Warren Mosler's 7DIF begins with the first of the "Seven Deadly Innocent Frauds":
Deadly Innocent Fraud #1:From these "facts" (Mosler's face-value observation of what physically occurs when the government finances one of its own expenditures) Mosler proceeds to spin a web of confusion. He starts by pointing out that all government financing today takes place on a series of digital spreadsheets maintained by commercial banks and government agencies. When taxes are paid, a taxpayer's spreadsheet balanced is lowered and a government spreadsheet balance is raised. Similarly, when the government spends, one of the government's spreadsheet balances is lowered and the spreadsheet balance of the recipient of that transfer (a contractor, welfare recipient, bribed foreign dignitary, etc.) is raised.
The federal government must raise funds through taxation or borrowing in order to spend. In other words, government spending is limited by its ability to tax or borrow.
Fact:
Federal government spending is in no case operationally constrained by revenues, meaning that there is no “solvency risk.” In other words, the federal government can always make any and all payments in its own currency, no matter how large the deficit is, or how few taxes it collects.
Based on this observed mechanic, Mosler assumes that government finance is similar in arbitrariness to score keeping in a bowling alley or on a football field:
Your team kicks a field goal and on the scoreboard, the score changes from, say, 7This is the first of many of Mosler's confusions about the cosmetic appearance of reality and the actual state of reality underneath it. The analogy he draws is flawed.
points to 10 points. Does anyone wonder where the stadium got those three points? Of course not! Or you knock down 5 pins at the bowling alley and your score goes from 10 to 15. Do you worry about where the bowling alley got those points? Do you think all bowling alleys and football stadiums should have a ‘reserve of points’ in a “lock box” to make sure you can get the points you have scored? Of course not!
In a game of sport, the point system is a mathematical abstraction used to keep track of rank amongst the players within the context of the game. Though it is awkward to even contemplate such a possibility, participants in a game such as football or bowling could conceivably recognize that one or another participant or team is "ahead" or "behind" without giving out and assigning numerical scores to each. Similarly, aside from whatever time limits might be imposed on the players according to the rules of the game, the potential score that can be achieved by anyone is infinite-- there is no reserve of points that can be used up, nor is there a need for there to be one. The score does not represent scarcity or ownership over any resource, it merely records relative progress and rank.
This is entirely different from the purpose and operations of a monetary system, even one which is entirely fiat and mostly exists in virtual reality amongst a matrix of spreadsheets, as most modern monetary systems exist in their present form. In a monetary system, the money itself represents potential claims to real, existent goods and services. All else being equal (ie, the money supply is not increasing or decreasing), the amount of money each person has does not represent how they are ranked against other money holders but rather how much actual purchasing power they might lay claim to.
If I have $20 and you have $10, I am not "winning." Money balances are not a score keeping system. They're simply a means of storing real value and they provide a means for facilitating exchange between real goods and services. The abject failure of Mosler's analogy should be obvious when you consider the following:
The government does not produce any real wealth for itself; all wealth the government controls must first be produced by private individuals and then taxed into the control of the government. When the government creates new money, it does not create new wealth. That is to say, if the government desires to purchase a $20,000 pick-up truck for a government agency, it must tax $20,000 worth of value from the public, at which point it can exchange that value for an actual pick-up truck. If the government decides to finance this expenditure through the issuance of $20,000 of new money (digital or paper currency), the creation of the new money does not itself summon a new pickup truck into existence. The government still must spend that new money on the truck, and the reason the new money has the value of $20,000 is because it siphoned a fraction of that total value from the previously existing stock of money. Because this transfer of wealth was involuntary and carried out by the government in the name of the public interest, it qualifies as a tax.
Mosler misses this because he never stops to examine where the wealth that the government comes to control by creating new money actually came from in the first place. It's odd that he misses it because his next (flawed) analogy implicitly acknowledges it, even if Mosler does not:
What they all seem to miss is the difference between spending your own currency that only you create, and spending a currency someone else creates. To properly use this common federal government/household analogy in a meaningful way,Mosler has the last question exactly backwards. The proper question to examine in a study of monetary economics is not, "How do real goods and services obtain their monetary value?" but rather, "How does money obtain its value in terms of real goods and services?" Notice, again, the simple creation of the coupons in this example does not result in the generation of completed chores. It is the effort of the children themselves in doing the chores which the parents force the children to bid away for coupons lest they pay a penalty, which the parents are ultimately taxing with their coupon scheme. Without the children producing chores, the parents would not have the chores completed and they would be forced to produce chores themselves.
we next look at an example of a “currency” created by a household.
The story begins with parents creating coupons they then use to pay their children for doing various household chores. Additionally, to “drive the model,” the parents require the children to pay them a tax of 10 coupons a week to avoid punishment. This closely replicates taxation in the real economy, where we have to pay our taxes or face penalties.
The coupons are now the new household currency. Think of the parents as “spending” these coupons to purchase “services” (chores) from their children. With this new household currency, the parents, like the federal government, are now the issuer of their own currency. And now you can see how a household with its own currency is indeed very much like a government with its own currency.
Let’s begin by asking some questions about how this new household currency works. Do the parents have to somehow get coupons from their children before they can pay their coupons to their children to do chores? Of course not! In fact, the parents must first spend their coupons by paying their children to do household chores, to be able to collect the payment of 10 coupons a week from their children. How else can the children get the coupons they owe to their parents?
Consider Mosler's example another way: say that the parents created for themselves thousands of coupons, so many more coupons that the children could not produce the related "value" in chores if they were to slave away 24 hours a day, 7 days a week. Would the simple fact that the parents created so many coupons mean that they had successfully acquired the real chore wealth that the coupons themselves are supposed to represent? Would their house, say, suddenly sprout a second or third story, or a remodeled kitchen?
No, it would not, because that value had not yet been produced by the children for the parents to tax away from them.
In summary so far, the government does need to tax real wealth away from the public if it desires to use real wealth in pursuit of its own ends. Furthermore, the creation of new money (inflation), is one way in which the government chooses to accomplish this and, though today it is as simple as changing digits on spreadsheets, it is nonetheless still a tax.
In this light, we can see that Mosler's next example about the origin of money and the purpose of government spending is also confused and misleading:
Now let’s build a national currency from scratch. Imagine a new country with a newly announced currency. No one has any. Then the government proclaims, for example, that there will be a property tax. Well, how can it be paid? It can’t, until after the government starts spending. Only after the government spends its new currency does the population have the funds to pay the tax.An important distinction should be made here-- the new national currency being formulated by Mosler and spent into existence by the example government is a fiat currency, that is to say, it's value is derived solely from the issuing government's ability to use coercion to change the attitudes of the country's various citizens toward the currency.
To repeat: the funds to pay taxes, from inception, come from government spending (or lending). Where else can they come from?
Yes, that means that the government has to spend first, to ultimately provide us with the funds we need to pay our taxes.
Without a legal tender law backed by government force, individual market participants would be free to choose other commodities as their preferred medium of exchange. And without taxation, which is a coercive expropriation of private property by the government in order for it to finance itself, no market participant would have any incentive to accept the new fiat currency as payment. Without a tax liability payable only in the new government currency, no one would have any need or desire to utilize the new bills.
Mosler asks, "How else can it be paid?" In the absence of legal tender laws and government fiat currency, decreed taxes could be paid through direct levy of actual goods and services (that is, real wealth). In other words, rather than taxing "a tank's worth" of currency from National Tank Company, the government could simply force National Tank Company to provide it with one tank as payment of its specific tax liability. Similarly, rather than taxing "a few hours salary of an accountant" from an accountant, the government could impress the accountant into service to do accountancy for the government as payment of the accountant's specific tax liability. The fact that Mosler was unable to imagine or articulate these alternatives leads one to believe he meant to imply the conditions of legal tender laws.
