Friday, April 19, 2019

MMT and political economy

One criticism of Modern Monetary Theory* is that raising taxes to control inflation is politically difficult. I think this criticism is correct in a sense, but it's incorrect in a more important sense.

*I am not an academic scholar of MMT. Any mistakes in descriptions and analyses here are my own and should not be attributed to scholars in the discipline.

Politics is a legitimate topic of study by economists, and it's correct to say that raising taxes is difficult given current political institutions. It follows that more abstract, technocratic, and less openly partisan monetary policy is probably a less bad choice today to control inflation. Indeed, I don't think MMT is a particularly valuable economic theory given current political institutions. Of course, I think our current political institutions are terrible. And that's where MMT has real value in my opinion: even if you don't like socialism, MMT is, I think, a better theoretical framework for a much more progressive agenda, an agenda that will require substantial change — a revolution if you like — in our political institutions.

One important aspect of MMT is that it subverts the notion that our capitalist democratic republics are built on apolitical, ahistorical economic truths. They are not. To no small extent, economics is just describes how our political economy in a particular historical social context actually works. A different political economy would work differently.

Simply adopting MMT and changing nothing else would have at best no effect and at worst fuck things up royally. We can't fight fascism with economic theories. We have to rethink and re-implement our whole political economy at a fundamental level. That's not going to be an easy fight, and it won't be economists who do the bulk of the fighting. However, I think having a set of valid progressive economic theories has substantial value, and MMT shows a lot of promise of delivering that value.

Wednesday, April 17, 2019

Taxes and government production

There is a paradox in how we talk about "paying for" what the government produces. Yes, taxes do pay for government production. And no, taxes do not pay for government production. Wait, what?

As best I can tell, Modern Monetary Theory scholars* stress the idea that taxes do not pay for government produces in a "financial" sense: unlike a household or a firm, government does not collect taxes to obtain money to spend on government production. A household or a firm must obtain money, via revenue, borrowing, or theft, before it can spend it. A government need not do so; to the extent that the government says it does need to collect money before it spends it, the government is at best disingenuous and at worst deceptive. Financially — and this qualifier is crucial — the government spends whatever it chooses to spend, regardless of ex ante taxation or borrowing. A household or firm cannot choose to spend money it has not already obtained; a government might choose to spend only the money it has previously obtained, but it can choose not to.

*I will repeat my usual disclaimer: I am not a scholar of MMT; any mistakes in my present description of MMT ideas are my own.

I suspect that MMT scholars stress this financial freedom precisely because not only governments but orthodox economists, while they formally acknowledge government's financial freedom, either don't understand this freedom — a lot of economic theory depends on a financial budget constraint to make any kind of sense — or they don't want people to intuitively grasp the government's financial power. What is to become of the captains of industry, the titans of finance, if their years of hard work accumulating money can be duplicated or undone in seconds by some faceless downclass bureaucrat in a cheap suit? Worse yet, what if the unwashed masses catch on and start, gasp! voting on that basis? No, such nonsense simply will not do.

But of course even that the government has financial freedom, i.e. it can spend as much or as little money as it pleases, the government does not have "real" freedom: it cannot choose to escape opportunity costs. Especially when the economy is at full employment, anything the government creates money to produce means using that money to reallocate real labor and capital away from other production. At full employment, government spending on one thing, regardless of the source of the spending, means giving up something else. Because the government generally produces public goods, their production is generally not profitable in money terms: individuals do not willingly pay money to obtain what governments produce.

Contrast government production with private production. Suppose a firm produces a new and improved widget with extra frobulousness. The firm improves society if and only if individual consumers individually choose to buy its widgets instead of now unfashionable and obsolete doodads and gewgaws. Ideally, the private firm merely poses the option: the individual consumer decides whether the new option is worth the opportunity cost, and what the opportunity cost actually is in real terms. And we know when the firm produces the optimal quantity of new and improved widgets precisely when the marginal consumer is indifferent between the new widget and the next best choice. With apologies to Landseer and à Kempis, the firm proposes, the consumer disposes.

