Blue lives matter!

https://t.co/IcudsNfVLY

Cops are making themselves objects of ridicule.

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

Sanders on Castro

Should Bernie Sanders have mentioned Cuba's Castro-era literacy program? I have no idea; I'm not a politician or political advisor. But what precisely did he actually say? Can we infer what he meant?

What did he say?

During the recent Democratic party debate:

SANDERS: What I said is what Barack Obama said in terms of Cuba; that Cuba made progress on education. Yes, I think....

UNIDENTIFIED AUDIENCE: Boo.

SANDERS: Really? Really? Literacy programs are bad.

PETE BUTTIGIEG: Yes, because there's no comparing those two...

Examining Bernie Sanders' Comments On Literacy In Castro-Era Cuba

On 60 minutes in the 1980s

Sanders began by saying, “We’re very opposed to the authoritarian nature of Cuba,” before adding, “but, you know, it’s unfair to simply say everything is bad.”

“When Castro came into office, you know what he did? He had a massive literacy program,” he told journalist Anderson Cooper during the interview. “Is that a bad thing, even though Fidel Castro did it?”

Sanders’s Cuba comments are bad politics

Like I said, bad politics? I dunno. This is what I found; did he say anything else? Let me know in the comments.

It seems perfectly clear that Sanders did not say that the United States should implement literacy programs exactly like Fidel Castro did. He said that just because it was Fidel Castro (whose "authoritarian nature" Sanders explicitly opposes) who did something, i.e. implemented a massive literacy program, does not mean that what he did was bad. This is true.

When I still bothered to talk about socialism with idiots in comment threads and message boards, the refrain was maddeningly consistent: If we do this thing that vaguely resembles something that a communist or socialist did, we will have hyperinflation, social collapse, gulags, and genocidal mass starvation. If we give free milk to poor children, like Chavez did in Venezuela, we will crash our economy. If we expand workers' rights, have government-provided or -controlled health care system, raise the minimum wage, regulate business, etc., well, that's what the socialists did, and look how things turned out for them! If we do any of these things, it will end with hyperinflation, gulags, etc.

It's a transparently bullshit argument.

Old Time Religion

In his two part article, In The Fed We Trust – Part 1 and In The Fed We Trust (Part 2): What Is Money?, Michael Lebowitz preaches that Old Time Religion with the vigor and enthusiasm of tent-revival Christianity... and all the attention to truth and evidence, logic and reason, the genre is known for.

The capitalist ruling class is running scared! <evil grin>

MMT Misconceptions part 3b

Continuing with Doug Henwood's essay, Modern Monetary Theory Isn’t Helping, and his treatment of taxes and government revenue.

Misconception: Taxation transfers resources

[O]ur public sector is starved for resources. Taxing takes those resources out of private hands and puts them into public ones.

Well, no. It's not anything like that; it can't possibly be anything like that. Henwood is not getting MMT wrong here; he's getting basic logic wrong. Henwood is at best speaking imprecisely; we could just attribute this imprecision to a desire for concision, but speaking carefully would completely undermine his point.

Generally, the word resource refers to something real: labor, raw materials, capital equipment, intermediate goods, etc. But of course it's nonsensical to suppose — and I don't think Henwood believes any such thing — that rich people have vast warehouses full of machines, equipment, parts, and raw materials, and dormitories full of people they are withholding from the labor force.

Taxes take money away from people who have it. Money is not a resource; it is the social permission to access society's resources. This isn't the 11th century; the government does not impose a tax by taking the food I grow. When I pay my taxes, I am not giving any resources to the government; the government is taking away some of my social permission to access society's resources.

Absent theft and robbery, ordinary people, households and firms, must get money by persuading someone else who already has money to give it to them, eventually in return for real resources. That's just how money works, n'est ce pas? But governments are just not at all like that.

Money is a social system, and someone, some collection of institutions (spoiler alert: the government), has to create and manage money. The government has to create the money, ensure that people want to use it as a medium of exchange and store of value. The government must ensure there's enough money overall to grant the social permission to access all of society's resources, but not so much that people think they have the social permission to access resources that we cannot produce.

No other institution except the government* can manage the money system. We can't just leave money to "the market". Even if you grant that markets have some value, they suck at delivering the kind of rigidly broad uniformity we want from money; governments are terrific at being rigidly uniform. Government does not have to get social permission to access society's resources. Government has this social permission just by virtue of being the government.

*I suppose e could go back to the gold standard, but almost a century ago, Keynes realized the gold standard was a Bad Terrible Idea, and we abandoned its last vestige in 1971.

This is what I meant previously by looking at the control system; it's important to understand how the control system works so we can effectively use it.

This is how money actually works: The government creates money and puts in the hands of the private sector by buying things like airports and bridges, loaning it to banks to manage the payment system, or buying real or financial assets with it. So that people will actually accept and use the government's money, the government imposes taxes that must be paid in the money it just issued, that could not have been be paid unless the government had first issued the money. Because the government wants some of this money to stay in circulation for private transactions, they collect in taxes less money than they issued.

The government takes these taxes and "burns" them. The government does not need your tax dollars; the government imposes taxes in part so that we need them.

Once the money economy gets rolling, the government continually creates money and puts it into the private economy; it collects taxes to destroy excess money.

The government does not borrow money; they offer people interest to take money out of circulation and "store" it in a government "bond". The government does not offer people real resources in return for the "bond", and the government has no need to give anyone real resources to get the money they promise to repay. They not just can but they have not choice but to print the money when the "bond" matures.

I don't care at all how you or anyone else, left, right or center; capitalist, socialist, or anarchist, feels about the above. That's how money actually works. Again, this is not MMT; this is fundamental monetary economics.

Capitalists fucking hate that money works this way. They would much prefer the gold standard, which gives the rich total control of the money system. The only reason they tolerate the fiat money system — and they have no choice but to tolerate it — is that the last time the bourgeoisie tried the gold standard, the peasants started gathering torches and pitchforks.

The bourgeoisie and their loyal ally? unwitting stooge? useful idiot? Doug Henwood absolutely do not want the unwashed masses to understand how the money system actually works. They want you to believe that the rich have the resources we need to run our society, and that the citizenry must either humbly beg them for these necessary resources or fight a long and vicious battle to take those resources away from them.

Neither is true. The rich have nothing but money, social permission, created by the government. We absolutely should take away most (all?) of that social permission, not because we need it, but because fuck you, that's why; we do not want them to have it. If they want to hide their money, let them. Hidden money is out of circulation and useless. If they want to defend their money — and the government really should be careful and legal about how they take anyone's money — that's fine; the government can just freeze the money while the litigation drags on; again, frozen money is no money at all.

The rich may have something we do not want them to have, but they have nothing we need.

MMT Misconceptions part 3a (taxes)

Finally, Doug Henwood's essay, Modern Monetary Theory Isn’t Helping, gets to the crux of the biscuit, taxes and government revenue.

Misconception: Taxation transfers resources

MT’s lack of interest in the relationship between money and the real economy causes adherents to overlook the connection between taxing, spending, and the allocation of resources. We have [all sorts of bad things] because the public sector is starved for resources. Taxing takes those resources out of private hands and puts them into public ones, with at least the potential for them to be spent on more humane pursuits.

Long sigh. This is a complicated and persistent misconception. It's complicated because economics is complicated; it's persistent because the illusion that taxes transfer resources serves the interests of the capitalist class.

Please bear with me as I draw an extended analogy.

Consider an ordinary automobile. One way (certainly not the only way) to think about a car is to divide it conceptually into the physical system, the user interface, and the control system. The physical system consists of the engine, which physically makes the car go, the tires, which physically turn the car, and the brake pads, which make the car slow down and stop. The user interface is what you, the driver, use to control the car: the gas pedal makes the car go, the steering wheel makes the car turn, and the brake pedal makes the car stop. Finally, the control system connects the user interface to the physical system. Pushing the gas pedal down (U) causes a cable to open the throttle in the carburetor, which sucks more gasoline and air into the cylinders, (CS) and the car goes faster.

This is more or less what MMT does (or at least how I read MMT): divide the economy the same way as above. The physical part, the real economy, comprises factories, workers, capital, natural resources, etc. The user interface is money our ordinary experience of money, receiving a paycheck, spending money to buy stuff, paying taxes, etc. The control system is the banking system, including the central bank and the Treasury, which connects our ordinary experience of money to the real economy.