The trick here, the confusion in Mosler's thinking, is the conflation of real wealth with taxable funds, for example:
We need the federal government’s spending to get the funds we need to pay our taxes.The implication (in case it is not obvious, though it will become more so as we further explore Mosler's logic) is that we need government fiat currency to pay our taxes; we need government spending to acquire the fiat currency; therefore we need government spending to drive the economy.
Again, this logic puts the cart before the horse. Without the production of real wealth by individuals in the first place, government would have no resources which it could spend its currency on. One problem of many with Mosler Economics is that his monetary model begins in the middle of itself, so to speak. It utilizes for explanation of how a phenomenon occurs a set of conditions that could only exist if the phenomenon in question had already occurred. In this specific case, Mosler tries to explain how a new currency comes into use by claiming that the government spends it into existence, as if this is an "originating" act. The truth of the matter is that a previously existing market economy, complete with a functioning market currency, needed to already exist in order for their to be any goods and services on which the government could spend its newly created currency.
Yes, without the spending of the government itself (backed up by threats of force by those who refuse to accept the currency) people would be bereft of a mechanism to acquire the legal tender solely permissible to use in paying their taxes. But that does not mean that it is government spending which drives the productive process itself underlying this mechanism which allows the government to thereby acquire real wealth for its own consumption.
Government spending does not create that which government ultimately seeks to spend (consume)! Let's continue:
The fact that government spending is in no case operationally constrained by revenues means there is no “solvency risk.” In other words, the federal government can always make any and all payments in its own currency, no matter how large the deficit is, or how few taxes it collects.Mosler again hangs his hat on a technicality. The objective of government finance is to provide the government the means to acquire and expend claims to real goods and services within the economy. The objective of government finance is not to impress people with its digital accountancy tricks. The acquisition and expenditure of fiat currency by the government is not the end goal, but rather a means to the end goal of controlling the distribution of a proportion of a society's real wealth.
This, however, does NOT mean that the government can spend all it wants without consequence. Over-spending can drive up prices and fuel inflation.
What it does mean is that there is no solvency risk, which is to say that the federal government can’t go broke, and there is no such thing as our government “running out of money to spend,” as President Obama has incorrectly stated repeatedly.
Mosler's explanation is true only if the term "solvency" is defined as "able to make good all liabilities in terms of a fiat currency with infinite potential supply" rather than the way the term is normally used to mean "able to make good all liabilities in terms of real goods and services promised."
The government creates entitlements for various people which are in turn liabilities for the government. In effect, the government pledges to various interest groups their ability to receive from the government definite amounts of real goods and services.
Let's say that one of those promised entitlements is that everyone gets a free prime ribeye steak each week. The capital markets, seeing that this is a frivolous use of wealth and noticing also that the government has already pledged to everyone an entitlement in a free car, a free home, a free motorboat and a free college education, decides to refuse to subscribe to the government's issuance of debt to pay for the steaks and so the government is left with no choice but to print up more of its currency to float its own debt. This increase in currency brings with it a rise in prices, including prime ribeye steak prices, resulting in a shortfall in the government's steak-purchase account.
At this juncture, the government faces two options: it can refuse to make good on all outstanding entitlements by only issuing prime ribeye steaks to a fraction of those it originally promised them to, or it can economize on the entitlement by issuing everyone a pound of 85% lean ground beef.
In this example, the government may have maintained its "solvency" by matching the money-value of its own liabilities with sufficient issuance of its own money, but it did not simultaneously manage to avoid defaulting on its obligations either in the form of outright failure to produce part of the obligation or by reducing the quality of the obligation made. The point is that Mosler is correct in a technical sense, but not in a meaningful sense, the consequences of which contain real implications for a society's material well-being.
Mosler:
The fact is: government deficits can never cause a government to miss any size of payment. There is no solvency issue. There is no such thing as running out of money when spending is just changing numbers upwards in bank accounts at its own Federal Reserve Bank.There is no "solvency" issue, but there is always a solvency issue in the sense that the government's ability to make good in real terms on its various liabilities is not infinite.
Still operating under the flawed assumption that he has disproved the government's need to finance itself via taxation, Mosler then produces an example to explain why the government taxes in the first place:
The following is not merely a theoretical concept. It’s exactly what happened in Africa in the 1800’s, when the British established colonies there to grow crops. The British offered jobs to the local population, but none of them were interested in earning British coins. So the British placed a “hut tax” on all of their dwellings, payable only in British coins. Suddenly, the area was “monetized,” as everyone now needed British coins, and the local population started offering things for sale, as well as their labor, to get the needed coins. The British could then hire them and pay them in British coins to work the fields and grow their crops.In other words, individuals laboring for fiat currencies are in fact the slaves of those currency regimes. Consider what Mosler is really illustrating with his example from Africa-- none of the natives had any interest in voluntarily working the British fields. Only by threatening to seize their dwellings if they did not pay a tax liability priced in British currency did the British manage to force the native Africans into labor for them.
This is exactly what the parents did to get labor hours from their children to get the chores done. And that’s exactly how what are called “non convertible currencies” work (no more gold standards and very few fixed exchange rates are left), like the U.S. dollar, Japanese yen, and British pound.
The relationship of an individual with a tax liability in US dollars to the US government is the same. It is forced labor. It does not matter how one might justify such a relationship, perhaps with appeals to the Greater Good or the commonwealth or to serving society. The inescapable fact, which Mosler stumbles upon rather non-controversially, is that fiat currency regimes are forced labor regimes. At this point, the libertarians and the cynics amongst us might feel it appropriate to question just who it is that is serving who in these schemes.
If you're not convinced that this is what Mosler is hinting at, albeit it unawares, consider his explanation of how an economy should be organized to allow for the proper proportion of private and public expenditure:
Therefore, the way I see it, we first set the size of government at the “right” level of public infrastructure, based on real benefits and real costs, and not the “financial” considerations. The monetary system is then the tool we use to achieve our real economic and political objectives, and not the source of information as to what those objectives are. Then, after deciding what we need to spend to have the right-sized government, we adjust taxes so that we all have enough spending power to buy what’s still for sale in the “store” after the government is done with its shopping.This is the model for a command economy, not a free market economy. A command economy serves the interests and objectives of the politicians and other government agents who control it. A free market economy serves the interests and objectives of the many producer/consumers who compose it. In a command economy, the monetary system is manipulated (albeit never successfully over the long run) to direct the productive activities toward the goal of central planners. In a free market economy, the prices freely arrived at by the voluntary exchanging of goods provide signals and incentives for various producers to meet the needs and wants of various consumers in the most cost-effective way possible.
Once again, Mosler has it exactly backward, if the goal of Mosler Economics is to promote the satisfaction of individual consumers and not the satisfaction of political agents. "Financial" considerations are the consideration of real costs and real benefits. Attempts to suppress or manipulate the free outcomes of a monetary system to promote the political goals of a government are the denial of the considerations of real costs and real benefits. They are the swapping of real costs and real benefits for arbitrarily distributed costs and imagined, whimsical benefits.
Furthermore, it is impossible to plan the "right" size of public infrastructure to achieve a desired set of real benefits without first knowing what those desired real benefits are and which of them are ascertainable within the context of real costs. If public infrastructure seeks to assist with the production of economic goods and services it must itself be a part of the economic process, it can not stand outside of it. As Mosler himself says one paragraph earlier:
The real “costs” of running the government are the real goods and services it consumes - all the labor hours, fuel, electricity, steel, carbon fiber, hard drives, etc. that would otherwise be available for the private sector.Public infrastructure has real costs. One can not take as an economic starting point their provision being a "given" and then go from there. An economic actor says, "I need to transport my cargo from A to B, therefore, I will build a road." The purpose for the road's construction predates the road itself. Mosler Economics proposes that one can first build the road and then discover or create the purpose of the road being built after the fact.