Public goods simply do not work that way, as economists orthodox and heterodox all know: the math is clear and unequivocal. Individual consumers cannot individually choose how much of a public good they receive: all consumers receive benefit from all production of a public good, regardless of their individual preferences.

Thus, the government must distribute the opportunity costs. They can do so in two ways: increase or keep constant the supply of money and let everyone's money purchase less stuff per dollar, i.e. no taxation and inflation, or decrease the supply and let everyone's money retain its purchasing power, i.e. full taxation and price stability.* So in this sense, of the distribution of opportunity costs, taxes do in a sense "pay for" government production.

*Strictly speaking, there is a continuum between zero taxation and zero inflation.

On the one hand, government has financial freedom; on the other hand, the government has real constraints. On the gripping hand, there are some circumstances where government spending neither requires taxation nor generates inflation (or at least not nearly as much as it might otherwise do). When government spending promotes short run or long run real economic growth, the economic growth itself "pays for" government spending in both the financial and real sense. In the short run, when real economic output is below potential — i.e. under recessionary conditions of less than full employment, especially when the recession has been caused or exacerbated by collapse of the money supply as during the Great Depression — government spending causes an increase in both financial and real economic activity. The injected money just keeps flowing; it does not (all) need to be leaked back out by taxation, and the increase in real economic activity absorbs the extra spending without causing (too much) inflation.

Similarly too with long run economic growth. Government spending in research and development, especially for the military, initiates much (if not almost all) of the growth of inventive technology. (See e.g. Doing Capitalism in the Innovation Economy by William H. Janeway.) Again, the spending is "paid for" by the increase in real economic activity.

Many critics of MMT argue that the above exposition is just warmed-over bog-standard Keynesian macro. Perhaps. If so, the profession of economics has been trying to at best downplay and at worst obfuscate its importance and relevance not just to the general public but to undergraduate students of economics. I know: I just finished an undergraduate and graduate economics education, and I found the claims of MMT were both shocking and obvious in retrospect.

Even the Holy Bearded One says in his own Macroeconomics textbook that the government should run a balanced budget on average (my copy is in my office; citation to follow). But this cannot be so. In an ideal world where we always have zero inflation and no short-term fluctuations, to preserve perfect price stability, the amount of money flowing through the economy* must increase as long-run potential output increases. Since money cannot flow arbitrarily quickly, the overall supply must increase, so either the banks create it or the government has to create new money.

*Technically the money supply times the velocity of money.

We could, I suppose, allow the private banking system complete control over the flow of money. When unconstrained by government regulation, complete private control of money generally has not worked worked all that well. Seriously. It's a Bad Idea. If we want to make the foundation of economy the government's power to collect taxes, then the government must run a deficit on average.

Sunday, April 14, 2019

MMT, money, and opportunity costs

Often, if we want one thing, there is some other thing we can't have. Economists call this an opportunity cost. We study the things we must choose between, and how people make those choices.

I am an economist. Opportunity costs are my faith, my creed, my dogma, my mantra. I believe. TANSTAAFL!

Money is a socially constructed institution (or collection of institutions) to quantify, manage, and distribute real opportunity costs. But money is not by itself an opportunity cost; to equate money and opportunity costs is to mistake the map for the territory.

I have been reading the "surface" of Modern Monetary Theory — popularizations, blog posts, etc. — for almost all of my career as an economist-in-training. And what I like about MMT is that these theorists make clear the institutional, socially constructed role of money as a mapping of opportunity costs.

Every popularization of MMT that I have read promotes the same message, a message that disturbs my economist's faith not even a little: production is constrained by real resources, i.e. natural resources and human labor; production is not constrained by money by itself.

MMT advocates do say there are things we can have cheap, and in this, yes, they say nothing new, nothing that is not part of bog standard orthodox economics. If there are idle resources, unused factories, unemployed labor, we can put those resources to productive use give up little more than excessive unwanted leisure.

I have never heard any MMT theorist ever say that we can have anything "for free". Never. Not once. Maybe I'm wrong. I will dig into the literature and find out.

But for now, the onus of any critic of MMT, at least if they're trying to convince me personally, is to convince me that MMT advocates really do say that we can have anything for free. As yet, none have done so.

