goods and services from the population, it is transferring real resources from the private sector to the government. That's pretty much the whole point of a government, and what governments have been doing for about 7,000 years. I get it, Libertarians are completely against governments except to protect their own privilege, but this objection seems misplaced and has nothing to do with MMT per se.

Murphy continues with another opaque objection: "If a government project is deemed unaffordable according to conventional accounting, then it should also be denied funding via the printing press." But what does Murphy mean by "unaffordable" and by "conventional accounting"? Affordability precedes accounting: spending is affordable if a firm or household can get the money; once it has the money, firms and households account for how they spend it. But where does the money that firms and households need to get ultimately come from? Well, in every large economy since 1971, the government creates the money*. All government spending is "funded" by created money. Although MMT scholars are exceptional in that they don't try to pretend that governments don't create money, this objection has nothing to do with MMT. Libertarians might pine for a return to the gold standard, but the world abandoned the gold standard because it just doesn't work. Go back 50 years and argue with Richard Nixon, not Stephanie Kelton.

*The Eurozone is a Hot Mess and has suffered several financial crises precisely because the European Central Bank is not part of any national government.

I will concede one point to Murphy: if the government wants to appropriate real resources away from private production, it should ensure that the citizens believe that benefit of the government spending exceeds the benefit of alternative private employment of those resources: to avoid price inflation, the government should collect enough taxes (after, of course, it spends the money) to reduce private demand by as much as it reduced private production. But every MMT scholar agrees with this concession. The whole point of MMT is about how to employ unused resources, i.e. available labor not employed by the private sector.

Murphy expands a bit, presumably on "monetary inflation". Government spending to employ real resources increases the price level. If the price level would have otherwised decreased, so that spending keeps the price level stable, then those with financial assets are poorer than they would have been had the government permitted deflation.

The easiest rebuttal is simply: yes, but so what? That's how the money system works. Instead of permitting deflation, investors increase their real wealth by collecting interest, which requires increasing the money supply. We might have chosen to keep the money supply constant and let price levels decline instead, but we didn't; which method is correct is beyond the scope of this post. Regardless, investors can't have it both ways: investors cannot be both entitled to interest, increasing their real wealth holding the price level constant, and entitled them a decrease in the price level, increasing their real wealth holding the money supply constant.

But it also matters why the price level decreases. There are two ways the price level can decrease. The price level will decrease if real production increases holding the money supply constant. That's the trade-off above: presently, the government increases the money supply, supplying all holders of financial assets with interest. However, the price level can decrease when real output decreases. In this case, an increase in real wealth for holders of financial assets is at best illusory. If financial asset holders were to increase their consumption, that spending would simply drive prices back up. Even worse, if the decrease in real production were to become permanent (as equipment rusts and workers forget their skills), then an attempt to convert financial assets to consumption will increase the price level above its original point, causing a decrease in asset holders' real wealth.

Murphy argues directly against employing unused resources at all. Murphy cites Mises' malinvestment argument: unused capacity is the result of earlier bad investments; employing that unused capacity will just perpetuate the bad investments. If, for example, we have a thousand factories and a million workers making Pet Rocks that nobody wants anymore, it's a pointless waste of real resources for the government to print the money to keep the Pet Rock factories operating and employing those workers. MMT theorist agree that the Pet Rock factories should not operate (and investors would lose financial claims to their revenue), but what about the workers?

Even taking the malinvestment theory at face value, what do we do with the million workers? We have four choices: pay them to continue to make Pet Rocks, let them starve and die, pay them while they're not working, or pay them to do something else useful. In theory, the private sector should be able to pay them to do something else useful, probably building more factories for products that people do want. Not that Libertarians care much about evidence, but the evidence shows that's not what happens in real life. Instead, if we abandon too many bad investments at once, those workers are not reaborbed into the workforce. Even worse, the workers that provided the newly unemployed workers with consumer goods also leave the private labor force. We end up losing useful productivity for years and sometimes decades.

Murphy continues with some more MMT-specific objections. I'll cover those in a later post.

Monday, June 22, 2020

Content-free criticism

The Deseret News Editorial Board believes that Washington’s deficit spending is dangerous. However, their criticism is just that heterodox economics is heterodox.

Their key point quotes Fed Chair Jerome Powell: "'The United States federal budget has been on an unsustainable path for years now,' he said, adding 'the debt is growing faster than the economy, so debt-to-GDP is rising. That is, by definition, unsustainable.'"

But why should a present rise in debt-to-GDP during a severe economic crisis imply that debt-to-GDP must rise forever? If I heat my house in the winter, should I assume that I must necessarily run the furnace in the summer? If I incur \$300,000 debt this year to buy a house, should I assume that I will incur \$300,000 of debt every year for the rest of my life?

Of course, the board does not understand MMT or the operations of the federal government:
Interest on the debt is now \$385 billion. This is money that must be paid through taxes before the government can begin funding necessary programs. It also is money that otherwise could be in private hands, funding businesses and innovations that create jobs.
But these assertions are wrong.