Taken literally and at face value, this form of economic "planning" is absurd. It would amount to all manner of things and goods being constructed and fabricated in what could only be described as a truly random fashion-- a dam built across a dried up riverbed, a canal dug through the middle of a land-locked city, a road built where nobody would drive upon it. Later, after they are built, the economy would be tasked with somehow finding a use for them.
Of course, this is not how public infrastructure is actually planned. For any of these projects to be rationalized there would first need to be a purpose, and because these projects are not being initiated and funded by the voluntary, private marketplace but rather by the coercive public apparatus of government, the rationalization of these projects can only be to satisfy the demands of special interest groups or the fantastic dreams and ambitions of politicians and government agents. These projects would not be guided by the ultimate demands of the end consumers through price signals of the market, which take into account the real costs of their realization but rather by the demands and declarations of government representatives who can't be troubled by nuisances like "financial" considerations, as Mosler puts it.
Mosler's "shopping spree" analogy is similarly flawed. Tax levels can not be arbitrarily raised or lowered in order to clear the market of what goods and services remain after the government has picked it over, thereby arming consumers with "enough" spending power. Consumers demand real goods and real services of specific quantities, qualities and types according to their individual preferences. If the government comes in and buys all the green sweaters in the economy, for instance, it doesn't matter how much spending power people have-- they will go without their desired green sweaters and thus suffer unnecessary economic hardship, their wants unsatisfied.
Finally:
In other words, the government taxes us, and takes away our money, to prevent inflation, not to actually get our money in order to spend it.Mosler's ultimate conclusion is false. As explained above, inflation is a tax. Government levies taxes to acquire control over real resources. The government's tax level does not regulate the issuance of new currency (inflation) or the potential rise in prices which is an outcome of that currency issuance.
Mosler has not succeeded in refuting the first of his so-called "Seven Deadly Innocent Frauds" but has instead introduced his own Deadly Fraud, the innocence of which is questionable and the ignorance of which is undeniable.
Excellent analysis. May I ask why Mosler in particular is in your crosshairs?
ReplyDeleteHi BobE,
ReplyDeleteThank you. I do plan on writing the other 6 parts although I can't guarantee any timeline on them. It's really exhausting going through this type of stuff and even more tiring trying to organize it so it isn't a totally jumbled mess. I feel I failed a bit in that regard but look to improve going forward.
The reason Mosler is in my crosshairs is perhaps best explained by accident. I was reading some articles on SeekingAlpha, including a recent one by Jeff "Econophile" Harding (writes The Daily Capitalist blog) about how Germany was an empirical demonstration of the success of policies that turn away from Keynesianism.
Jeff had a lot of commenters who remained skeptical about his claims, I think for good reason. While any Austrian would intuitively agreed with his analysis, because he tried to make an empirical argument instead of focusing on the theoretical problems a lot of his critics were able to maintain their disbelief and claim other statistical occurences as validation for Keynesianism (ie, Germany is not a free market economy, so there were plenty of policies they could still point to to claim were responsible for Germany's success).
Anyway, one resource I kept seeing linked to and referred to by a number of people in a "this stuff is pretty simple, you free market-dogmatist creep" matter-of-fact type way was Mosler's 7DIF.
Of course, when I started flipping through it I went into a rage because none of it makes any sense. Then I pulled up a clip of Mosler on CNBC from a few months back and my eyes grew wider. He's not being ignored, that's for sure, and I haven't seen anyone deal with his "specific" claims, so I figured someone has to and that someone is going to be me.
Then, I read the forward to 7DIF by James Kenneth Galbraith and seeing as how I don't particularly care for JKG, and JKG is very high on Mosler Economics, I decided that was that, rolled up my sleeves, put on my mailed gloves, formed them into fists and got down to it.
I can sympathize with the work involved. Thanks for the background. I encourage you to keep plugging on 2 through 7 as these will be valuable reference points.
ReplyDeleteExcellent analysis. I'm sure you won't be invited to debate Leisman on CNBC. The only thing that really bummed me out was that I discovered all the points I scored playing basketball were not really there!! Crap
ReplyDeleteStanley,
ReplyDeleteI can imagine your distress, but can you imagine the distress of say, a Michael Jordan? Or a Brett Favre, or what have you? These men got paid millions of dollars and achieved fame and glory for accumulating points that weren't real! Talk about an existential crisis.
What's worse, I was in quite a shock when I looked back on my younger years playing Super Mario Bros. and realized that all those points I "earned", I never actually earned, that they don't mean anything and that they're not sitting in a Point Bank somewhere, waiting for me to come pick them up.
Your post is a long diatribe against Mosler's simplified examples, which are not meant to be reality, but only ways to help people visualize.
ReplyDeleteYou might as will criticize someone who says, "Visualize the atom as a miniature solar system, with electrons being planets and the nucleus being the sun." You would say, "No, the nucleus isn't hot like the sun and none of the electrons have people living on them like the earth."
Your comments fail in this way, time and time again. You criticize the analogy rather than the reality.
You insert the concept of "wealth" into a discussion of money mechanics -- and by confusing "wealth" with money, you create an incomprehensible mess.
You seem to claim the federal government does not have the unlimited ability to create money. (It does.)
You seem to claim the federal government does not have the unlimited ability to pay its bills. (It does.)
You insert the concept of inflation, which Mosler and all economists agree can be caused by excessive money creation. (Except, since 1971, the end of the gold standard, there has been no relationship between inflation and federal deficit spending. See: Inflation
You display no understanding of Monetary Sovereignty, which is the basis for all economics, today.
In short, your eye-rolling "disclosures" have, in essence, proved Einstein was wrong when he compared gravity to an elevator, because gravity doesn't have cables.
And of course, you offer no alternative hypothesis to what Warren was trying to explain. But if you want one, you can find it at A Quick Summary of the Facts
Rodger Malcolm Mitchell
RMM,
ReplyDeleteThanks for the comment. I didn't expect to change your mind. All I wanted to do was ruffle your feathers. Most people have sympathy for the insane and stupid, but to me it is much more fun to lock them in cages, poke them with sticks and watch them react.
You've got a lot of "facts" in your material, as does Mosler, but what you're both short on is a logically coherent theory by which to interpret those facts. You make the mistake of assuming that your first reaction to the facts is the necessary and correct theoretical construct to take away from those facts but you're putting the cart before the horse. By themselves, the facts are just facts, they say nothing about any theory. The theory must be developed independently of the facts and then tested against it.
Once I am finished macerating Mosler Economics, I'd be happy to take a stab (right in the heart, if I am so fortunate) at RMM Economics, but really what's the point-- I'll have already obliterated your puny premises in taking down Mosler and you're a PUBLISHED AUTHOR who goes around challenging people to $1,000 bets whose satisfaction of the agreed upon terms remains solely up to your ultimate judgment meaning you'll never be proved "wrong" and you'll never have to pay. In other words, I wouldn't dare try to change your mind because you're an established authority on the matter according to... yourself.
God, it must be so damn confusing to be you, all day long. I pity you and your daily plight.
Thanks for dropping by.
"Based on this observed mechanic, Mosler assumes that government finance is similar in arbitrariness to score keeping in a bowling alley or on a football field:"
ReplyDelete============================
I think Mosler's point is that the Federal gov't doesn't have to have a supply of dollars to spend, because when it spends it marks up numbers in a spreadsheet.
It doesn't have to have a bunch of tax dollars in hand in order to spend, just like a sports stadium doesn't have to have a bunch of scores held in reserve.
He was trying to say something relatively simple about the mechanics of a pure fiat system because the common person in the street assumes the Federal gov't is just like a State gov't, or a business, or a household, and needs money to spend. The Federal gov't doesn't need money to spend just like a sports stadium doesn't need a supply of points.
He was using a simple example to get a simple point across, and you took it and ran off into some Austrian sermon.