It is a much different thing to say that money by itself should not constrain a society, especially a government. Technically, orthodox economists tepidly agree, but they seem to inexorably conflate money and real opportunity costs. MMT advocates are the only people who absolutely insist on conceptually separating money and opportunity costs. Even if there is nothing else new about MMT, even if all of their economic theories fall short of figuring out precisely how to quantify, and distribute real opportunity costs, MMT is still worthwhile because the orthodox view of money has failed us. We must rethink money.

The neoliberal project to make everything subject to money and markets, even were it undertaken in good faith, has decisively failed. Whatever good it has delivered has come at the cost of economic stagnation, intolerable inequality, nascent fascism, and ecological catastrophe.

Even if MMT has found nothing new, they are at least looking. And we must look, because we cannot keep what we have now.

Saturday, April 13, 2019

Modern Monetary Theory

I don't remember when I first heard about Modern Monetary Theory (MMT). It was either just before or just after I began my academic economics education in 2010. I thought it sounded interesting: mostly standard Keynesian economics, which is good, because Keynes is good. The main reason I like MMT (which should not be confused with what MMT scholars believe to be their most important contributions) is that MMT stands in stark contrast to the balanced budget mania I've been subject to my entire life, before, after, and during my education. I have been told time and again that Government Spending is Very Very Dangerous. Bankruptcy! Default! Runaway Inflation! Bond Vigilantes! Socialism! Cats and Dogs Living Together! The MMT story is completely the opposite: we can't go crazy with it, but government spending by itself is no dig deal if we're reasonably careful about (too much) inflation. On the other hand, nothing about MMT made me want to quit my job, give all my possessions to the poor, and make a holy pilgrimage to Jerusalem UMKC.

Flash back to '99-2000 to around 2005. I started my informal education in philosophy and argument talking about religion on the internet. The nice thing about religion is that they have spent thousands of years developing literally all the shitty fallacious bad-faith arguments for a completely indefensible proposition. I've seen them all, and I can smell bullshit a mile away.

Cut to today. Bernie Sanders hired Dr. Stephanie Kelton, a prominent MMT scholar, as his economic advisor. Alexandria Ocasio-Cortez is rumored* to be hooked up with MMT economists. MMT seems to be gaining prominence on the progressive left.

*relative to my personal knowledge.

In response, I have seen a fair few traditional academic economists, economists that I like and admire, writing polemics against MMT. And with few exceptions, their polemics have reeked of the same sort of bullshit religious arguments I spent the early part of this millennium taking apart. So that makes me curious. Really, it is Krugman, DeLong, and Palley more than Wray and Kelton who have really sparked my interest in MMT.

(So too with Bernie in 2018. Most of the mainstream Democratic party arguments against Bernie and for Clinton also reeked of bullshit. Bernie Bros? Are you fucking kidding me?)

So I'm going to investigate further. I have an MA in economics, so I think I can sort out the primary literature. We'll see how that works out. You can track my progress on my new MMT Page.

There a continuum of possibilities between the extremes of MMT is all that and a bag of chips and MMT is completely full of shit. But even if my evaluation falls toward the latter end of the continuum, I have to ask why MMT opponents are using such lousy arguments. Bad arguments — even against a bad idea — are a sign of either being lazy, ignorant, or stupid or of a hidden agenda.

Of course I suspect a hidden agenda. I maintain that the professional-managerial class, represented by the orthodox Democratic party leadership, are not themselves fascists, but they would prefer fascism to socialism; heck, I think they would prefer fascism to social democracy/welfare capitalism. Even if the technical economics of MMT are bad, I suspect that opponents relatively unconcerned about the technical failings and much more concerned that MMT would legitimize social democracy.

But proving bad intent is very difficult and not really dispositive. So my task for the coming year is to dive into the primary literature, both for and against MMT, come to my own conclusions, and share my analysis and conclusions with you, gentle readers.

Friday, April 12, 2019

Unpleasant Keynsian arithmetic

In "Macroeconomics vs Modern Money Theory: Some unpleasant Keynesian arithmetic," Thomas Palley artfully demolishes a straw man of such egregious flimsiness that it is difficult to avoid concluding bad faith.