There are a lot of other useful ways to divide the economy, and a lot of other economic topics worth studying; MMT scholars choose to focus mostly on the control system, i.e. the banking system. Moreover, they claim to have discovered (or advanced our understanding of) how the control system works; moreover, they claim the control system does not work the way capitalist economists tell us it works.

(These claims are either true or false. If they are true, they are true even if we don't like that they're true; if they're false, they are false even if we want them to be true. It is instructive that Henwood never analyzes whether or not MMT scholars' claims are true or false, only that they are undesirable, and MMT scholars are ugly and their mothers dress them funny. Of course, I think Henwood is fractally wrong.)

Back to the car analogy. Max Max has a turbocharger on his V8 Interceptor. He has a pull switch installed on the gear shift lever that engages the turbocharger. He pulls the switch and the car goes faster. We would justly consider someone misguided who objected, "Max can't just push a button and make the car magically go faster. Pushing on the gas pedal makes the car go faster." We would consider them willfully ignorant if, when we tried to explain, they retorted, "Don't confuse me with all that 'physics' and 'engineering' bullshit. I know how a car works, and you make it go faster by pushing the gas pedal. If we could just push a button and make the car go faster, then why can't we just put in a button that makes the car go 1,000 miles per hour? Checkmate atheists engineers!"

Henwood makes the same mistake by confusing taxes (user interface) for resource transfers (control system) and exhibits the same willful ignorance by dismissing MMT scholars nerdy wonks talking about boring and mathy topics like accounting and finance. Henwood already knows how the economy works. I mean, he's at least skimmed "Wage Labor and Capital"; what more do we need to know?

In the next installment, I'll dig more deeply into what economists teach undergraduate economics students about macroeconomics (I am an expert in this topic, or at least a professional, because I am paid to do just that) and how Henwood badly mangles even conventional macroeconomics; I will follow with the changes that MMT scholars (as I understand them) propose to conventional macro.

MMT Misconceptions part 2

Let's push on looking at the misconceptions Doug Henwood's essay, Modern Monetary Theory Isn’t Helping.

Note: For clarity, I've added the label "Misconception:" to the boldfaced titles.

Misconception: MMT is about American Exceptionalism

Another serious problem with MMT is its embeddedness in a rich-country perspective, and in particular American exceptionalism. . . . MMT’s unacknowledged dependence on the exorbitant privilege of the United States —Mitchell is about the only high-profile MMTer from abroad — is almost completely unaddressed by its proponents.

American economists study the American economy. Quelle surprise. Granted, the US is indeed an exceptional economy. So what? How much does MMT rely on American exceptionalism, which really is singular, rather than its monetary sovereignty, which is not universal but more broadly shared? As Henwood later mentions, other countries such as "Canada, Japan, and Britain, though to a lesser degree" have monetary sovereignty. Henwood does not, however, compare how MMT applies to those countries which do have monetary sovereignty but not the United States' singular privilege. Instead, he jumps right to Allende and Chavez:

But less privileged countries have to worry about foreign investors dumping their bonds and driving down the value of their currency, which would jack up interest rates and inflation. Salvador Allende’s government greatly increased spending and raised the incomes of the poorest in Chile in the early 1970s; that worked nicely for a while, but then inflation took off. Allende wasn’t operating from the MMT playbook, merely resorting to policies pursued by many progressive governments facing political opposition and resource constraints. But such experiments rarely end well, and similar problems would face a poor country trying to stimulate its way to prosperity today, as we see in Venezuela now.

Wait, what!? Am I reading Jacobin or The Economist? Such experiments rarely end well not because they are economically inept but because the United States sends the CIA or the Marines to put a stop to it.

Misconception: MMT should address International Trade and International Political Economy

Those countries need, for example, to import things priced in dollars, like oil, and the value of their currency has a direct effect on living standards that Americans are insulated from because we can print the currency in which that oil is priced. Brazil, in turn, has even less freedom; it needs harder currencies like dollars and euros to import commodities and advanced manufactured goods; and poorer countries like Bolivia or Ghana have even less. To buy essential imports, these countries often have to borrow in those hard currencies. To pay off the loans, they need to earn foreign currency through exports.

MMT has little helpful to say about that situation.

I will note that not only do MMT scholars say little about IPE, they say nothing whatsoever about the heartbreak of psoriasis. So what? MMT is a theory about domestic monetary and fiscal macroeconomics.

Misconception: Advocates present MMT as a socialist panacea

MMTers show a strange lack of interest in the specificity of capitalism — how production and distribution are organized, how demand for credit arises in the course of commerce, how people earn their living and under what conditions . . . Through the fantasy of effortless keystroke money, all those relations of necessity and power supposedly get wiped away.

Supposedly? Supposed by whom? I've never seen any MMT scholar say that MMT will wipe away capitalist economic relations.

I will grant Henwood that a socialist will not find a complete plan for socialism in MMT. Anyone who thinks MMT is a socialist theory is both dumb and not a legitimate MMT scholar. But Henwood hardly needs however many thousands of words to get there. Just call L. Randall Wray and ask him, Is MMT a socialist theory? To which I imagine Wray would reply, What, are you high or just stupid? MMT is about how to run a capitalist economy. Boom! I could have saved Jacobin however much money they paid Thomas Friedman Doug Henwood. (Sorry, I keep getting those two confused.)

That's enough singing for today, lads. More on the weekend.

MMT Misconceptions part 1

I will skip the pure bad faith propaganda in Doug Henwood's essay, Modern Monetary Theory Isn’t Helping: As the saying goes, "Never wrestle with a pig. You both get dirty and the pig likes it." However, Henwood reproduces many misconceptions about MMT (and basic economics). Whether he reproduces them out of ignorance or bad faith is irrelevant; my task here is to link correct the misconceptions.

Note: For clarity, I've added the label "Misconception:" to the boldfaced titles.

Misconception: "Cool[ing] things down" means "creat[ing] a recession".

Since there is a risk that too much government spending would spark inflation, the government might need to cool things down, meaning create a recession — though Wray shies away from using the word — by raising taxes.

Strictly speaking, this statement is a misconception not about MMT but about basic economics.

I don't know what Henwood actually means by "cool things down"; it's not a precise economic term; Henwood is paraphrasing without a citation, so I can't look at what Wray actually said. It is certainly the case that raising taxes is neither synonymous with creating a recession nor do tax increases necessarily or even usually cause recessions. Tax increases are contractionary, but contractionary fiscal policy is recessionary only if long-run economic growth is near zero. In standard undergraduate macroeconomic theory, when actual output exceeds potential output, some people are working harder than they want to, and they demand more for their loss of leisure than they are producing. The economy will (and should) contract (the short-run rate of growth will at least slow) no matter what the government does; all raising taxes does is to change how the contraction takes place. Without taxes, the contraction will take place through an increase in the general price level; with taxes, the government just takes the excess money out of the economy.

(Of course, if someone doesn't use a word, and Henwood explicitly says that Wray "shies away" from using recession (because contraction is different from recession), basic honesty generally requires some evidence for the imputed usage. The evidence is definitely not to be found in basic macro.)

Misconception: Reserve accounting is irrelevant

Much of the MMT literature is an elaboration of the arithmetic of bank reserves . . . Reserve accounting is important if you’re a financial economist or a central banker, but it’s of limited relevance to anyone concerned with big-picture economic questions.

Wait, what? Central bankers are most definitely concerned with big-picture economic questions. Any intro macro textbook will tell you that reserve accounting is the foundation of orthodox monetary policy. In my principles class, I spend an entire 110 minute lecture on reserve accounting. And it's not that hard; mostly just arithmetic and a little simple algebra, but it does scare some people with deficient education.

More importantly, MMT scholars want to prove that money does not work in the way we think it works, so they have to talk at length about how it actually works. Perhaps they're not correct, but a blithe math-is-scary dismissal is not a critique.

Misconception: MMT should be a theory of everything

Absent from Kelton’s paper, Wray’s book, and much of the subsequent MMT literature, is any sense of what money means in the private economy, where workers labor and capitalists profit from their toil and compete with each other to maximize that profit, a complex network of social relations mediated by money.

Nor does MMT literature address the heartbreak of psoriasis. So what? MMT is not intended to be a theory of everything, to rethink how a capitalist economy works at a fundamental level. Why should it be? Marx already did most of that work.