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"God, it must be so damn confusing to be you, all day long. I pity you and your daily plight."
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I didn't see Mitchell directly insult you, but you had to insult him? You do realize that's usually a sign that your arguments are weak, right? It also says something about your character and maturity.
But from Austrians I have met online, I'm not surprised. Nor am I surprised considering Mises himself was an intolerant little man who would never allow the slightest disagreement with his Doctrine.
This comment has been removed by the author.
DeleteAnon,
ReplyDeleteRight. You and RMM, insisting that no one is allowed to address the analogies as representative of flawed ideas themselves. If the analogies are meaningless, and one has not confronted the actual ideas in addressing the analogies, why do Mosler and RMM even use them? Just to show how creative they are in making analogies?
You want to talk about character and maturity? What does it say about an adult when they profess to have a belief in magic? That's what Mosler Economics and RMM's theory are, magic theories.
These guys think they have abolished economic scarcity. They think they've got some unknown angle on the entire subject of fiat economics because they know that all of these accounting schemes are taking place in cyberspace. They are epistemologically confused because they think their observation of "facts" has led them to theory, when it is their pre-existing theory they used to interpret the facts and therefore "confirm" their theory-- circular logic.
Mosler and RMM tout a concept which, if taken seriously (thankfully it is not and hopefully never will be) would result in gross economic hardship far more chaotic and disastrous than what this country or any other is facing at the present moment in time.
But, yeah, I am a jerk to these imbeciles and egotists, whose way of settling an argument is to say "Read my whole book, and if you don't agree with my book, then you didn't understand it!"
Well, I got a message for ya: I just read your book, and here I am breaking down what's wrong with it. So get over yourselves.
Dear Taylor,
ReplyDeleteWith love:
You are wrong.
You do not understand.
You should stop.
Again, with love.
Anon,
ReplyDeleteJust waiting for you and all the other "Free Money" clowns to show me where, so far, I am wrong. Go ahead, quote me, explain my error, I'd love to sort it out. If I am wrong I'd like to know why. No need to condescend as if it should be obvious. And no need to ignore what I've written, as RMM did. The guy accused me of not taking into account "monetary sovereignty" etc. etc., if he had actually read what he was commenting on he'd see that was the exact topic I was refuting.
Are you all braindead or do you just not read well? It seems wacko theories tend to attract a certain type...
Mr. Conant wrote:
ReplyDelete_________________________________________
Of course, when I started flipping through it I went into a rage because none of it makes any sense. Then I pulled up a clip of Mosler on CNBC from a few months back and my eyes grew wider. He's not being ignored, that's for sure, and I haven't seen anyone deal with his "specific" claims, so I figured someone has to and that someone is going to be me.
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Based upon the quality, accuracy and thoughtfulness of your arguments in the article above, your mounting of the defense will not aid in your campaign to rebut Mosler. Amongst those who actually possess any measure of understanding of macroeconomic issues you would be well out of your league as your article reads like a grade school essay.
MMT is heterodox, much like Keynesianism once was, and just as the Austrian school still is. Mosler's ideas represent a much larger school of macroeconomic thought and need to be taken as seriously as any other set of controversial ideas would be. Through rigorous debate and thoughful, factual deconstruction all ideas are challenged and, ultimately, rise or fall based largely on their own merit.
I came here looking for just such a thoughtful deconstruction but what you've provided is sorely lacking. If this first part of your series is indicative of the quality of the remaining arguments, I would advise you to cut your losses and recruit someone who has a more sophisticated understanding of macroeconomics, banking, fiscal and monetary policy, as your initial rebuttal above will not hold up to any serious scrutiny. You're doing no favors for yourself nor for anyone looking for an intelligent rebuttal to Mosler's theories,
Anon,
ReplyDeleteDo you have any specific criticisms or specific errors you'd like to point out in my reasoning? Or am I just to take you at your word that I'm a clueless idiot who doesn't know what he's talking about?
If I'm wrong, I'm certainly open to hearing why. So far, none of you people have done me the "honor" of showing me anything but your disdain and disapproval.
Still waiting.
Wait no longer…Here are a few of my criticisms. Note that I have placed my comments in {brackets} to differentiate my comments from your original writings: Unfortunately, your blog doesn’t provide me with the space to place my response in one single reply thus I will divide my reply into the sections that follow and hope that you will bear with this presentation:
ReplyDeleteMr. Conant States:
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Warren Mosler's 7DIF begins with the first of the "Seven Deadly Innocent Frauds":
Deadly Innocent Fraud #1:
The federal government must raise funds through taxation or borrowing in order to spend. In other words, government spending is limited by its ability to tax or borrow.
Fact:
Federal government spending is in no case operationally constrained by revenues, meaning that there is no “solvency risk.” In other words, the federal government can always make any and all payments in its own currency, no matter how large the deficit is, or how few taxes it collects.
From these "facts" (Mosler's face-value observation of what physically occurs when the government finances one of its own expenditures) Mosler proceeds to spin a web of confusion. He starts by pointing out that all government financing today takes place on a series of digital spreadsheets maintained by commercial banks and government agencies. When taxes are paid, a taxpayer's spreadsheet balanced is lowered and a government spreadsheet balance is raised. Similarly, when the government spends, one of the government's spreadsheet balances is lowered and the spreadsheet balance of the recipient of that transfer (a contractor, welfare recipient, bribed foreign dignitary, etc.) is raised.
Based on this observed mechanic, Mosler assumes that government finance is similar in arbitrariness to score keeping in a bowling alley or on a football field:
{Can you show me, specifically with page and paragraph, where in Mosler’s PDF he states that finance is “arbitrary” like scoring points in bowling or marking points on a scoreboard?}
Mr Conant States:
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Your team kicks a field goal and on the scoreboard, the score changes from, say, 7
points to 10 points. Does anyone wonder where the stadium got those three points? Of course not! Or you knock down 5 pins at the bowling alley and your score goes from 10 to 15. Do you worry about where the bowling alley got those points? Do you think all bowling alleys and football stadiums should have a ‘reserve of points’ in a “lock box” to make sure you can get the points you have scored? Of course not!
This is the first of many of Mosler's confusions about the cosmetic appearance of reality and the actual state of reality underneath it. The analogy he draws is flawed.