Referring to Kelton et al., We Can Pay For A Green New Deal, Palley claims, "Proponents of MMT assert [financing a Green New Deal] is a non-problem and the programs can be financed by “printing” money and without causing higher inflation." However, Kelton et al. add an important condition, arguing that deficit financed programs are not inflationary so long as we are not at full employment. Palley simply repeats Kelton et al. own assertion as if he were correcting their error.

Kelton et al.:
Despite lawmakers’ stated fears, larger public deficits are not inherently inflationary. As long as government spending doesn’t cap out the full productive capacity of the economy ― what economists call “full employment” ― it won’t spin prices out of control. Inflation isn’t triggered by the amount of money the government creates but by the availability of biophysical resources that money tries to go out and buy ― like land, trees, water, minerals and human labor. [emphasis added]

As has long been known by Keynesians(Blinder and Solow, 1973), money financed deficits can be used to finance programs when the economy is away from the full employment -vinflation boundary.vHowever, that space will be temporaryvto the extent deficits increase real financial wealth and automatically drive the economy to full employment, at which stage there will be an inflationary gap. . . . There is a money financed free lunch as long as the economy is below full employment, but the free lunch inevitably disappears.

Palley continues to misrepresent MMT scholars. When calculating his "unpleasant Keynesian arithmetic", he includes Medicare for all and free college tuition. However, he does not cite anything to support the implicit assertion that MMT scholars advocate using deficit spending to finance Medicare for all or free college tuition. It seems blindingly obvious that the best way finance Medicare for all is through taxes to replace insurance payments.

It is a core tenet of MMT that spending precedes taxation, but requires subsequent taxation to prevent inflation at full employment. But this reordering is an entirely different position than the position that MMT critics attribute to MMT proponents, i.e. that MMT says that we can have unlimited government spending without inflation.

Tuesday, March 26, 2019

What, me worry?

Should we worry about "the deficit"? Well, what do you mean by "worry"?

Let me ask a similar question: should you worry about the natural gas forced-air heater in your home?

Could the heater burn down your house or kill everyone inside from carbon monoxide poisoning? Well, yeah? I guess? It does happen, but it happens only when you have a pretty serious malfunction in the heater.

If you run the heater non-stop and keep your house at 90°F (32°C), you're going to run up a hell of a gas bill. Perhaps not the best idea, but that's not a reason to worry about your bill if you maintain a more reasonable temperature.

When I hear scholars of Monetary Monetary Theory* argue that "we shouldn't worry about the deficit," I read their arguments in the same sense that we shouldn't worry that the heater might kill us all. I mean, yeah, we should kinda worry, we should make sure our monetary institutions aren't seriously defective. But they're not seriously defective, at least not in the United States. Most importantly, we have effective tax collection institutions: the IRS, state and local governments, etc. They're perhaps not as efficient as we might like, but they're a long way from the dysfunctional institutions in Austria or Zimbabwe. As long as we can credibly collect taxes, deficits won't kill us all.

*I have not studied MMT academically. Any errors here are my own.

Similarly, yes, I suppose we miiiiight run the deficit so high that it would impose substantial economic hardship. But I read MMT scholars as saying that the present deficit is way too low; it seems misplaced to argue by analogy that it would be too expensive to heat the house to 90°F when it's snowing outside and the temperature inside is in the low 50s and dropping fast.

There may be some legitimate bad faith in mainstream economists' polemics against MMT, that MMT ignores real dangers of deficit spending. However, I think a big part of what's going on is that economists tend to internalize blindness to a fundamental political problem: that the capitalist ruling class will destroy the economy rather than give up power. That's the lesson from Venezuela: the capitalist ruling class — theirs and ours — destroyed the economy rather than let poor children have milk. Chavez's failure was not what what he tried, it was that he failed — perhaps from his own hubris or incompetence, or because success was impossible — to defend Venezuela from the capitalists.

Sunday, March 24, 2019

Who's going to pay for it?

We want nice things, right? Medicaid* for all, green energy and transportation systems, "free" college tuition, etc.

*I mean Medicaid for poor people, not Medicare for old people. I've been on Medicaid, and it's fucking awesome, at least in my home state.