Misconception: Fiscal policy is impossible

[Abba Lerner's] proposed doctrine of functional finance held that “government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound or unsound.” In other words, if unemployment is rising, loosen policy (boost spending, cut taxes, lower interest rates), and if inflation is rising, tighten policy (the reverse). On first glance, this sounds completely reasonable. But on second, it’s a lot more complicated.

For one thing, it often takes time to understand what’s going on in the economy, and it takes even more time to change policy — and sometimes, like in the 1970s, unemployment and inflation are both rising, and it’s not obvious what policy should do in response. Anyone who’s watched Congress struggle with tax and spending policy has to wonder how anyone could believe that fiscal policy could be fine-tuned with requisite speed and precision.

MMTers extend this hubris about the precision and power of policymaking

A lot to unpack and explain here. Please bear with me. Note that I'm going to hold off talking about macro stabilization techniques, both mainstream and MMT, until later.

First, Henwood commits a subtle non sequitur fallacy. They're not completely unrelated, but there's a big gap between how we should measure or evaluate policy goals, and the specific techniques we use to achieve those goals. Saying that we should evaluate policy by its results rather than its soundness does not by itself entail that any specific policy measures, i.e., "if unemployment is rising, loosen policy, . . . if inflation is rising, tighten policy." Henwood's use of "[i]n other words," is absolutely dishonest, as if he were rephrasing Lerner instead of drawing a conclusion.

I'm not saying socialists should never talk about fiscal policy lags, but this trope is such a pro-austerity conservative laissez-faire bourgeois talking point that an honest socialist must handle it with full hazmat gear. Indeed, Henwood's use of hubris, plus the connection of functional finance to policy lags to hubris, is a direct invocation of bourgeois arguments against socialism: it is hubris to believe that the government could have any role in managing anything as complicated and subtle as a market economy. I'm a socialist, so that's not an argument that I want to get anywhere near my own lips.

Fiscal policy is indeed difficult, which is why principles of macro by itself (where I teach my students about fiscal policy lags) is not a sufficient qualification for holding the Fed chair. But thinking that a lot of smart well-educated people can do something merely difficult is hardly hubris.

Although taxes do work reasonably well as an "fine tuning" automatic stabilizer, literally no economist anywhere — including MMT scholars — thinks that using conventional fiscal policy (building bridges, airports, etc.) is an effective tool for fine tuning an economy for exactly the reason that Henwood lifts out of a dimly remembered or badly garbled sophomore economics class. So what? That's not the argument that anyone is having, and that has nothing to do with functional vs. sound finance.

I can tell a lot about a firm (or a household) just by looking at their books and not their real business. Specifically, I'm looking at things such as cash flow, net profit, and debt to income ratio. I know what those numbers should look like, and if they don't look the way they should, the firm is in real trouble.

Sound finance says that to some degree or another, we can tell how a government is doing just by looking at its books, or at least that we should pretend that ordinary accounting criteria that are important to households and firms are just as important for a government.

Functional finance says that we can tell very little, if anything at all, just by looking at the government's books; instead, we must look at the real economy, i.e. at GDP, inflation, employment, investment, etc. to determine how well the government is doing. If a firm is running up a lot of debt, that's troubling by itself. For a government, we don't know: is the debt causing inflation? If not, well, the government is all right for now. If a firm has positive cash flow, that's great. For a government, we don't know: is the positive cash flow causing unemployment? If so, the government is in trouble. Functional vs. sound finance is about what we should look at to determine what to do; neither offers a specific prescription on what to do about what we see.

There's a deeper economic philosophy in play. Sound finance is the position that the government should be (or should pretend to be) part of the market economy, subject to the same market discipline that capitalists apply (or pretend to apply) to themselves. Functional finance says that the government is not part of the market economy, it manages the market economy. Naturally, the capitalist class prefers sound finance.

(Yes, as a socialist, I'm against markets in general. The socialist point here is that I argue that positioning the government as not a part of but the manager of a market economy is a useful step towards socialism. And there is an argument that a capitalist government cannot effectively manage a capitalist economy not because that task is too difficult but because it is a capitalist government. Henwood does not make this argument.)

Misconception: Monetary policy is just like fiscal policy

To extend (in bold) the ellipses at the end of the last quotation:

MMTers extend this hubris about the precision and power of policymaking to the realm of interest rates . . .

Wait! Stop! Monetary policy, i.e. interest rates, is completely different from fiscal policy, and is subject to fewer and very different lags. Conventional macro already holds that the central bank can fine tune the economy.

Misconception: MMT holds that monetary policy can fine tune the economy

To finally complete (in bold) the ellipses above:

MMTers extend this hubris about the precision and power of policymaking to the realm of interest rates, which they think the central bank is completely in control of and should be kept as close to zero as possible.

Sigh. One of the points I learned to look for when I debated religion (and especially creationism) on the internet was when a writer contradicted him- or herself in the same paragraph. Henwood manages to contradict himself in a single sentence. If MMT economists want to keep interest rates near zero without qualification, then they do not want to use interest rates for fine tuning.

And indeed MMT scholars argue not that we should not but that we cannot fine tune the economy with interest rates. MMT scholars argue that businesses' expectations of profit determine most investment; interest rates by themselves do very little. Moreover, because people hold bonds for income, interest rates have the opposite effect on consumption than they do on investment.

Misconception: MMT economists do not understand interest rates

Although MMTers tend to talk casually of “the” interest rate, in fact there are many. Long-term government bonds, for example, are almost always going to carry higher rates than short-term ones, because so many more unpredictable things can happen before the bond reaches maturity. And either is going to yield less than a bank loan of similar maturity to an oil wildcatter or the corner bodega, because of the higher risk of default.

Thank you, Mr. Henwood, for explaining to a bunch of people with PhDs in economics what I teach my sophomores about interest rates. I'm sure they are most grateful for lesson. </snark>

Talking about the imaginary singular interest rate is endemic among economists in general, for a lot of boring technical reasons, sometimes just laziness. For one, risk- and maturity-adjusted interest rates should all be about the same, because that's how markets usually work. But because people are exceptionally bad at judging risk (not to mention uncertainty), markets don't always work the way they're supposed to.

When MMT economists talk about the interest rate, they usually talk explicitly about the Federal Funds rate, the rate at which banks loan each other reserves overnight, which is indeed singular and which the Federal Reserve can indeed completely control, and which does indeed influence other interest rates at least a bit. If any MMT economist has said that all interest rates should be near zero regardless of risk or maturity, I would like to see a citation, because that economist should be stripped of their PhD and forced to repeat their sophomore principles classes.

Misconception: MMT scholars don't understand inflation

MMTers are coy about [inflation] — they never say how much is too much, and they profess great confidence in their ability to control it.

Ok... How fast is too fast? It depends. On what? A lot of things; I can't put it in a soundbite for you. But let's proceed.

In a paper criticizing MMT, the left-Keynesian economist Thomas Palley says he’s heard a “leading” MMTer say inflation less than 40 percent is “costless.”

Objection! Hearsay! Sustained. Move on counselor.

<snip long discussion about hyperinflation> Weimar Germany may be an extreme case, but since it’s often brought up by critics of MMT — “won’t all that keystroking lead to inflation, like Argentina or Weimar?” — it’s one for which they need to have a good answer. Wray’s reluctance to face head-on the risks of printing money makes you wonder how confident he really is of his own theory.

Printing "too much" money is only the proximate cause of hyperinflation, in just the same sense that turning on the heat is only the proximate cause carbon monoxide poisoning. It's a bugaboo, moreover a bugaboo hysterically promoted by capitalist economists against Allende Chavez socialism. Hyperinflation is just not a risk in a country with an otherwise well-functioning government that can effectively collect taxes; if its government is dysfunctional, the country has worse problems than just hyperinflation.

MMT scholars talk how to control inflation all the time. It's really not that difficult. You suck money out of the banking system and the economy by selling bonds, or you (gasp! horror!) raise taxes.

But raising taxes is hard! No shit, Sherlock: economics is hard. Running a government is hard. People go to school for years just to start to learn how to do it.

(Maybe they should just go to journalism school and write dishonest hatchet jobs. Hell, it works for David Brooks and Thomas Friedman, maybe it'll work for Henwood; perhaps he'll go all James Burnham on us and join the AEI.)

But people hate taxes! Really? You don't say! Do they love recessions? Because that's how to control inflation without raising taxes.

Actually, people don't hate taxes, capitalists hate taxes, and they tell the people what to think. Henwood approves of taxes, and good on him, I do too, and so do MMT scholars.