First, interest on outstanding government securities does not need to be paid specifically through taxes. Taxes do not fund any government spending in the same way that income or revenue funds households' or firms' spending. The government spends what it chooses to spend, on purchases and interest payments, and then collects taxes.

Second, the government has chosen pay \$385 billion on interest payments; the government could, if it wished, choose to pay any amount, including \$0, on interest payments: the government, not the public, sets the interest rate on government securities.

Third, of course, the money that the government pays in interest goes to private hands, where it could, if the private sector wished, fund "businesses and innovations that create jobs."

The board also claims that "fending off a much more damaging fiscal day of reckoning, in which the world loses faith in the dollar, will take hard work and sustained effort." But why would the world lose faith in the dollar? Why should we even care if the world loses faith in the dollar? Literally, the worst that could happen is that the world starts using its dollars to buy stuff from the U.S., which would increase exports and GDP, hardly a catastrophe.

Wednesday, June 17, 2020

Blue lives matter!


Cops are making themselves objects of ridicule.

Fucking snowflakes with guns, bad tempers, and no morals.

Tuesday, June 09, 2020

What a criticism of MMT lacks

Perhaps surprisingly, Daniel Tenreiro's criticism of Modern Monetary Theory, "What The Deficit Myth Lacks," at least avoids the usual hysterical bad-faith anti-MMT propaganda: Tenreiro does not froth at the mouth screaming hyperinflation! and Venezuela. Indeed, Tenriero grants MMT's most important claim: the United States can presently use government spending to use idle productive resources. However, seems to understand neither the basics of MMT nor basic economic theory.

Tenreiro observes that MMT (following Keynes) prescribes government spending when the economy is below full employment and MMT predicts that government spending will cause inflationary only when the economy is at (or above) full employment. However, these theories do not simply restate the Phillips Curve; more over, modern theory has not thoroughly undermined the Phillips Curve.

We can use the Phillips Curve to say that if unemployment is above the "natural rate" (momentarily ignoring the political choices embedded in the natural rate of unemployment) and inflation is below the corresponding natural rate, then rather than shifting the Phillips Curve, government spending should just move both unemployment and inflation to their natural rates. Indeed, since the GFC, most capitalist economies have seen both too-high unemployment and too-low inflation, indicating that the government can indeed spend extra to use idle productive resources, i.e. labor and existing industrial capacity. Such spending is inflationary by design: a little inflation is a Good Thing.

It is only when unemployment is at or below the natural rate, indicating that the private economy (and ordinary government spending) is using all available labor, that government stimulus spending will crowd out private economic activity. This crowding out causes the Phillips curve to shift outwards, causing inflation with no corresponding increase in long-run unemployment, rather than causing movement along the curve to equilibrium.

Tenreiro mentions the Job Guarantee, an important and perhaps intrinsic MMT policy prescription. His sarcasm aside (the Job Guarantee does not "solve[] the economy"), he correctly states the MMT position: the Job Guarantee will "spur economic growth by employing workers who would otherwise be idle [emphasis added]." The qualification is critical, but Tenreiro perhaps does not grasp its implication.

Tenreiro does not appear to understand ECON 101 national accounting nor the usual rationale for government spending. Tenreiro's complaint here is that the Job Guarantee "would have a negligible effect on output, because by definition it would employ workers in the production of goods and services that private firms consciously avoid." Basic national accounting assumes that government spending counts directly to output: it's the $G$ in $Y=C+I+G+(X-M)$.* Tenreiro's deeper fallacy is that all government spending — roads, bridges, schools, police, the military — is by definition useless: if it were useful, private investors would find it profitable. There's nothing about MMT or the Job Guarantee that's any different from any other government spending.

*In English, output (Y) equals the sum of consumption (C), investment (I), government (G) and net exports (X—M)

Tenreiro shows his disdain for public goods with the usual conservative contempt for alternative "clean" energy. But of course alternative energy hasn't "flopped". It's doing quite well, and the Germans and Chinese are killing us in the sector. The U.S. is lagging behind because it's actually productive, and there's no way to use alternative energy to loot American consumers. More importantly, the job guarantee's primary role would be not in developing but converting the current electricity, heating, and transportation infrastructure to methods that won't kill us all from global warming. Again, ECON 101 (at least as I teach it) tells us that public goods cannot generate profit in a free market because of the free-rider problem. It is worth repeating that the social value of governments providing public goods is not a feature unique to MMT; it's standard economics.

Finally, Tenreiro absurdly objects that MMT isn't what he wants it to be. Tenriero wants a supply-side theory of long-run economic growth; MMT is a demand-side theory of short-run utilization of idle resources. True, MMT fails to address supply-side economics, nor does it promise to do away with war, disease, famine, death, mopery on the high seas, nor the heartbreak of psoriasis. So what? Criticize the theory for what it is, not what it does not even pretend to address.