But, of course, we have to pay for the nice things, n'est ce pas?

We run into a conceptual problem, though, because paying for things is really two distinct but related ideas.

The first idea is what economists call opportunity cost: if we pick one thing, there's something else we can't have. Everything takes work, and there are only so many people, who can work only so many hours. If we work to make one thing we can't make other things. If we want to train more doctors, we have to make fewer toasters; more solar power plants means fewer couches.

As far as I know, there isn't a single economist anywhere who says that we can have as much stuff as we want. Many, myself included, say we could have more and better stuff than we have now, but literally zero say there is no limit on the stuff we can have.

The other idea is what economists call a budget constraint: if someone wants to get something, they have to get the actual money together to buy it. If a person spends money on lattes, that's less money they have to spend on yoga lessons. If someone wants to buy a house, they have to convince a bank (or their parents) to lend or give them the money.

If we want Medicaid for all, we have to give actual US dollars to doctors. We might have to train more doctors, which means giving actual US dollars to medical schools and their professors. If we want to build solar power plants, we have to give actual US dollars to the workers who make and install solar panels and hook them up to the grid.

Opportunity costs and budget constraints are related. Budgets give traction to opportunity costs; they make opportunity costs immediate and direct. Budgets also distribute opportunity costs: whoever actually coughs up the cash is the one who incurs the opportunity cost.

For most ordinary stuff, private goods, stuff that individuals buy and consume themselves, the mapping of budgets to opportunity costs works reasonably well (not counting structural income and wealth inequality, which is a topic for another day); for public goods, which benefit everyone, not so much. If we spend real labor to keep the air and water clean, we lose whatever else that labor could have produced. But who gives up what? Should we insist that poor families give up some of their food while rich families have to give up their sixth vacation home?

Even for some private goods, there are problems mapping money budgets directly to opportunity costs It's one thing to say that if you can't afford a Ferrari, well, do without. It's quite another thing, at least in my mind, to demand that if a person can't afford the money to see a doctor, they should just do without.

Now, gentle reader, you might say, well, yes: If you can't afford to see a doctor, do without; if you die, too bad. If you can't afford clean air and clean water, breathe the smog and drink the sewage. I mean, if you feel that way, fuck you, but I'm not talking to you here.

I'm talking to the people who agree that it would be a good thing — the inevitable overhead included — to have Medicaid for all, a Green New Deal, free college tuition, etc. but worry, How are we ever to pay for these?

If you think that Medicaid for all would be good to have, then you're saying that having it is better than having the next best thing we would have had. The social benefit is greater than the social opportunity cost. And that's the only decision we really need to make. Is it worth it? Yes? Then find a way to do it.

I'm indebted for the following analysis to the scholars and analysts of Modern Monetary Theory. I have not studied MMT academically; any errors following are my own.

So how do we pay for it? The government creates the money. Boom. Paid for. Done. Congress authorizes the money and the Treasury Department starts writing checks. The Federal Reserve will honor the checks; if they don't, Congress can amend the Federal Reserve Act and make them do so.

We don't need to tax anyone or borrow from anyone to get the money. I think it would be advantageous to tax the rich, because fuck those guys, but we don't need to tax them or anyone. It might be advantageous to "borrow" from people, i.e. sell them government bonds, but we don't need to borrow anyone's money.

This solution might cause other problems (which I discuss below), all but the most trivial solutions do, but the first problem is easy to solve. It looks "too easy" only because we've been trained to not understand how money works.

There are two possible economic problems: inflation and interest rates.

If the government dumps a bunch of money in the economy for any reason, we should worry about inflation, i.e. a general rise in prices. However, inflation is not a big mystery. Inflation might not be a problem at all if new government money and the associated increase in bank lending creates enough new goods and services to absorb the additional money. If we create the money wisely, we can improve economic efficiency or put idle labor to productive work. Even if increased output doesn't absorb all the new money, it will definitely mitigate inflation.

Inflation by itself distributes the opportunity costs: inflation is really just a tax. If there's a general rise in price levels, people will reduce consumption: they might have to pay more for groceries and gasoline in return for getting, for example, universal access to health care or clean air and water. If we don't expect the government to perpetually flood new money into the economy, the irritating* inflationary spiral of the 1970s shouldn't repeat itself.