Damn! This is getting long, and we're only about a third of the way through Henwood's mess. Let's take a break here and pick up where we left off in a day or so.

A trillion cows

It's one thing when stupid people repeat stupid talking points because they are paid to be stupid. That's how the world works. They're not being paid to persuade anyone; they're paid to reassure their masters and scare the rest of the slaves.

But I find people especially irritating who try to pretend to be economists, who seem to think they're actually explaining something, and just botch the job. So we'll have a look at Larry Burden's monstrosity, Thoughts on money theory.

Burden wants to explain inflation.

[M]aybe an example will help illustrate how inflation steals our wealth. If a family woke up one day and found out they had the only cow on earth, the value of that cow either to sell or exchange for other needed goods would be immense. The family, being prudent, decides to save their valuable cow until next year when it will be worth even more. Meanwhile, the USDA gets word of this priceless cow and decides to clone it.

Unknowingly, the next year the family discovers that because of the government’s interference in the market, there are now 1 trillion more cows for sale. Sure, they can still sell or exchange their cow for things the family needs; but for much, much less than they could have the year before.

Oh, sigh. I cannot think of a stupider way to explain inflation. Cows are a real productive resource. If we could clone cows, we would increase our real wealth, making everyone better off. Indeed, our fictional family has lost none of their real wealth (they still have their cow).

Money, in contrast, is not real wealth. You cannot eat a dollar bill, nor can you use it to produce more food.

Burden goes on:

Similarly, the dollar in your bank account has had its purchasing power diluted. Between 2008 and 2012, the Treasury [sic] printed somewhere between \$3 trillion and \$7 trillion out of thin air.

(Just so you know, the Federal Reserve, not the Treasury, creates money, which they can use to lend to banks, purchase Treasury bonds, or sometimes buy assets. The Treasury does print Federal Reserve notes, i.e. paper currency, but I have no idea how many they printed, nor how many were destroyed because they had worn out. Maybe if Burden would bother to cite his sources, we might be able to check his numbers.)

A growing economy needs a growing quantity of money. We try to create just enough new money to cover economic growth, but it is better to create a little bit too much than not quite enough. We want to keep the money moving: we measure our national economy by the flow of dollars, not by the stock. If there are not quite enough dollars, people tend to hoard them, the flow goes down, and we produce less than we could. It is difficult to produce more than we can, impossible in the long run. It is easy to produce less than we can, and if we produce less than we can in one year, it is easier to produce even less the next year. No more staunch a conservative than Milton Friedman argues that spiraling deflation probably turned what would have been an ordinary recession into the Great Depression.

We print money to cover our national budget deficit every year. This year’s deficit is projected to be \$1.4 trillion. Our national debt will likely top \$22 trillion. This is the largest debt ever incurred by a nation in human history.

Oooooh! Scary big numbers! Googol! Googolplex! Ackermann functions! Are you shaking in your boots?

So what? We also have the largest productive national economy in human history. Indeed, the "national debt", denominated in real goods and services at today's prices (not a terribly useful measure), comes in at well under two years of our national income. In other words, the United States' debt to income ratio is less than that of most families who buy a house.

And we are going to pass this bankruptcy [sic] down to our children and grandchildren.

We will pass the debt (not bankruptcy) — or should I say "debt", because governments are not like households, and government debt is not like household debt — to our children, as well as the productive economy it has built.

All debt is present pleasure for a future obligation.

This statement is nonsense even regarding ordinary household or business debt. When a household borrows \$500,000 to buy a house, they are not consuming \$500,000 the day they buy it, to be repaid well into the next generation.

Every nation from the Greeks to Venezuela have inevitably collapsed because they debased their currency.

Tsk! Grammar, Mr. Burden. Does your paper have copy editors? (Sigh. Of course, there will be at least one grammatical error in this post even worse than Burden's. In my defense, I don't have a copy editor.)

And not every nation has collapsed, and those that have collapsed did not all collapse because of currency "debasement"; indeed hyperinflation appears to be a symptom of other causes, not a primary cause.

Our descendants should look back on us with derision and disappointment.

Not nearly as much derision and disappointment as people who know what they're talking about look on those like Burden, whose condescension is matched only by his ignorance.

MMT and hyperinflation

Greg Curtis gives us the third installment of his hysterical and almost completely uninformed condemnation of MMT: A Few Disastrous Examples of Government Overspending.

Curtis employs an all-too-common trope: Look at these bad events! They were really bad! And they were bad — the author asserts without evidence — because of this thing I don't like. Don't do that thing! (For rhetoric nerds, this is (at best) a cum hoc ergo propter hoc fallacy.)

For example, Hitler and Stalin killed a lot of people! That's bad! They were atheists! Therefore,tThey killed those people because they were atheists! Don't be atheists! Leaving aside whether they really did "wrongly" (whatever that means) kill a lot of people (Hitler probably, I'm not that sure about Stalin) and whether they actually were atheists (Stalin probably, Hitler not so much), how do we know that it was the atheism specifically that caused the killings? They both had mustaches; how do we know that wasn't the cause? Almost all (male) politicians in Murrica (fuck yeah!) are clean-shaven. Coincidence? Wake up, sheeple!

Curtis invokes Venezuela, Argentina, Brazil, Zimbabwe, and Weimar Germany! Look at those bad events! They all had something nebulous in common with MMT!

But should we trust his judgment? Let's look at a couple of specific claims. First,

Consider Venezuela, where staggering overspending by the Chávez regime has led to hyperinflation currently running at 10 million per cent per annum and a failed state.

Really? Chávez died in 2013. All right; we'll consider his successor, Nicolás Maduro Moros part of the "Chávez regime". More importantly, hyperinflation in Venezuela starts in 2012, fourteen years after Chávez took office in 1998 (and just a year or so before his death).

Curtis puts the blame for the Holocaust on MMT: in the Weimar republic,

Colossal money-​printing led, naturally, to hyperinflation: the mark, which had traded at 4.2 to the dollar in 1919, traded at 1 million to the dollar in 1923.

The resultant social instability hollowed out the political middle in the country, and power shifted to the radical extremes: the National Socialists on the right and the Communists on the left. By 1933 the Nazis had won and a few years later Germany launched World War II.

Sixty million people died in that war, including six million Jews, homosexuals and gypsies who were murdered by the Third Reich. When MMT goes bad, as it inevitably does, it goes very bad.

Again, was they hyperinflation the cause of Weimar republic's economic problems or a symptom of something else? It's not like Germany had to pay crushing war reparations or anything. Again more importantly, the Weimar hyperinflation was stabilized in the middle of the 1920s, some years before the Second Imperialist War. Perpaps Curtis is right: clearly there are no other systemic economic crises between the mid-1920s and 1933 </sarcasm>.

It is true that if a government only prints a metric assload of money, and literally does nothing else to manage the currency, then that country will experience hyperinflation. Doctor! It hurts when I do this! Well, don't do that.

Do MMT scholars advise that governments should just print a metric assload of money? No. Do they also advocate governments should do nothing else to manage the currency? Of course not. Curtis knows this, since he does admit that spending can be managed by (ugh!) raising taxes. But Curtis ain't buying: "[T]he notion that a Progressive government would raise taxes on the middle class merely to make up for its own foolishness is outright silly." Because, of course, no progressive government ever has raised taxes on the middle class </sarcasm>.

Look, the world has had a completely fiat global monetary system since 1971. Governments have been creating money since, well, the beginning of recorded history. It can certainly be done poorly: anything can be done poorly with catastrophic consequences. Furnaces catch fire or release carbon monoxide into the house, killing everyone. Airplanes crash. Automobiles crash. But we still heat our houses, fly around the globe, and drive to work. We need more than Curtis's hysterical, incompetent oversimplifications to keep us safe.

A technocratic apolitical presentation (not!)

MMT: new wine in old bottles or ‘voodoo economics’? by Russell Jones and John Llewellyn

Much likeearly-1980s Laffer Curve ‘supply-siders’, MMT’s disciples are often near-messianic in tone, while somewhat vague in exposition. They are prone to presenting their ideas as a pathbreaking, revolutionary, approach to economic analysis and management, that can free policymakers from the shackles of fiscal and monetary orthodoxy.

First, cite your fucking sources. Second, this is a pure ad hominem argument. Third, this is how every critic describes every advocate: how creationists describe evolutionary biologists, religious people describe atheists, capitalists describe socialists, anti-vaxxers describe medical professionals, etc. ad nauseam.