In a game of sport, the point system is a mathematical abstraction used to keep track of rank amongst the players within the context of the game. {As is the assignment of a monetary value to goods and services. This abstraction is commonly known as accounting. Accounting and scorekeeping for a game are fairly comparable analogs. The goal of accounting is to track the accumulation of currency and ranks between different players do have real world ramifications. As a commercial banker I can assure you that a person with a 7 digit net worth is likely much more valuable as a guarantor of debt than an individual with a net worth of $100. Similarly a person with a bank balance of $20 is worth twice as much as a person with a bank balance of $10 assuming no other assets outside of the bank balance are held.}
The points don't exist, not just in a physical sense but in a metaphysical sense as well. {Would the analogy work better for you if we assumed that in one particular stadium, instead of putting points on a scoreboard, the scorekeeper instead handed out pieces of paper with his signature on them to represent points? Score a touchdown and the scorekeeper hands that coach 6 pieces of paper with a signature on them. The scorekeeper would still have an unlimited supply of these and the “score” of the game could still be kept but now the points ARE represented by something physical. Although this does nothing to improve the quality of the original points analogy it does remove one of your objections that points have no physical existence.}
Mr. Conant States:
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Though it is awkward to even contemplate such a possibility, participants in a game such as football or bowling could conceivably recognize that one or another participant or team is "ahead" or "behind" without giving out and assigning numerical scores to each. Similarly, aside from whatever time limits might be imposed on the players according to the rules of the game, the potential score that can be achieved by anyone is infinite-- there is no reserve of points that can be used up, nor is there a need for there to be one. The score does not represent scarcity or ownership over any resource, it merely records relative progress and rank. {Just as currency does not represent scarcity or ownership but simply records relative progress, an abstract means of accounting for and accruing value.}
Mr. Conant States:
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This is entirely different from the purpose and operations of a monetary system, even one which is entirely fiat and mostly exists in virtual reality amongst a matrix of spreadsheets, as most modern monetary systems exist in their present form. In a monetary system, the money itself represents potential claims to real, existent goods and services. All else being equal (ie, the money supply is not increasing or decreasing), the amount of money each person has does not represent how they are ranked against other money holders but rather how much actual purchasing power they might lay claim to. {In a very real sense, rank of wealth is almost more important than the actual number of dollars possessed as the value of one dollar is not fixed and fluctuates from moment-to-moment and day-to-day. If you have $10 and I have $20 we cannot draw any definitive conclusions about the exact amount of goods and services that each of our holdings of currency can purchase as the value of $1 is not fixed. Today your $10 may be able to purchase 1 bushel of wheat but tomorrow it may only be able to purchase ½ bushel. Truly, all that can be said with any degree of certainty is that, at any moment in time, I have two times the purchasing power that you have.}
Mr. Conant States:
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If I have $20 and you have $10, I am not "winning." Money balances are not a score keeping system. They're simply a means of storing real value and they provide a means for facilitating exchange between real goods and services. The abject failure of Mosler's analogy should be obvious when you consider the following:
The government does not produce any real wealth for itself; all wealth the government controls must first be produced by private individuals and then taxed into the control of the government. When the government creates new money, it does not create new wealth. {Can you point me to the specific page and paragraph where Mosler claims that governments create new wealth?}
That is to say, if the government desires to purchase a $20,000 pick-up truck for a government agency, it must tax $20,000 worth of value from the public…{Incorrect, In a fiat currency system the government can create, ex nihilo, $20,000 worth of currency either through actual printing of the currency notes or through crediting of a bank account via the spreadsheets you mention. Do you deny that government has this ability? Hold aside whether this is a wise or desirable thing to do. Just address the question of whether government has the operational ability to do so.}
Mr. Conant States:
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…at which point it can exchange that value for an actual pick-up truck. {Incorrect, it exchanges currency notes or bank deposits (which can be converted to currency upon demand) for the truck, not “value”. The government does not create “value”, the private marketplace helps to determine the value that is assigned to that $20,000. But rest assured, if the government only accepts currency to extinguish tax liabilities, there will be a demand for those valueless notes and deposits that the government can supply.}
If the government decides to finance this expenditure through the issuance of $20,000 of new money (digital or paper currency), the creation of the new money does not itself summon a new pickup truck into existence. {Can you cite the page and paragraph where Mosler claims that the creation of new money simultaneously creates matter out of thin air?}
Mr. Conant states:
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The government still must spend that new money on the truck, and the reason the new money has the value of $20,000 is because it siphoned a fraction of that total value from the previously existing stock of money. Because this transfer of wealth was involuntary and carried out by the government in the name of the public interest, it qualifies as a tax. {Actually, as I explained above, the government does not need to siphon of $20,000 worth of value before the newly created $20,000 will have value. The newly created $20,000 will have value because these currency notes and bank deposits are the ONLY thing that can be used to extinguish tax liabilities. Try paying your taxes with gold, your house or Euro’s. You will quickly discover that the government will not accept these items in lieu of currency. They will have you exchange your gold and euro’s for dollars and they will force you to sell your home for dollars to extinguish your tax liability.}
{This is a small sampling of the errors you have made thus far and I don’t think we’re even one quarter of the way through your opus. I hope that suffices for now and I hope you can logically rebut these points without resorting to name calling or claiming that what you don’t understand is akin to “magic”.
ReplyDeletePlease keep in mind that creating and dismissing caricatures of your opponent’s arguments does nothing to further your cause. If you want to disprove Mosler’s theories I applaud your efforts as only through careful analysis and deconstruction of ideas and theories can we separate the wheat from the chafe. I have no intellectual loyalty to thoughts or theories although I do want to understand the truth. Thus far Mosler’s theories seem to make sense and are supported by the operational realities of the banking system (of which I am a part of). If they are incorrect or need to be refined I want to understand why and gain a greater understanding of the competing ideas or theories that purport to replace them.}
Regards,
A Banker
Anonymous, Could you contact me directly, kerry.pechter@retirementincomejournal.com?
Delete"Without a legal tender law backed by government force, individual market participants would be free to choose other commodities as their preferred medium of exchange."
ReplyDeleteRight! Like human slaves (unless of course there's an anti-slavery law backed by government force).
"the rationalization of these projects can only be to satisfy the demands of special interest groups or the fantastic dreams and ambitions of politicians and government agents."
In other words, Eff you Dr. Salk and your polio vaccine crazy talk.
These guys think they have abolished economic scarcity.
ReplyDeleteNo they don't! But, unlike yourself, they have a grip on the distinctions between monetary and real economic factors. It is perfectly possibly for one side of the equation to behave differently and unsynchronized with the other. The difficulty lies in finding the connecting algorithms with which to make meaningful predictions about the effects of monetary policies. If a basketball stadium decides to award 100 points to all players shorter than 6ft and auctions off bonus points to the team with the prettiest cheer leaders that may not be considered fair, nor will it be helpful to the game, but it is perfectly possible technically. Likewise, if Ben Bernanke decides he loves the smell of your hair and decides to give you a $1T to get a whiff of it, which you gladly accept only to shove the money under your mattress and save for a rainy day, how will that effect CPI? Not at all, is the answer - at least not until that rainy day comes. Economics is about predicting the likelihood and timing of that rainy day and prescribing the most effective measures to avoid it, or at least to dampen its effects on those least guilty of causing it. Austrianism is about asserting that because government is corrupt, it will rain some day, but since water is natural and healthy we shouldn't complain - the deserving will have built the appropriate dams to protect themselves.
Roger Malcom Mitchel says: You seem to claim the federal government does not have the unlimited ability to create money. (It does.)
ReplyDeleteThat is untrue Roger, Government can create paper money up to the point they run out of trees, and it can create digital money up to the point they run out of energy to power the computers, there are hard physical limits in the real world to government creation.
I know where you are going to go though, as mosler often says, we can just add a zero. Ok lets go from there, lets say zimbabwe only has so much paper because they only have so many trees, so they add a zero on thier dollar bills. At some point however, the zeroes will be too numerous to fit on that dollar bill, so even government scorekeepers run up against hard physical limits. In the digital world, as zeroes start to get added, millions of databases and code all over the globe who have predefined string lengths also can only take so many zeroes before you run up against hard physical limits - like memory pointers. Remember the year 2000 problem, where some computers were not ready for another zero?
The main point I think is that government does not have an unlimited ability to create real resources, products and services, so money creation - a claim on real products and services has purchasing power limits.
To conant, I have argued with mosler for over 10 years now, he used to talk about PAYGO rules being a good thing on his old board, but he doesn't mention that much lately - I wonder why. Arguing with mosler and his friends is like playing super mario brothers, it is fun for awhile, you may even reach a high score and kill bowzer, but in the end it doesn't pay you anything and it doesn't put real food on your table, like that movie WARGAMES, perhaps the only way to win Conant, is not to play. Quit wasting your time doing FREE work debating these suckers, all those idiots on mosler's webboard who come there for FREE and spend massive amounts of thier time for FREE thinking about and spreading his ideas haven't realized yet they are playing super mario brothers for FREE and there will be no real resources at the end of thier useless journey. Mosler gets speaking fees he can use to buy a steak or a game of super mario bros - what do his minions get?
