If we lived in a world where there was nothing left to be done, that would be wonderful. Off the top of my head, I can think a several things that need doing. One is assistance for people who are home- or bed-bound, and need assistance with simple living tasks. Another is people who need homes, or affordable homes. There are parks that need to be renovated, and sidewalks that need to be built. Mass transit for cities like the one I live in would be a god-send. I think I’ve already mentioned national broadband internet, and high-speed trains. The criminal justice system is in desperate need of funding, especially indigent defense. There are, or so I’m told, a glut of PhDs who could be doing interesting and important work, if the funding was there.
The best remedy for inequality is full employment. It’s not in the news much, but we’re on our way there. The unemployment rate is 5.5%, and falling. Unless the Fed changes its policies, employers will soon find themselves competing for workers, rather than workers competing for jobs. That means they’ll have to pay more, provide more benefits, etc. Owners of companies don’t want that. It eats into profits.
Unfortunately, I suspect the Fed will change its policies. They won’t say they’re doing it for the sake of America’s owners, but the effect will be the same - more bargaining power for owners, and less for workers.
I’m not sure what you mean by opportunity cost. By definition, a jobs program would employ people who were unemployed. If they were employed, they wouldn’t be part of the program. If they became employable, they’d leave and join the private workforce.
You don’t have to believe what anybody says, you just have to look at history. Over the last several years the government has “gotten” (created) trillions of dollars of new money. That money didn’t come from raising taxes. And it hasn’t resulted in inflation (inflation has remained historically low). Those are simple facts.
@ puddleglum - two comments:
(1) If it’s true that government projects face significantly more obstacles (environmental impact studies, etc.) than private projects, then that’s a problem that needs to be addressed … rather than leaving it as an excuse to denigrate public investment.
(2) Government investments are often more beneficial than much private-sector investments. Consider the huge squandering by the present-day financial sector. Much other private sector activity, e.g. health insurance, is more about “breaking windows” than creating new value.
By opportunity costs I mean what could have been created with the money had it not been taxed. Projects that have employment as their primary goal are less likely to have a positive ROI than private sector projects where positive ROI are the whole point.
History did not begin in 2007, look around the world at what happens when a government tries to print more money than the economy needs. Look at what happened in the 70s in this country. The reason inflation has been so low is because the Fed wants it low. Too low in my opinion, but if MMT ever had influence then inflation would come back.
I’m not sure what you mean by “money disappearing”. The classic view is that the cause of inflation is “too much money”. In the US, the Fed reacts to inflation by selling bonds, which reduces the amount of money in reserve accounts, which makes money disappear. It also forces up interest rates. Which makes sense, since interest is the cost of borrowing money. When there’s less money, the cost of money goes up.
There are a number of reasons why people become successful, only one of which is effort. For example, neither you nor I will win the Boston Marathon, no matter how much effort we put into it. It will most likely be someone from Kenya, or Ethiopia.
People work all the crappy jobs because someone has to. Otherwise when your roof leaked, no one would come to fix it. Sewage would back out of your toilet, the roads would fall apart, grocery store shelves would be bare, no one would pick up your trash, and the construction industry would grind to a halt. Even if every human being was a fearless certified genius, some of those fearless certified geniuses would have to pick up your trash.
If someone earning $200,000 a year with no skills lost his job, he’d either participate in the jobs program, or not. The only difference would be he’d have the option to work, if he wanted. He certainly wouldn’t be paid $200K, just because he used to make that much.
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That problem does need to be addressed, but it is constantly ignored by advocates of fiscal stimulus. Fix the process first and then maybe use it to spend billions of dollars. Yet the party that wants all the fiscal stimulus is the part of unions, lawyers, and environmentalists. It is almost like giving money to those groups is more important than actually stimulating the economy. This is why infrastructure costs so much more in the US than other countries. For example New York is trying to build some new subway lines at a prospective cost of $1.7 billion per kilometer. Sao Paulo just spent 1.6 billion on a subway line that goes 11 kilometers and has 11 stations. Paris and Berlin recently did subway lines for $250 million per kilometer. The US pays 8 to 10 times the price the rest of the world pays and yet there is never a call to reform the system, just to shovel more billions into fire.
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Government spending may be more beneficial, often is overstating it. Private sector activity may squander large sums of money, but over time companies that squander large sums of money shrink and so this problem is self limiting. Governments programs waste large sums of money but the government is never going away. The more money the government spends the more money is spent on lobbying which is the definition of a societally wasteful activity. As your article says finance has a vital part to play in any healthy economy, but lobbying is just pure rent seeking, and the bigger the government the more lobbying takes place.
To say that someone is “unemployable”, is that necessarily something about that person or does it also reflect the economic environment? Because if it’s the former, I think conflating the unemployed with the unemployable is unwarranted (and if the latter, it’s tautological but misleading).
Yes, inflation responds to the law of supply and demand.