[I]n this piece we seek to present, in a technocratic, apolitical way, a guide to the analytic content of MMT, and the conditions under which it could, or could not, be usefully applied in policymaking.

I would take this disclaimer a little more seriously if you hadn't just shat in the well two paragraphs previously. But whatever, let's push on.

The essential elements of MMT can be summarised as follows:

• A government that creates its own money generally need not, and will not, default on debt denominated in its own currency.
  
• A government deficit is necessarily mirrored by an equivalent private sector surplus.
  
• Monetary policy is relatively ineffective in a slump: fiscal policy is more powerful.
  
• A government can buy goods and services without the need to collect taxes or issue debt.
  
• Through money creation, interest costs can be constrained. Indeed, a substantial and persistent budget deficit can be financed at low, if not near-zero, cost.
  
• Government spending and money creation need be limited only to the extent that employment becomes ‘over-full’ and encourages inflation.
  
• Inflation, should it arise, can readily be controlled by higher taxation and bond issuance to remove excess liquidity.

I might tweak this a little, but it's not too bad a description. But again, cite your sources, please.

Thus, the core inference and contention of MMT is that the budget deficit and public sector indebtedness should be allowed to adjust to the level necessary to secure full employment. In turn it is suggested that this goal should be achieved through a government-sponsored blanket jobs guarantee, which would act as an utomatic stabiliser. When private sector jobs were plentiful, government spending on the guarantee would be lower, and vice versa. Alternatively, full employment could be achieved by large-scale spending on infrastructure, climate change, and the environment, such as via a ‘Green New Deal’–all financed, if necessary, by the central bank.

The jobs guarantee and large-scale government spending here are not alternatives. MMT advocates argue for both. Other than that, a fair summary.

The truth about MMT is more complicated and less trailblazing than its supporters suggest.

Not a criticism, just another lazy ad hominem. Let's push on to Jones and Llewellyn's actual criticism.

Indeed, it looks very much like the ‘Functional Finance(FF)’gospel preached by Abba Lernerin the late 1930s and 1940s.

What?! MMT Scholars, who have PhDs in economics, have, gasp! read Abba Lerner?! Say it ain't so!

For example (since I actually will cite sources), Here's L. Randall Wray in MMT Responds to Brad DeLong’s Challenge:

What [MMT scholars] really like was Lerner’s application of Functional Finance to the budgeting process. The budget should be functional, not sound. That is, to achieve a functional purpose rather than to balance taxes and spending.

Or just search for Lerner on NEP.

Furthermore, Lerner isn't the first. He has predecessors.

Back to Jones and Llewellyn.

[Keynes] considered that Lerner lacked practical judgement and intuition, and paid insufficient heed to what he described as the public’s ‘allergy to extremes’.

Yet another ad hominem. Is this how you do technocratic apolitical examination? I think I was doing it wrong all those years in college and grad school studying economics.

[T]he policy inferences of MMT need to be considered seriously. At the very least, they do not compare unfavourably with calls for fiscal and monetary rectitude that are grounded either in narrow accounting logic or myopic adherence to the quantity theory of money.

I concur! Given that "calls for fiscal and monetary rectitude" have dominated the conversation over government spending since I've been alive, MMT sound pretty trailblazing just on that point alone.

MMT, like FF (and in common wit hmuch US-led analysis) is based implicitly on a closed-economy model. It makes no allowance for the possibility of monetary expansion causing the exchange rate to fall rapidly.

No it isn't and yes it does. See MMP #34 Functional Finance and Exchange Rate Regimes: The Twin Deficits Debate. Y'all have heard of Google, right?

Also, for a large country such as the US, exchange rate problems are relatively trivial. MMT scholars have given a lot of thought to the applications of MMT for smaller, outside-debt constrained countries.

Jones and Llewellyn:

MMT overlooks the potential for monetary expansion and an extended period of low interest rates to create the conditions for domestic financial instability, excess, and perhaps disaster.

Surprisingly, MMT scholars have heard of Hyman Minsky. Google is your friend.

MMT’s disciples pay little attention to the structural component of unemployment, which is unlikely to prove responsive to stimulus of demand and, more likely, raise inflation.

What. The. Fuck. The whole point of the Jobs Guarantee is that ordinary stimulus will not cure structural unemployment. Seriously, guys, you have to at least read the textbook, or you'll fail the class.

For example, from the MMT Primer:

OK, explain to me how pumping up the demand for higher skilled and educated workers—setting off a bidding war for them—will cause jobs to trickle down to the less skilled and less educated workers WITHOUT causing wages and prices to rise.

Jones and Llewellyn:

They say little about the effects on wealth distribution of a reliance on monetary finance.

Why should they? They talk about the salutatory effects on wealth distribution of fiscal policy, i.e. taxing the shit out of the rich because, you know, fuck those guys.

They ignore the vexed issue of moral hazard. The disruption of the connection between government decisions on the size of its budget deficit and the willingness of the private sector to fund that deficit at interest rates that it deems reasonable destroys at a stroke one of the most important disciplines the market imposes on politicians.

This statement requires a little more depth of response. First of all, no economist ever just ignores moral hazard; however, we might have different opinions on where and how much there is. And we already know Jones and Llewellyn have not read the textbook, so we have little confidence that they have read comprehensively enough to find out what isn't there.

I can't nail down a specific quotation, but the whole point of MMT, at least as I read it, is that MMT scholars don't want the "private sector" (i.e. the billionaires) to discipline the government, they want the government to discipline the billionaires.

Where's the real moral hazard? In elected politicians who have to maintain legitimacy and popular support to gain reelection? Or in a bunch of rich people who will do anything to retain their power?

Finally,it is inescapable that debt accumulation cannot go on indefinitely

This is just flat-out not true. Or, more precisely, debt accumulation can go on as long as economic growth goes on or until we move away from a money-based economic system entirely, in which case debt becomes meaningless.

Free speech and academia, yet again

I will say this yet again, because it's important.

Academia is (among other things) a place where we separate good ideas from bad. This function requires that academics openly discuss questionable subjects and ideas with a as much dispassion and "objectivity" as we can manage.

However, at some point, academics should and actually do make some decisions: we find some ideas to be legitimately good, and promote those ideas, and we find some ideas legitimately bad, and we deprecate those ideas. And if you want to discuss a bad idea on a college campus, the burden of proof is on the claimant to show that there's something so novel and compelling about the idea that the previous judgement should be suspended.

The idea that women are in any way inherently inferior to or even very different from men (other than reproductive biology and trivial aspects of athletics and heavy manual labor) is one such legitimately Bad Idea. The idea that people of some races are inherently inferior to other races is another such Bad Idea. The idea that people with atypical sexual or gender orientation are in any way inferior to those with typical orientation is yet another. This list is not exhaustive: There are any number of completely discredited ideas that have no place in a university.

With apologies to Monty Python, sexism, racism, etc. are not pining for more critical investigation. They are dead. They've passed on. These ideas are no more. They have ceased to be. They've expired and gone to meet their maker. They are bereft of life, they rest in peace. If racists hadn't nailed these ideas to the perch they'd be pushing up the daisies. They're metabolic processes are now history. They're off the twig. Kicked the bucket, shuffled off their mortal coil, run down the curtain and joined the bleedin' choir invisible. They are ex-ideas.

Do I make myself clear?

No one gives a fuck if some dumbass student writes a stupid sexist paper in Comp I or if some mossbacked tenured professor publishes reactionary racist drivel in an obscure journal. De minimus non curat lex.

But it's an intolerable affront not just to the sensibilities of minority students but also to those who take seriously the academic pursuit of truth for an actual university to invite a dumbfuck racist like Charles Murray or a narcissistic poseur like Milo Yiannopoulos to speak, as if these morons could breathe any sort of intellectual life into long dead ideas. The only possible reason to invite people like this is that the university wishes to promote racism, sexism, or some other long-discredited idea.

The history of the most brutal violence to control and oppress women, people of color, etc. ad nauseam means that universities must take bullying and hostility with the utmost seriousness. A campus is not 8chan; it is a professional environment. It should require literally zero thought to hold that the right of Black students to fully participate in academia squashes the right of some Aryan Brotherhood frat-boy jerk to yell "n****r" in the quad.

Good fucking grief. Why is this still an issue?

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.

Central planning in Star Trek

In my previous post, I talked about how Rick Webb, in his essay, The Economics of Star Trek: The Proto-Post Scarcity Economy, doesn't understand market economics. In addition, Webb also doesn't understand central planning.