*The inflation of the 1970s was just irritating. The "cure" was economically devastating.

If we don't like how inflation distributes opportunity costs, we can increase taxes, which directly adjust people's budgets to impose opportunity costs. We would almost certainly do so for Medicaid for All, but we would just be exchanging premiums for less efficient private insurance for taxes for more efficient single-payer or "socialized" medicine.

The other more technical problem is interest rates. Dumping money into the economy lowers interest rates because of the increase in the money supply. If we don't want all the money swamping bank reserves, we can drain some of the money back by selling the banks government bonds (or just paying interest on reserves).

The technical economic problems of the government spending large amounts of new money are actually fairly well understood. Anything can be done poorly, so we would have to go about any large government spending with professionalism and care. But we would by no means be sailing into uncharted waters.

The political problems, however, are quite severe, perhaps intractable. But more on this later.

Saturday, February 09, 2019

Love among the mantises

I often reflect upon the word “morality,” the most troublesome and confusing word of all. There is no single or supreme morality; there are many, each defining the mode by which a system of entities optimally interacts. The eminent entomologist Fabre, observing a mantis in the act of devouring its mate, exclaimed: “What an abominable custom!” The ordinary man, during a day’s time, may be obliged to act by the terms of a half dozen different moralities. Some of these acts, appropriate at one moment, may the next moment be considered obscene or opprobrious in terms of another morality. The person who, let us say, expects generosity from a bank, efficient flexibility from a government agency, open-mindedness from a religious institution will be disappointed. In each purview the notions represent immorality. The poor fool might as quickly discover love among the mantises.

-- Jack Vance, The Book of Dreams

The economics of a proto-post scarcity society

I've spent enough time discussing how Rick Webb doesn't understand economics, instead retrojecting hollow capitalist tropes on a fictional television show. But it's worthwhile to discuss the economics of "proto-post scarcity economy." However, without the specific historical context, it's impossible to talk about how a hypothetical economy "actually is"; the best I can do is lay out a kind of general framework.

Economics is the science of how we make mutually exclusive choices, usually (but not always) choices about material things. How do we manage scarcity? So the first thing is to think about what is scarce. There are three things that are always scarce: unique things, land, and human time. And even if some resources are not scarce, a society might still want to use them efficiently. Finally, there are things that are still so expensive that not everyone who wants one could have it.

Unique things are scarce. There's only one Mt. Everest, and only so many people can climb it in a year. There are only so many great bass fishing spots, only so many Hawaiian beaches. Only so many people can use pristine natural parks and forests. There's only one Mona Lisa. How does a society get to decide how to use inherently unique things?

Land is scarce. Although we can improve some of the marginal land, there is a finite amount of land on the Earth. We can probably house a lot of people in urban high-rises, but only so many people can have their own castles, McMansions, or even detached ranch houses with big back yards. Only so many people can have their own farms or vineyards. A society cannot make more of this kind of land by building up. Even if the society builds up, penthouse apartments will be scarce. Apartments with a view of something other than the wall of the next building will be scarce. Again, how does a society allocate scarce land?

Human time is scarce in the sense that each person can do only so many things in a day. If something one person wants requires the effort or attention of another person, that effort or attention is scarce. Let me define a "job" in this context as human effort or attention for the benefit of other humans (even if doing that job is somehow beneficial to the "worker"). There will be "good jobs", where there are more people who want to do that job than there is "demand" for that job, and "bad jobs", where there are fewer willing people than demanded. Ideally, we want everything in equilibrium, where all jobs are "neutral": there are exactly as many people who want to do that job as there is demand for that job. How would a society do so?

Finally, a society would want to use even non-scarce resources efficiently. For example, a society might be able to produce as many shoes as people wanted, and if everyone woke up one day and decided they all wanted twice as many shoes, the productive capability would allow that with no other trade-off. Even so, it would make little sense to produce more shoes than people actually wanted. Even if there is no scarcity, a society might have to still track how many and what kind of shoes people want, and produce just those shoes and no more.