Finally Conant, I don't know if you travel internationally, but I do. I took my US paper fiat to some banks outside the USA to open a bank account, they said no thanks, go away, we won't want US money. SO then I got some euros and yen and tried to open a bank account outside the USA, they said look here sucker, it has nothing to do with the money, its that YOU, a US citizen, have this IRS guy, and we don't want that azzhole around, so piss off. SO much for warren and his business cards and his gun, the world has told him and everyone associated with him to piss off :(
ReplyDelete"The main point I think is that government does not have an unlimited ability to create real resources, products and services, so money creation - a claim on real products and services has purchasing power limits."
ReplyDeleteYep creating $1 trillion dollars will probably cause inflation. How is that news? You can only create money up to the capacity of the real economy to absorb it.
MMT doesn't say that a sovereign government can create real goods and services. What it does say is that if these are for sale in the currency of issue, the government can always purchase them.
Perhaps you could point out why they can't do that.
Agree that the scoreboard analogy is quite silly.
ReplyDeleteUnfortunately, the rest of your argument is not persuasive enough, because there's a lot to criticize in MMT - mostly that the facts as they present them are not the facts at all. The presentation style is very obscurantist and deceptive. There's been plenty of debate and objection along these lines on the various MMT blogs. Intellectual dishonesty is what comes to mind.
Mosler's explanation is true only if the term "solvency" is defined as "able to make good all liabilities in terms of a fiat currency with infinite potential supply" rather than the way the term is normally used to mean "able to make good all liabilities in terms of real goods and services promised."
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If that is the way you normally use the term, then you normally use it incorrectly :-). Solvency is a purely nominal matter
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At this juncture, the government faces two options: it can refuse to make good on all outstanding entitlements by only issuing prime ribeye steaks to a fraction of those it originally promised them to, or it can economize on the entitlement by issuing everyone a pound of 85% lean ground beef.
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Since when is the inscription 'promises to pay the bearer one ribeye' printed on a $ note? You said yourself, and MMT is in full agreement with you, that government itself does not produce real wealth. So, the question is not, what does 1$ issued by government promise to buy (that is defined initially by what we offer to government in exchange for an initial $), but what effect this 1$ spent will have on the real economy to produce the products it (as a whole and in its constituent parts) needs and wants in future. Barter is a legal but inconvenient way to circumvent the need to hold $ and cows or chickens are not accepted at the IRS. If they were, I fear ranching would face an inflationary boom. We could pave the roads with excess steaks...
Further, if the initial $ in exchange, say for an hour's work is passed on to the butcher in exchange for a steak an on from there to the farmer for a part of his cow etc, it can be considered quite a productive $. If, on the other hand, it wanders straight under that person's mattress after the hour's work, it will have produced on 1$ worth of GDP in its lifetime. Same $, different effect and in no way correlated to the amount initially spent.
Conant says: These guys think they have abolished economic scarcity. They think they've got some unknown angle on the entire subject of fiat economics because they know that all of these accounting schemes are taking place in cyberspace.
ReplyDeleteCYBERSPACE, HAHA! Mosler used to tell me that when the chinese come to the USA to buy up our real resources with that paper fiat, we will just go into the fed/treasury computers and do some fun accounting with zeroes and rob the chinese of all thier purchasing power! What silly mosler doesn't understand is that perhaps the chinese can ALSO go into those computers and do the reverse, change some zeroes themselves and ADD to thier purchasing power - reference this:
http://yro.slashdot.org/article.pl?sid=10/11/22/1446256 Malaysian hacks federal reserve
WEE! This cyberpace/MATRIX/NEO stuff is FUN! LOL!
Furthermore: Without a legal tender law backed by government force, individual market participants would be free to choose other commodities as their preferred medium of exchange."
Mosler has admitted to me at least 2 times, but maybe more, that all of society rests on the cruelty of a thug with a gun to do violence, this is no way to build a sustainable long term future for humanity.
He uses an analogy that you are in a room and he has a gun and the only way to get out of that room is with his business card. I used a similar analogy, you are in a room with warren and he has a gun, but outside there is a guy with a plane from texas about to smash into your IRS room and kill you in a fiery ball of flames, it seems to me the solution for the crowd is to rush the guy with the gun and kill him before the plane kills everyone.
MMT doesn't say that a sovereign government can create real goods and services. What it does say is that if these are for sale in the currency of issue, the government can always purchase them.
ReplyDeleteMosler used to have a quote by alan greenspan on his old website, where dear alan was telling some congressional member they can print up however many dollars congress would like, but that he couldn't gaurantee thier purchasing power, why did Mr. Mosler take that down after having that quote at the top of his old website for so long?
Maintaining Financial Stability in a Global Economy Alan Greenspan – Federal Reserve Chairman September 1997
ReplyDelete"Let me begin with a nation’s sovereign credit rating.
When there is confidence in the integrity of government, monetary authorities—the central bank and the finance ministry—can issue unlimited claims denominated in their own currencies and can guarantee or stand ready to guarantee the obligations of private issuers as they see fit.
This power has profound implications for both good and ill for our economies.
Central banks can issue currency, a noninterest-bearing claim on the government, effectively without limit. They can discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government in the form of deposits at the central bank.
That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency.
A fiat money system, like the ones we have today, can produce such claims without limit. To be sure, if a central bank produces too many, inflation will inexorably rise as will interest rates, and economic activity will inevitably be constrained by the misallocation of resources induced by inflation.
If it produces too few, the economy’s expansion also will presumably be constrained by a shortage of the necessary lubricant for transactions. Authorities must struggle continuously to find the proper balance.
It was not always thus. For most of the period prior to the early 1930s, obligations of governments in major countries were payable in gold. This meant the whole outstanding debt of government was subject to redemption in a medium, the quantity of which could not be altered at the will of government.
Hence, debt issuance and budget deficits were delimited by the potential market response to an inflated economy.
It was even possible in such a monetary regime for a government to become insolvent."
http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3629
For most of the period prior to the early 1930s, obligations of governments in major countries were payable in gold. This meant the whole outstanding debt of government was subject to redemption in a medium, the quantity of which could not be altered at the will of government.
ReplyDelete“The U. S. is headed toward a period of business depression, probably beginning within the next two years, which may exceed that which preceded the War. . . . The only thing that will save us is a new gold policy or the discovery of a new process or additional gold fields. If the fall [of gold production] is not prevented by design or accident we shall throttle business, wringing out all profits and experiencing all the evils of deflation.”
– Irving Fisher, Time Magazine, Jan. 20, 1930
Still I think conant has hit on the major point in this super mario brothers age, it's all about cybermoney, cyberwarfare. Beyond governments, beyond multinationals and NGO's, you have very capable cyber groups, Mosler is not smart enough to compete in this new age where the high tech cyber warrior is the real power, doesn't matter who has the gold, or who has the fed computers, what matters is who can mark zeroes up or down in the computer databases, and stacking a kevin mitnick or unfettered KGB or US Army or CIA or chinese cybercommand against a mosler is a match no economist can win. I just had to change lots of billpay because bank of america had a security breach and hundreds of thousands of debit cards were compromised, oops.
Anon,
ReplyDeleteCan you show me, specifically with page and paragraph, where in Mosler’s PDF he states that finance is “arbitrary” like scoring points in bowling or marking points on a scoreboard?
Check page 16, 2nd paragraph. This is what I quoted immediately following the ":" where you inserted your question.
In the paragraph right before that, he states "Computer data doesn't come from anywhere. Everyone knows that!" The clear message to be taken from Mosler's discussion on pages 16-17 is that the Fed's dollar accounting system is arbitrary, that is, it is an abstraction, a fiction, a means simply used to facilitate its ends.
He likens it to the points of a ballgame and states that just as the points of a ballgame come from nowhere, so do the Fed's dollar accounts. From this Mosler tries to draw the inference, which he builds upon throught 7DIF, that the dollar monetary system is a similarly arbitrary game and that because the dollars don't come from "anywhere", ie, are merely digits within Fed computer sheets, there is no need to worry about the Fed/governments ability to pay for things.
This is false. I explained why in the following comments of my original piece.