Webb believes that the presence of individual choice decisively disproves central planning. He concludes, "The Federation is clearly not a centrally planned economy"* presumably because "[i]ndividual freedom of choice is very obvious." Webb claims to know that individuals have freedom of choice because "[e]veryone chooses their careers." Well, everyone, that is, who has made it in the glamorous and dangerous world of interstellar exploration. Gene Roddenberry et al. are not going to show us all the people who wanted to be starship captains but didn't get into Starfleet Academy.

*Italics omitted

(One hilarious irony is that in Star Trek, like every other military, even in the most fanatical market economy, the United States, Starfleet is most probably a centrally-planned organization. As far as I know, no one has managed a military organization with market economics: the 1st Infantry Division is not a profit-maximizing economic actor. If Webb can see a market economy in a military, he can see a market in anything.)

We cannot conclude that the Federation lacks elements of central planning. Not just because the Federation is a fictional society and has no underlying economic organization at all, but also because we don't know the the actual contingent problems a proto-post scarcity society would have to solve, and we don't know the historical context, i.e. the existing political and economic power relations, they have to solve them under. Even if we were to assume the present-day United States leads the way to a proto-post scarcity society, we cannot reliably project more than a some few tens of years; we definitely cannot predict what would happen three centuries from now.

Still, it's important to be more definite about what we mean by "central planning". There is at least a grain of truth underneath Webb's idea. It's logically impossible to run a market economy without some households making some choices, and it is logically possible to run a centrally planned economy with households having no choices at all. But just because it's logically possible doesn't mean it's necessary or even desirable to run a centrally planned economy exclusively by pointing guns at people's heads and telling them what to do.

How much economic choice people have is dependent first on the wealth of a society. Until the middle of the 20th century, the vast majority of people in the United States were farmers. A person could choose their occupation, so long as almost all of them chose to be farmers. And if we look at the beginnings of our capitalist market economy, most of these farmers had to be rather violently pushed into selling their labor on the market (see, e.g., The Invention of Capitalism by Michael Perelman.) Not having a lot of choices doesn't mean we're not in a market economy. Similarly with the Soviet Union and mid-20th century China. Both were extremely poor societies — immediately after the revolution, Russia was running its entire productive capacity and railway transportation on firewood — so there were just not a lot of choices to be had, regardless of economic organization.

On the other side, in a very rich society, at least some people will have a lot of choices, regardless of economic organization. And rich or poor, people in high status and high demand jobs will be those who want those jobs. Regardless of organization, it's pointless and stupid to force a person to be a doctor if there are 10 other people, just as intelligent and hard-working who want to be doctors. We really can't tell the form of economic organization just by looking at a few people in a high status jobs.

Just as Webb doesn't understand market economics, he doesn't understand central planning. His ignorance is perhaps more understandable: there have been only two societies — the Soviet Union until 1980 and the People's Republic of China until the 1970s — that have engaged in central planning in a big way, and both of them were not only poor, but fighting cold and proxy wars against the United States, so information about their economies is hard to come by, and propaganda about our "enemies" easy to obtain. Still, a little common sense can go a long way.

There are two basic types of central planning: command economics and state ownership. A society can combine these two types and can combine them with a market economy. Central planning and markets are not logically exclusive.

The first type of central planning is a command economy. In a command economy, the government just tells people what to produce and where to distribute it. The precise form of a command economy depends on the specific technology of production and economic problems to be solved. In a very poor mostly subsistence economy, the government will decide they need more tractors, round up a bunch of farmers, tell them to build and operate more tractor factories, and give the tractors to those who are still farmers. If Ivan or Chen doesn't want to leave his farm and build tractors, well, too bad: do it or go to jail. (Note that most modern "market" economies kicked off industrialization just as coercively. They simply dispossessed a bunch of farmers or expropriated the commons necessary for their subsistence viability, and said, "Hey, if y'all want to get money for food, come build and work at this factory over here." Sure, they had a choice: work or starve.) In a richer country, the commanders have a wider range of options, and their actions will depend on the actual problems to be solved.

A country usually employs a mostly command economy when it is fighting a "big" war. i.e. a war that requires the country to employ almost all of its surplus to fight the war. Every country, Allies and Axis, the capitalist United States and the communist Soviet Union, ran the Second Imperialist War as a command economy. This type of command economy works directly at the firm level: the central planners look at the existing productive capacity of firms, and tell each firm, "You produce this many tanks, you produce this many planes, you produce this many bullets, bombs, and shells, etc." There's no point in the central planners telling each individual where to work: each person works at one of the local factories, or they starve or go to jail. Even though there's usually a severe labor shortage in wartime, workers do not engage in market competition for wages. They take the pay and/or rations set by the government. This kind of economic organization appears very desirable. As I note above, every country — capitalist and communist — in a "big" war has employed command economics to a significant degree.

Modern corporations and military organizations have an internal command economy. Although corporations compete with each other in a market economy, internally, almost every corporation in every country is a centrally planned command economy. The employees do what the central planners, i.e. the board of directors and the senior management, tells them to do, and they use the resources the central planners give them to do it. Again, a corporation that tries to structure its internal organization along market lines risks failing as spectacularly as Sears. There are employee- and employee/customer-owned corporations, but that just means the employees (and customers) choose the commanders: these corporations are still internally centrally planned command economies.

The second form of central planning is one where the state owns and operates firms and/or controls a substantial amount of financial capital. One example is Norway, with both state ownership of significant firms and a large sovereign wealth fund.

Market economics in Star Trek

Rick Webb's essay, The Economics of Star Trek: The Proto-Post Scarcity Economy, is kind of dumb. I agree with Webb: we want to transcend our scarcity-based economic paradigms such as capitalism, and it makes little sense to understand economics by "resolving obscure trivia references" in a fictional television show. What we see on the show is dictated not by economic reality but by the demands of narrative: The producers, directors, writers, and actors must put on an entertaining and profitable show in a capitalist economy to capitalist viewers. There is no more underlying economic reality than there is an underlying engineering reality of warp drives and transporters. I don't think the economics of Star Trek make any sense at all, but so what? I don't watch the show as an economist, I watch it as a science fiction fan. I think Webb's whole venture is futile. The best we can do from watching Star Trek is find out what Gene Roddenberry and his successors thought about economics, not about the economics of a real "proto-post scarcity" economy. Unfortunately, Webb does just what he says he wants to avoid, and resolves obscure trivia references to impose a capitalist paradigm on the non-existent non-economy of a fictional television show. It's a confused, incoherent jumble of economic superstition filled with trivial logical fallacies.

*He has since expanded the essay into book form, which I have not read.

For the reasons listed above, it's a waste of my time as an economist to talk about what the Star Trek economy really is, since Star Trek isn't anything more than a surface. And it's not even that useful to talk abstractly about a proto-post scarcity society, i.e. a society where productive technology has advanced to make most ordinary needs abundant, but there are still larger scarcities. (For a fictional treatment of a true post-scarcity society, see Iain M. Banks' Culture series.) The problem is that political-economic systems are fiercely historically contingent. The political economy of any given proto-post scarcity society will depend on the specific historical details of how they got there.

However, I can perhaps correct some of Webb's more egregious misconceptions about political economy.

Webb associate markets with individual choices and central planning with the lack of choice. This association is incorrect. Markets and central planning are both very specific, detailed economic mechanisms. Saying that the Federation economy is market-based because people have choices is like saying that transporters use internal combustion engines like cars because like cars, transporters move people from place to place. So it's worthwhile to talk about how markets actually work in the real 21st century world.

Economics is about the study of scarcity. How can we choose best, as individuals and societies, when choosing to have one thing prevents us from having something else? If there's no trade-off, there's no economics. For example, we simply have no economic system at all for managing the quantity of atmospheric oxygen and carbon dioxide for animal and plant respiration. (Of course, global warming is another matter.) I don't have to buy oxygen in a market, nor is there any government telling me how much oxygen I can consume or how much carbon dioxide I must produce. So most people in Star Trek are just not economic actors in any sense, and there is no need for any economic system, markets, central planning, or anything else.