The answers to these questions depends in part on production technology. If everyone has a Mr. Fusion, a replicator, and a transporter, most of these problems go away, especially if the replicator can replicate most anything. For example, if a replicator can make the finest cuisine, there is no need for restaurants. If individuals' replicators can make most anything, there is no need to have factories or distribution networks. Similarly with transporters: if I can get in my personal transporter and just go anywhere, there's no need for trains, planes, and automobiles.

But replicators seem quite advanced. It's likely that a planet-bound proto-post scarcity society would instead use mostly automated factories, which are themselves constructed mostly automatically. Even if we can produce as many factories as we want to produce as many goods as we want, we would, I think, still want to be efficient about production, distribution, and expansion.

However, the above raises perhaps the most important issue: what does it mean to say that we can produce as many factories as we want to produce as many goods as we want? If some society produces some amount of goods but could relatively easily produce twice as much, why wouldn't people not want twice as much? At what point do we stop wanting more stuff? And, because people's preferences and desires are socially constructed, how do people stop wanting more stuff?

Sunday, February 03, 2019

Money in Star Trek

Rick Webb constructs money in Star Trek. Not "Federation credits", which can be explained simply as a plot device, but honest-to-god money.

Although Webb posits that there's more than enough for everyone, he believes the Federation carefully accounts for every citizen's consumption.
The amount of welfare benefits available to all citizens is in excess of the needs of the citizens. Therefore, money is irrelevant to the lives of the citizenry, whether it exists or not. Resources are still accounted for and allocated in some manner, presumably by the amount of energy required to produce them (say Joules). And they are indeed credited to and debited from each citizen’s “account.” However, the average citizen doesn’t even notice it, though the government does, and again, it is not measured in currency units — definitely not Federation Credits. . . . This massive accounting is done by the Federation government in the background.
But why would the Federation do such a thing? It makes zero sense to account for something that's not scarce. We account for scarce things, like the social product of others, because it's important to use every little bit wisely. But Webb assumes that there are excess welfare benefits: under ordinary circumstances everyone can use as much energy (or whatever) as they want. So why account for it in detail.

Webb continues,
So, behind the scenes there is a massive internal accounting and calculation going on — the economics still happen. They just aren’t based on a currency unit, and people don’t acquire things based upon a currency value. People just acquire things from replicators, from restaurants such as Sisko’s or coffee shops like Cosimo’s, or, presumably, get larger things from dealerships or (more likely) factories. This could still be called “buying,” as a throwback.
This activity is buying. And if you keep accounts, your unit of account is currency by definition, even if that unit represents a physical quantity. Webb sees the contradiction, but doesn't resolve it:
It is tempting to argue here that the massive accounting system uses a unit called the Federation Credit, but i don’t believe that’s the case. If it were, the credit would be too much like money because a) accounting is done in it, b) it is issued by a governing body (like a fiat currency) and c) it is fungible, i.e. you can already buy things with it and if you could buy things with it AND a and b were true, it would pretty much be a currency. This would fly in the face of Roddenberry’s absolute diktat that the Federation has no currency.
It doesn't matter whether we call it Federation Credits, if we're accounting in it, it's money. Even if the money in some sense represents energy, it's still money. Accounting is done in it. It's a fiat unit issued by the government, i.e. each citizen's welfare benefit. Citizens can "buy" things with it: when they use energy, Webb assumes their account is drawn down. Furthermore, Webb assumes that this money is an incentive, that people will do "menial jobs that cannot be done in an automated manner ... [because] there is some small, incremental increase in your hypothetical maximum consumption, thus appealing to the subconscious in some primal way." This is money. Currency. Moolah. Cash.

Whatever we call it, Webb posits something that works exactly like money in a market economy, except for one crucial feature: Webb's money does not ration consumption. Webb thinks the Federation is doing all the work of managing a currency for literally nothing but some sort of subconscious appeal. It makes absolutely no sense. Just accounting for everything doesn't mean the "economics still happen." For the economics to actually happen, there has to be people optimizing the use of scarce resources. The citizens of even a proto-post scarcity society do not, under ordinary circumstances, optimize the use of scarce resources, so there's no economics.