If there was a fixed quantity of goods and services, (and nobody wants to save or pay down debt) increasing the amount of money results in inflation.
In the real world, the amount of goods and services isn’t fixed. Instead, it responds to demand. When there’s more demand, businesses increase production, and sell more stuff. That generally means hiring more people. So in a world where there are unemployed people, who are ready willing and able to work, the result is more employment, a higher GDP, and a healthier economy. All without increasing inflation.
This is the world we actually live in. This is the actual history of the U.S. over the last six or so years.
If or when we reach a world of full employment, and the government continues to add money to the economy, then prices will rise. It’ll happen because businesses are constrained by the lack of employees. Their ability to produce more is constrained by their inability to hire workers. Wages and salaries will rise, leading to higher prices.
Higher wages and salaries, even at the cost of some inflation, is not necessarily a bad thing.
No, he means the hyper inflation that has occurred throughout history. Just because one occassion has so far not resulted in hyper inflation does not make the likelihood of runaway inflation any less probable this time around. If money printing has any benefit it is in the short term. Medium to long term money printing invariably goes tits up for almost all involved.
I’ve always supported (well, in the last couple of years) basic income - a Citizen’s Dividend - for everyone. What got me thinking about it was the video I initially posted. Basically, I was like, “If a guy this smart supports guaranteed jobs, maybe there’s more to it than I thought.”
I’d argue that government deficits (the difference between what it spends and what it taxes) create Treasuries, which are assets for the private sector (specifically, a kind of savings account). This works reasonably well, because there’s such a large demand from people with money for safe, simple, interest-paying assets.
QE, on the other hand, creates actual money.
Both are helpful, but it works best if the government first issues Treasuries, and then the Fed buys them.
Inflation: in·fla·tion
inˈflāSH(ə)n/
noun
1.
the action of inflating something or the condition of being inflated.
“the inflation of a balloon”
2.
ECONOMICS
a general increase in prices and fall in the purchasing value of money.
“policies aimed at controlling inflation”
The first definition has to do with balloons. The second with economics. Inflation is a general increase in prices, not a synonym for creating money.
However, suppose you’re right, and inflation really means creating money. Over the course of the last several years the government has created trillions of dollars. Unemployment has fallen from 10% to 5.5%. “Inflation” (the dictionary definition - rise in prices) has remained historically low.
If you’re right, inflation is a good thing, not a bad thing, right?
You forgot about the second part: and a fall in the purchasing value of money. The value of money falls because there is more of it than there was. Note that the first part specifies a general increase in prices, not just the increase of one thing or another. When everything is going up in price, it’s because there is more money chasing the those goods.
There might be a war in the Middle East that sends the price of oil skyrocketing, but that is not inflation. That’s the price of oil going up.
You’re right that reserve accounts don’t show up in M0, M1 or M2. They’re their own category, called MB, or monetary base. MB is reserve accounts plus currency. It’s real money, however; sometimes called “high-powered” money. (Currency is also called M0, for some reason.)
Prior to 2008 I suspect most economists would have said that sextupling the monetary base would lead to dramatic inflation. Then the Fed actually did it - increased monetary base from about $800 billion to over $5 trillion - without inflation.
So it’s not surprising they’re now discussing why doing what they did didn’t lead to inflation… since they did it, and it didn’t lead to inflation.
Personally I think the M0, MB, M1 system is confusing and unhelpful. But that’s just me. I’d argue there’s only two kinds of money - government money and money created by private banks.
You’re right. For whatever reason, people ignore the benefits of government (money, police, schools, roads, etc.) and focus on bureaucratic disorganization that goes along with any large organization. Not excuse it - when there’s governmental waste, mismanagement, or corruption, it should be rooted out.
But the same waste, disorganization and fraud occurs in the private sector. Health insurance is a good example. Also patent trolls, Bernie Madoff, Enron, Tyco, Arthur Andersen, Global Crossing, and Exxon. Then there’s the massive fraud that lead up to the '08 -09 financial crisis. People who work in the corporate world know corporate greed and mismanagement in an up-close and personal way.
Nevertheless, “government” has become a synonym for incompetence. Maybe it’s the “Fox News” effect. You sit at home all day watching Fox News, complain about the government, and then collect your Social Security and get your hip replaced with Medicare.
Supply and demand affect money just like everything else. You’re focusing exclusively on the amount of money and ignoring the amount of stuff there is to buy.
Imagine a time in the US when there was only $100,000, and for whatever reason, the amount of money was not allowed to grow.
Today there are 300 million people in the US. Companies like Walmart, Google and Time Warner. Millions of more homes, factories, and banks. Would $100,000 still be enough? What would the effect on the economy be, if the amount of money never increased?
I think three different issues are involved in this thread:
(1) Should the government intervene to create jobs or provide job training?