When we do have systematic scarcity, we have to carefully manage how we allocate what is scarce. The primary and most important scarcity is labor. We have found that human beings can vastly improve productivity by cooperative specialization. Instead of each household making everything they need themselves — growing their own food, building their own houses, weaving and sewing their own clothing, etc. — it is more productive to have individuals each doing one thing, and exchanging their products. Thus, I produce economics education, and I exchange that education for food, shelter, clothing, etc. Unfortunately, the people who consume my education do not grow food, build house, or manufacture clothing, so simple barter will not work. We have to have a more sophisticated system in place to allocate scarce labor, to make sure people specialize in the most productive endeavors.

A market economy is an institution for managing the allocation of labor to production and the allocation of surplus to increase productivity. The critical, essential feature of a market economy is the negotiation of money prices to maximize money income.

The simplest model of a market economy is just the interaction of households. Each household specializes in the production of one commodity for exchange. The households negotiate a money price with other households and exchange their commodity with those other households for money. The households then use the income from selling their own commodity to purchase commodities from other households, also with negotiated money prices. Each household chooses what and how much of its commodity to produce and, more importantly, the price of that commodity, to maximize household income. Stuff that other households produce is scarce, so each household has to carefully ration what they buy from other households to get the most "utility" from their purchases.

Households have a "choice" of what to produce and a "choice" of what price to require in the sense that no one points a gun at their head and tells them what and how much to produce and what price to sell it at. However, because a market economy exists to manage scarcity, a household cannot simply choose to produce whatever they please at whatever price they please, at least not for long. To maximize income, they have to produce the most in-demand commodity they can, and set the price to maximize their income: if the price is too low, everyone will want to buy it, but they won't make enough money; if the price is too high, no one will want to buy it. It turns out that to maximize its income, given its particular endowments (land, climate, skills, quantity of labor) there is usually exactly one commodity that a household "should" produce and exactly one price it "should" negotiate for that commodity.

It's provable that given a few assumptions (which are unrealistic in a complicated economy), this model will always produce a general equilibrium and a Pareto efficient distribution of subjective utility.

We can extend this simple model in various different ways to model things like managing a surplus of subsistence commodities or complicated multi-stage production, but these extensions must keep the negotiation of prices to maximize income (or net income, i.e. profit) to stay market-like.

By definition, when there's no scarcity, people will not use any mechanism, markets or otherwise, to optimize production or consumption. They do not choose what and how much of some commodity to produce in order to maximized their money income. They do not choose what to consume to make the most of their money income. They produce what they want to produce, and they consume what they want to consume. There's no market in a society like the Federation because there's no need for a market.

Manufacturing anti-semitism

Well! The Guardian manages to follow The Atlantic in The Stupid, it Burns! series. Never mind UKIP, Richard Spencer, the growing American neo-fascist/neo-Nazi/alt-right movements, etc., ad nauseam. In I still don't believe Corbyn is antisemitic – but his 'irony' comments unquestionably were, what's really important is for Simon Hattenstone to dissect a comment from British Labour Party chairman Jeremy Corbyn from five years ago to make a specious connection between anti-semitism and opposition to the democratically elected government of Israel (which government I do not support, and I would not travel to Israel for love or money... and I presently live in China). Although the stupidity and mendacity seems obvious enough, because this drivel was published in The Guardian, I will explain a bit.

In 2013, defending Palestinian ambassador Manuel Hassassian, Corbyn said that

Zionists who were in the audience . . . clearly have two problems. One is that they don’t want to study history, and secondly, having lived in this country for a very long time, probably all their lives, don’t understand English irony either.

Hattenstone sees clear evidence of anti-semitism: by "Zionists", Hattenstone claims Corbyn clearly meant Jews: Corbyn's comment "is unquestionably antisemitic."

Hattenstone's first tries the "swap the minority" argument:

And if there were ever a clear example of somebody conflating Zionist with Jews, this appears to be it. Let’s play the traditional “swap the minority” game. Instead of “Zionists” let’s make it, say, Muslims or African-Caribbeans or Asians or Irish needing lessons in history or irony. Not nice, eh?

This argument is beyond stupid. Any criticism or generalization becomes racist if you replace the object of criticism with a racial group. Murderers are violent => Black people are violent. The point is whether the initial object of criticism is itself a racial group, not that the comment is critical.

Next, Hattenstone tries to make the case that Zionist necessarily means Jewish. He quotes Shami Chakrabarti:

Crucially, I have heard testimony and heard for myself first hand, the way in which the word ‘Zionist’ has been used personally, abusively, or as a euphemism for ‘Jew’, even in relation to some people with no stated position or even a critical position on the historic formation or development of modern Israel. This has clearly happened so often over a number of years as to raise some alarm bells in Jewish communities.

This argument is just warmed-over third-hand Fox News "Some people say" bullshit. Just because some people use Zionist as a euphemism for Jew doesn't mean that Corbyn used it in that sense. Hell, I consider Republican and conservative as euphemisms for racist, but that doesn't mean that everyone who uses the former term means the latter.

Notably, Hattenstone does not link to the source (pdf) of the quotation, but to a summary article in which it does not appear. He apparently ignores such passages from the summary as Chakrabarti’s report "doesn’t deserve to be 'weaponised' in one direction or another." Chakrabarti "doesn’t offer an unambiguous definition of antisemitism and its relationship to anti-Zionism." Oh, and Chakrabarti calls for :a moratorium on trawls through the past statements of Labour party members." I suspect Hattenstone himself might not have the strongest grasp on the concept of irony.

Hattenstone continues:

Meanwhile, Labour’s new code of conduct states that the use of the word Zionism “euphemistically or as part of any personal abuse” may “provide evidence of antisemitic intent”. On both fronts, if Corbyn said the same thing today he would be in breach of his own party’s guidance.

But this would be true only if Corbyn actually did use the word Zionism "euphemistically or as part of any personal abuse," which Hattenstone has not, you know, actually established.

Finally, Hattenstone argues that criticism is indeed criticism. Corbyn said that

these British Zionists don’t study history, and they don’t understand irony . . . In other words, they are uneducated, they have failed to integrate or assimilate, they are outsiders, they don’t belong, they need to be taught a lesson. Sorry, Jeremy, this is the language of supremacism.

Hattenstone's extrapolation is complete nonsense. I cannot speak to British culture, but there are a metric assload of fully integrated and assimilated Americans who don't study history and don't understand irony. Most of them are in fact uneducated (although a lot of supposedly educated people don't study history or understand irony), but criticizing someone for being stupid is not saying they're "outsiders", except, perhaps, in that they are outside the group of intelligent people capable of basic critical thinking.

I'm not sure it's the hill I personally want to die on, or that the Western Left should die on, but the Israel-Palestinian conflict is one of the sharpest and most binary examples of social justice: The Israeli government and its supporters, Israeli citizens and non-citizens, are in the wrong, are acting grievously against social justice. It's impossible, I think, to be an honest SJW and not at least give lip service to the condemnation of the Israeli government's treatment of Palestinians.

I am hesitant to contradict Hanlon's Razor, even with all the charity I can muster, I can't explain Hattenstone's nonsense just with stupidity. This looks more like a malicious hatchet job: any challenge to the absolute authoritarian rule of the capitalist class must be smeared by any means possible. Hattenstone is lying, he knows he's lying, and he's lying on purpose, to discredit Corbyn and the Labour party. And The Guardian is complicit in this malicious purpose. One person might be just that stupid; it's too much of a stretch to believe that not just Hattenstone but also all the editors who published this crap are all that stupid.

The exceptional heroism of Jordan Peterson

The Atlantic makes the annals of The Stupid! It Burns!, a notable accomplishment. Usually such publications have people like editors and fact checkers to filter out the more egregious stupidity. In "Why the Left Is So Afraid of Jordan Peterson," Caitlin Flanagan praises Jordan Peterson's heroism in saying what the Big Bad Left Does Not Want You to Hear.

Flanagan heaps abuse on "identity politics" and "political correctness". She doesn't really tell us what they really mean beyond a few ambiguous anecdotes, but that's all right, because we all know they're evil. We can forgive that she doesn't tell us much about what Peterson actually says, because if you're standing up to "identity politics" and "political correctness", you must be a hero, nest ce pas?, but Flanagan cuts right to the quick in her closing paragraph:

Perhaps, then, the most dangerous piece of “common sense” in Peterson’s new book comes at the very beginning, when he imparts the essential piece of wisdom for anyone interested in fighting a powerful, existing order. “Stand up straight,” begins Rule No. 1, “with your shoulders back.”

Argh! As a long-time Marxist, I'm dismayed that she's found us out! Central to Marxist thought is the idea that ordinary people should slouch. Take out the slouching, and the whole leftist project collapses. We might as well just all go home now, buy factories, and exploit the working class.