Anon,
ReplyDeleteAs is the assignment of a monetary value to goods and services. This abstraction is commonly known as accounting. Accounting and scorekeeping for a game are fairly comparable analogs. The goal of accounting is to track the accumulation of currency and ranks between different players do have real world ramifications. As a commercial banker I can assure you that a person with a 7 digit net worth is likely much more valuable as a guarantor of debt than an individual with a net worth of $100. Similarly a person with a bank balance of $20 is worth twice as much as a person with a bank balance of $10 assuming no other assets outside of the bank balance are held.
The specific application of monetary accounting within the banking sector is not a defense of Mosler's larger point he's trying to convey, which is that the Fed/govt don't have to worry about economic scarcity of REAL goods and services because they can always print up more of the "tickets" that are claims to these REAL goods and services.
Mosler isn't arguing about the risk management and accounting mechanics of a commercial bank and neither am I. I don't take issue with your statements about what role currency balances represent within that context.
Mosler is talking about the economy as a whole. He is trying to argue that the government can spend whatever it wants and doesn't have to worry about debt because it can always, instantaneously, create new "tickets" (dollars) to pay for its expenditures.
This is all due to Mosler's confused understanding of what money is and what role money plays in an economic system. Mosler's analogy (and thus his idea, which the analogy is representative of and is meant to communicate) is flawed-- an economic system is not a "game" and a monetary system is not a "scoring method" for that game.
Mosler is correct that the current mechanics of money creation within the Fed, fiat money system simply involves changing digits in a computer matrix. It doesn't follow from this "fact of reality" that the government can thereby ignore economic scarcity because it can always conjure as many of these "points" onto its computer systems as it has need for.
Anon,
ReplyDeleteWould the analogy work better for you if we assumed that in one particular stadium, instead of putting points on a scoreboard, the scorekeeper instead handed out pieces of paper with his signature on them to represent points? Score a touchdown and the scorekeeper hands that coach 6 pieces of paper with a signature on them. The scorekeeper would still have an unlimited supply of these and the “score” of the game could still be kept but now the points ARE represented by something physical. Although this does nothing to improve the quality of the original points analogy it does remove one of your objections that points have no physical existence
My objection has nothing to do with the physical existence of the "points" or lack thereof. I stated that they have neither a physical nor even metaphysical existence. I stated they have no physical existence simply to establish an emphatic contrast between the lack of a metaphysical existence, as well. My intent was to not have people like you assume my issue was that the money doesn't have a physical existence. Unfortunately, your reading skills aren't up to snuff and you got confused about that which I specifically tried to avoid anyway.
Anon,
ReplyDeleteJust as currency does not represent scarcity or ownership but simply records relative progress, an abstract means of accounting for and accruing value.
Correct, the money by itself doesn't represent anything. It only has meaning, value, in relation to the underlying economy which it serves. This underlying economy does still have real scarcity. If the money is accepted as such in the economy in question, then the money can be used to gain ownership over these scarce resources. And the scarcity itself can be communicated through the money via money-prices. Higher money prices serve to demonstrate heightened scarcity of a particular good or service.
Mosler ignores this scarcity in saying that the government can simply issue all the money it wants to buy whatever it thinks it needs. Mosler repeatedly claims that the government "can't go broke and can't be bankrupt" (pg 17). This implies that the government can always accrue ownership of scarce resources for itself merely by creating more money. Yet, if the government creates too much money, or creates it too fast, the marketplace will reject that money as valid in exchange and therefore it will no longer have status as money and the government will effectively be both broke (no purchasing power) and bankrupt (unable to make good on its liabilities).
Anon,
ReplyDelete{In a very real sense, rank of wealth is almost more important than the actual number of dollars possessed as the value of one dollar is not fixed and fluctuates from moment-to-moment and day-to-day. If you have $10 and I have $20 we cannot draw any definitive conclusions about the exact amount of goods and services that each of our holdings of currency can purchase as the value of $1 is not fixed. Today your $10 may be able to purchase 1 bushel of wheat but tomorrow it may only be able to purchase ½ bushel. Truly, all that can be said with any degree of certainty is that, at any moment in time, I have two times the purchasing power that you have.
Fine. That still isn't what a monetary system is for. Monetary systems are not for "ranking" "players" in a "game". They're for facilitating exchange of real goods and services.
Anon,
ReplyDeleteCan you point me to the specific page and paragraph where Mosler claims that governments create new wealth?
He doesn't make this claim. I provided an explanation of this mechanic to facilitate the readers understanding of why Mosler's explanation is flawed. The reason is it leaves out any understanding or acknowledgement of a critical piece of the economic picture.
It is precisely because the government does not produce its own wealth that it is not free to spend whatever it pleases with no risk of going broke or insolvent. The government's ability to create new money and spend is constrained by the faith the other market participants put on the government being able to control real goods and services via taxation.
Without a bond market (Mosler says the issuance of government debt and taxation is unnecessary), the government would come to control all its resources by issuing new money and then purchasing them. With each new issue of currency, prices quoted in that currency would tend to rise. To lay claim to the same or a growing amount of purchasing power, the government would need to issue exceedingly larger amounts of money each time it wanted to buy something. This would eventually result in an uncontrolled upward explosion in prices and finally an outright rejection of the money as money (a means of exchange) in favor of simple barter, assuming the government has in place a legal tender law outlawing potential competing currencies (such as foreign currencies, hard currencies, etc.)
All of this would occur as a result of the simple fact that the government doesn't itself create new wealth. The issuance of its currency doesn't do anything but change the distribution of existing wealth. This has consequences for the government's attempts at financing itself.
Anon,
ReplyDeleteIncorrect, In a fiat currency system the government can create, ex nihilo, $20,000 worth of currency either through actual printing of the currency notes or through crediting of a bank account via the spreadsheets you mention. Do you deny that government has this ability? Hold aside whether this is a wise or desirable thing to do. Just address the question of whether government has the operational ability to do so
Agreed. It can create all the money it wants, as a detached fact by itself, by changing digits on a spreadsheet.
Incorrect, it exchanges currency notes or bank deposits (which can be converted to currency upon demand) for the truck, not “value”. The government does not create “value”, the private marketplace helps to determine the value that is assigned to that $20,000. But rest assured, if the government only accepts currency to extinguish tax liabilities, there will be a demand for those valueless notes and deposits that the government can supply.
You have my example completely twisted and confused. I am not dull to the fact that forcing people to use currency to extinguish tax liabilities (legal tender laws) can create an artificial demand for said currency. That isn't where the purchasing power of newly created money comes from. Legal tender laws explain why it may have some value versus none (because by itself, the currency would not be used as a money in the market without a legal tender law supporting it). Legal tender laws do not explain how the money acquires a specific amount of purchasing power.
The specific amount of purchasing power that the money acquires comes from... all other money in existence. Each unit of money existing before the creation of the new unit loses, as a result of the issuance of the new unit, a fraction of its purchasing power. If X is the number of units outstanding prior to the issuance of the new unit, then each outstanding unit loses 1/X worth of purchasing power.
Because the newly issued money is not neutral, it gains for itself the FULL purchasing power of, in my example, $20,000 worth of money, at the time it is created and first spent, $20,000 worth being whatever kind of purchasing power $20,000 had at that time.
Eventually, as the money works its way through the economy over time from the time it is first spent, all other prices adjust upward by the amount of purchasing power given up to the newly issued money as per my explanation above.
In conclusion, it is clear that the creation of, say, $20,000 doesn't, by itself, result in $20,000 worth of new goods and services coming into existence as well. Instead, that new $20,000 of issued money withdraws from all other $s the present equivalent purchasing power of $20,000 when it is first spent, after which time the purchasing power of $1 will slowly change overtime to reflect that the total supply has been increased by $20,000.