(2) Can governments print money ceaselessly without provoking severe inflation?
and key questions which lie at the heart of the discussion:
(3) Will government job creation be productive? How should production value be measured anyway?
The answer to (1) should be clear to all but the anti-government right-wing. Youth unemployment is a very major problem in many countries, even the U.S. Much of the unrest in Arab countries is caused by youth unemployment. In Greece and Spain youth unemployment is more than 50%. With their best years wasted without work or training, we’re raising a “lost generation” with adverse repurcussions that will last for decades. Some government intervention is called for, but what? Reducing retirement ages or work weeks might be a good start.
(2) I’ve Googled MMT and not found any simple explanation of how it avoids inflation (except that the guaranted jobs come at a fixed wage); instead the emphasis is on the relative unimportance of predictable inflation. Am I missing something? I realize that U.S. has debt of roughly the same magnitude as GDP without inflation, but that proves nothing. How about when the accumulated deficit (whether debt or just banknote printing) is twice GDP? Thrice? Ten times? Accumulated deficit will grow without limit if spending isn’t matched by revenue.
I’ve always thought of taxation as a way for government to “sop up” excess money. There may be better ways to do that than income taxes. Taxes on carbon, or other goods judged to have unaccounted costs, are appropriate. Taxes on financial transactions would help turn America away from its silly reliance on useless financial activity.
Useless financial activity, and bureaucracies dedicated to denying people health care are examples of instances where the private sector fails to create social value, despite that high GDP and profit figures are developed. Contrariwise, higher wages or better environmental impact of government investments – criticised upthread for giving government investment poor ROI – may have social values not reflected in “profit.” This important point is often overlooked, but deserves a different thread. I’ll content myself with a comparison of France and U.S.A. and the observation that GDP doesn’t value leisure time.
Most (not all, but more than half) of the GDP-per-capita difference between U.S. and France can be explained by the greater leisure time of French workers. Suppose Adam works an extra 5 hours to create a $100 A-gadget he sells to Bob, who in turn works 5 hours creating a B-gadget he sells to Adam. Is their country really $200 better off compared with Adam and Bob just staying home and playing with their kids in the garden? Are the kids better off playing with the gadgets or their parents? There is much more to well-being than maximizing an arbitrarily-measured GDP but America seems to have lost sight of that.
Hours worked per week in France used more than in the US before WW2. Then it started falling in both countries at different rates until the 1960s when the US started to have more hours per week. What changed was not the French people suddenly becoming lazy or valuing work more but changes in tax laws, labor regulation, and union rules. For a thorough discussion see here. (pdf) This suggests intervention by the French government and not personal choice are the reasons people work less there. That makes the country poorer and the French workers worse off.
Government’s can’t create money ceaselessly without creating inflation. Once everybody who wants a job has one, everyone’s saved as much as they care save, and everyone’s paid off all the debt they care to pay off, continuing to print money will lead to inflation. There is one other factor - productivity growth. If businesses are able to produce more with fewer workers, the government can continue to print money at the rate of growth of productivity. After that, businesses have to compete with each other for workers, which leads to higher salaries and wages, and shows up as inflation.
I’m one who thinks that some inflation is a good thing. Inflation should be higher than the safe return on investment - say a savings account, or a Treasury - to give moneyed people an incentive find more productive ways of investing - like funding new businesses. Inflation also affects people with lots of money more than people with less money, which decreases inequality.
The question of whether increasing taxes sops up extra is an interesting one. I think the technical answer is “no”, but the practical answer is “yes”. Technically, when the government taxes more than it spends, it reduces government debt. Since Treasuries are not “money”, reducing the amount of government debt has no effect on the amount of money there is.
Having said that, Treasuries are assets that act as savings accounts for the private sector. Peoples’ spending depends not only on the amount of money, but the value of the assets they have. (Similar to the stock market effect. When stocks rise, people spend more, even though rising stock prices do not create actual money.) When you reduce the assets of the private sector, people will spend less. The effect is less inflation.
If I were the Emperor of the Universe, I’d figure out what people thought was too much inflation, and then I’d increase taxes on people with the most money until inflation began to fall again. (Since it makes no sense to increase taxes on the poor, since they are - almost by definition - not the ones causing the inflation.)
As far as the relationship between debt and inflation, I’d argue it’s a complicated one. Japan’s debt to GDP was 227% in 2014. Their inflation rate appears to be about 2%, and trending downward. The US debt to GDP is about 100% with inflation is -0.1 for the last 12 months, according to this site.
A job is created when there is need. Guaranteeing a job means either A) guaranteeing an individual that there will be a need for his or her services, which is making a prediction that may or may not come true, or B) disconnecting work from its raison d’etre, with all the attendant unintended consequences.
Mechanization makes labor way, way less valuable than it use to be. That’s a huge part of the problem behind unemployment. I’m not sure how to fix it, but a job guarantee isn’t the solution.