I don't get it

You're willing to vote for Clinton who, at the very least, supported and promoted the Iraq war, someone who botched health care reform so badly it took a generation to get even the quarter-assed PPACA passed, someone who supports austerity, leading to the deprivation of millions, someone promoting the pro-business anti-worker TPP (who will quietly "fix" a few inessential provisions and then pass it), because, hey, we all have to compromise, dontchaknow. But you're not willing to cast a protest vote for Jill Stein because she's not as strongly pro-vaccine as you would like.

No wonder the Democrats keep moving to the right. You let them.

But hey, you're backing a winner!

A spoonful of stupidity

The first problem with Saurabh Jha's essay, "A Spoonful of Inequality Helps the Medicine Go Down," is the title. If we really had a spoonful of inequality, he might be talking about something meaningful; however, we presently face inequality in industrial quantities. And the comparison is deeply confused: the original metaphor is "a spoonful of sugar..." Inequality is sugar? Economic growth is the bitter medicine? Jha's title makes no sense.

Jha begins his essay by blatantly poisoning the well: people worried about inequality are "pro-Hillary, morally conscious, happy bunnies who pretend to specially enjoy French wine, and opera"; they treat economists as religious figures" "Pope St. John Paul Piketty" and "Bishop Paul Krugman." Clearly, anyone thinking about inequality must be shallow and irrational, right? We don't have to engage their arguments, just show that the whole concept of worrying about inequality

Jha attempts to rebut worries about inequality by masterfully demolishing an obvious straw man, using a "thought experiment" of breathtaking inanity. In his eople starving during the Bengali famine were all equal — equally starving — but Capitalism (and presumably only capitalism), personified by Mukesh Ambani (presumably referring to this man) will swoop in and save the day. Never mind that India, including Bengal, was already capitalist, a possession of the arch-capitalist British Empire, hardly the epitome of egalitarianism. And never mind that Ambani's company, Reliance Industries Limited, has a Wikipedia page devoted to the company's corruption and The Economist calls Reliance "a rotten role model for corporate India . . . not a national champion but an embarrassment." No, the real problem is that no one argues for equality of starvation. No one argues for a Harrison Bergeron caricature of equality. No one argues that we want absolute equality of everything, and that a world of equal suffering is preferable to a world with the smallest inequality but abundance and prosperity. The (left capitalist) argument is that we have too much inequality, and we have the wrong kind of inequality. But Jha cannot be bothered to engage to know even what the argument actually is. No, to Jha, all arguments about inequality are just the vacuous religious platitudes of latte-sipping moochers.

Jha tries to enlist science to his argument, citing The Association Between Income and Life Expectancy in the United States, 2001-2014* (2016) by Raj Chetty et al. According to Jha, the authors "found that the life expectancy of the poor depended on where the poor lived, not the degree of income inequality per se." Well, no. Jha cannot employ basic logic. The first part is correct: Chetty et al. (2016) do find that poor people who live in high income areas (e.g. New York) live longer than poor people in low income areas (e.g. Detroit). But the second part is not correct: holding income constant (comparing poor people against poor people) means that we are ignoring variation in income; it absolutely does not mean that the authors find variation in income is not correlated with variation in mortality, holding location constant. According to Chetty et al. (2016), there is, for example, a 4.5 to 5.0 difference in mean life expectancy between the richest and poorest quartiles in New York, the wealthiest area in the study. Yes, where you live affects how long you live, but it is also true that even holding location constant, how much income you have affects how long you live. Indeed Jha actually admits this fact: "he richest 1 % men live, on average, 15 years longer than the poorest 1 %" but there is a "difference in life expectancy for men of 5 years" between the richest and poorest areas. Fifteen minus five is ten, which is not zero.

*What an awesome study. 1.5 billion tax records? I would kill for that kind of data.

Jha claims that the study "finds that life expectancy doesn’t correlate with amount of medical care. Which means that the poor aren’t dying sooner, en masse, because they can’t access the emergency rooms on time, or because they lack insurance. Sorry Obamacare." Even the first part is suspect, because the primary data that makes

Technically correct, but Jha overstates this conclusions. First, the "Sorry Obamacare" dig is utterly specious: The PPACA has been in effect only since 2010; it is far to early to asses its impact.

Second, there's a huge problem with the external validity of the study: it is probably an accurate picture of the United States from the mid-twentieth century to the early twenty-first, but the United States is a highly developed nation, and there are differences between the United States and other countries that affect the relationship between access to medical care and mortality rates. This study (awesome and valuable as it is) tells us literally nothing at all about the impact of and means to alleviate global inequality. Jha is clearly talking about global inequality — otherwise why mention Bengal — but Chetty et al. (2016) are talking about inequality in the United States.

Jha lists "a few things which won’t help the poor: hospitals, bicycle helmets, screening, millennials fretting about names associated with historical wrongdoing, and occupying Wall Street. Sorry social justice warriors – all of that righteous rage may be for naught." Jha does not even try to justify this statement; it certainly doesn't follow at all from Chetty et al. (2016). And really nothing on Jha's list except occupying Wall Street has anything to do with inequality. These items are (to take the quotation egregiously out of context) just Jha's "personal prejudice[s]."

I kind of agree with Jha on one point: the poor need "schools with top quality teachers who care. They need public parks. They need the government to invest in public works to revive jobs." Fair enough. Who is going to provide those things? The rich? Well, we've been waiting, a long time. Indeed, we've been waiting too long. The rich are not going to provide schools, parks, public works, jobs out of charity or altruism. The rich are "segregated in enclaves where they self-flagellate about inequality drinking Dom Perignon" for a reason: they don't want to actually help the poor, or even see them, but they don't want to feel bad about not helping them. And that's just the few rich people who will hang out with a religious apologist propagandist like Jha. Most of the rich are just "segregated in enclaves . . . drinking Dom Perignon," without the self-flagellation: they don't care about the poor at all. Why should they? They're not poor. No, we don't want to wait on the capitalist class to grow a heart. If we want to stop dying young, being oppressed and exploited, so that the rich can drink their Dom Perignon and spit on us, the working class will have to take back what the rich have stolen. I nominate Jha for first donor.

Regulating sex

Ugh... what a terrible article. In Regulating Sex, Judith Shulevitz argues that affirmive consent laws could lead to a host of unintended problems. I think her concerns are way overblown.

Shulevitz introduces a hypothetical proposed by 70 of the 4,000+ members of elite American Law Institute:

Person A and Person B are on a date and walking down the street. Person A, feeling romantically and sexually attracted, timidly reaches out to hold B’s hand and feels a thrill as their hands touch. Person B does nothing, but six months later files a criminal complaint. Person A is guilty of ‘Criminal Sexual Contact’ under proposed Section 213.6(3)(a).

I'm not a lawyer, but this doesn't seem like a big issue. The authors simply take for granted that the "thrill" constitutes "sexual gratification," but does it really? Would person B actually complain? Would a prosecutor prosecute? Would a judge or jury find that holding hands constituted sexual gratification?

And, maybe, it really might be a bad idea to hold someone's hand without their express permission.

Shulevitz also worries about disproportionate penalties. Even per the above, if Person B complains, a prosecutor prosecutes, and a judge or jury actually finds Person A guilty, should Person A above be imprisoned for years and be publicly registered as a sex offender?

Well, duh, no. We can create degrees of "Criminal Sexual Contact," for which inappropriate hand-holding could be only an infraction. Our present definition of criminal sexual contact only prohibits the most extreme behavior, and thus warrants a proportionate penalty; if we're going to radically broaden the definition, then we can just as easily make the penalties proportionate.

All these sorts of weird edge cases are important, and the best minds of law should think about them carefully and write the statutes appropriately. But we have hundreds of years of experience fine tuning laws like this. This kind of minutia is appropriate for expert legal debate, but not to challenge the political concept of affirmative consent.

Essentially, Shulevitz asks what might happen if "victims", politicians, prosecutors, judges, and juries all act in extraordinarily moronic ways or with unaccountably bad faith. But the law is not set up as algorithms to regulate the behavior of morons. The law applies to, and is administered by, human beings, not sphex wasps.

It is very important to remember that affirmative consent is being discussed to solve a real problem: women, often young and vulnerable, getting pressured or intoxicated and not actively protesting completely unwanted sexual activity. I'm willing to be a little extra careful about holding hands to decisively prosecute these real cases.