Anon,
ReplyDeleteCan you cite the page and paragraph where Mosler claims that the creation of new money simultaneously creates matter out of thin air?
He doesn't state that specifically. He implies throughout his paper that the government doesn't need to concern itself with actual scarcity of real goods and services-- it can always print whatever it wants and spend it accordingly.
An economist who pays no attention to economic scarcity is no economist. This is my entire point in writing these refutations. Mosler isn't doing anything besides describing the particular mechanics of the current system as they exist today. From that, and I will get to this in my coming posts, he assumes that this means there is no scarcity and the government can solve all of our economic problems by simply printing up more money.
He repeatedly, even in this section, is baffled and frustrated with people who are concerned about the government's spending and debt issuance IN RELATION TO THE SCARCITY OF REAL GOODS AND SERVICES. He repeatedly claims that the government doesn't need to worry about issues of economic scarcity because it is monetarily sovereign and can always print up whatever it wants or needs to acquire real resources for itself (and then force people to accept this currency as payment less they end up in prison or worse).
Anon,
ReplyDelete{Actually, as I explained above, the government does not need to siphon of $20,000 worth of value before the newly created $20,000 will have value. The newly created $20,000 will have value because these currency notes and bank deposits are the ONLY thing that can be used to extinguish tax liabilities. Try paying your taxes with gold, your house or Euro’s. You will quickly discover that the government will not accept these items in lieu of currency. They will have you exchange your gold and euro’s for dollars and they will force you to sell your home for dollars to extinguish your tax liability.
And as I just explained above, legal tender laws explain why a fiat currency may have value vs it not having value, but it doesn't provide any explanation as to how a currency acquires a SPECIFIC value/purchasing power.
A legal tender law explains why I might use dollars to buy my groceries today. It does not explain why I might expend $136.19 for the particular groceries I buy today, versus why I might expend $180.27 for my groceries a few years later after the government has issued more currency (and everything else, ie, supply of goods and services, has not changed).
Anon,
ReplyDeleteThis is a small sampling of the errors you have made thus far and I don’t think we’re even one quarter of the way through your opus. I hope that suffices for now and I hope you can logically rebut these points without resorting to name calling or claiming that what you don’t understand is akin to “magic”
I fully understand all of this. I get Mosler's point about the present day mechanics of government digital money creation. I get how the Treasury doesn't need the IRS's phone numbers and vice versa. I get all of that.
What Mosler doesn't get is that observing the way this system works is not a proof that it will always work this way and that therefore the government doesn't have to concern itself with economic scarcity.
From Mosler's Introduction (which I planned to address LAST):
"This book's purpose is to promote the restoration of American prosperity. It is my contention that the seven deadly innocent frauds of economic policy are all that is standing between today's economic mess and the full restoration of American prosperity."
It is clear from this that Mosler believes that, after explaining all the "innocent frauds" (people's concerns about government money creation and economic scarcity), he can then present a "plan for prosperity" whereby the main implement to be utilized is the creation of new money by the central government. He specifically advises that various taxes be abolished and that the government make up for them by the creation of new money.
He sincerely believes that these policies, enabled by the issuance of new money, will result in a return to prosperity and an end of the recession.
I don't know how much more clearly he could imply that the government can orchestrate the creation of real wealth through new money issuance than those proposals. The chain of causation as professed by Mosler looks pretty clear: Government issues new money to finance its operations in lieu of collecting various taxes --> people will spend what they don't have to pay in taxes any longer and government will spend new money --> this will result in new wealth and the return of prosperity.
Yet, if the government's issuance of new money does not by itself create new real wealth (as explained with my truck example), then how does substituting the siphoning of wealth via a tax for the siphoning of wealth via new money creation, result in the creation of new wealth?
It doesn't.
Anon,
ReplyDeletePlease keep in mind that creating and dismissing caricatures of your opponent’s arguments does nothing to further your cause. If you want to disprove Mosler’s theories I applaud your efforts as only through careful analysis and deconstruction of ideas and theories can we separate the wheat from the chafe. I have no intellectual loyalty to thoughts or theories although I do want to understand the truth. Thus far Mosler’s theories seem to make sense and are supported by the operational realities of the banking system (of which I am a part of). If they are incorrect or need to be refined I want to understand why and gain a greater understanding of the competing ideas or theories that purport to replace them.
I really don't need you telling me how to conduct an intellectual operation.
I didn't create caricatures or abuse strawmen. I am attacking the (for now) underlying, implicit logic of Mosler's system. I fully accept and agree with Mosler's observations of the "facts" of how things operate now, (ie, the government creates new money and manages the monetary balances of the various participants in the economic system by changing digits on virtual spreadsheets, not actually moving physical money around, etc.)
What I contest as false is Mosler's belief that, because this is how the government manages to operate now, there are therefore no constraints on the government's ability to operate as such and the government must pay no heed to economic scarcity and the various other laws of economics that all other, non-monetarily sovereign individuals must deal with.
Probably the best possible demonstration of the flaws of Mosler's ideas, if they are too hard for you or anyone else to grasp as they stand now, is to examine how useful a country's "monetary sovereignty" is within the economic anarchy of assets and liabilities accounted between competing monetary sovereignties. In other words, the US government, for example, can hold a gun to our heads and force a legal tender law on us so that we must pay in dollars, but can the US government hold a gun to a foreign government's head and demand they abide by the legal tender law, as well?
What happens when the foreign government demands payment in something other than the continually debased dollar, for example? Will the US govt still be able to perpetually avoid its insolvency at that point?
Stick around, Mr. Banker, I'm just getting warmed up. By the time I get through the last of the 7DIF and then wrap it all up with a summary post, it should be much more clear to you (who is so concerned with the truth and so unbeholden to any particular biases or dogmas) that Mr. Mosler does not have a firm grasp on anything closely resembling economic knowledge.
beowulf,
ReplyDeleteRight! Like human slaves (unless of course there's an anti-slavery law backed by government force).
[...]
In other words, Eff you Dr. Salk and your polio vaccine crazy talk
I have no clue what you're talking about, even after looking up Jonas Salk and remembering he was the creator of the polio vaccine.
Anon2(?),
ReplyDeleteIf a basketball stadium decides to award 100 points to all players shorter than 6ft and auctions off bonus points to the team with the prettiest cheer leaders that may not be considered fair, nor will it be helpful to the game, but it is perfectly possible technically.
I don't have a basketball manual on me but I am fairly certain that that is not possible, not even technically. If one were to attempt such a stunt, one would no longer have a basketball game but rather a very unfunny circus. And all the spectators who came to watch would likely leave.
This would be similar to what would happen to an economic system if the monetary authority began arbitrarily "rewarding" the "players" with "points" (money). It would cease to be an economic system. The "players" would walk out on it (by refusing to use the "point system" aka monetary system).
The only thing that might keep them there, in the short term anyway, is legal tender. This would be akin to the basketball stadium owner posting armed thugs at each exit and threatening to murder anyone who tried to leave, and then, when everyone had returned to their seats, making the claim that they were still watching a "basketball game" even though the spectacle they were confronted with doesn't resemble the game as understood at all.
Anon2,
ReplyDeleteEconomics is about predicting the likelihood and timing of that rainy day and prescribing the most effective measures to avoid it, or at least to dampen its effects on those least guilty of causing it.
Economics is not about predicting anything. It's about establishing logical, causal relations between various economic behaviors and phenomena. Economics seeks to explain, "If I do this, what will happen?" Not, "If I do this, when will that happen?"
Austrianism is about asserting that because government is corrupt, it will rain some day, but since water is natural and healthy we shouldn't complain - the deserving will have built the appropriate dams to protect themselves.
Wrong again. Have you read any Austrian literature before? Mises specifically states, over and over again, that economics/praxeology are neutral toward whether X, Y or Z policy are "good" or "bad" in a moral sense. Economics can only say whether X, Y or Z policy will be successful in achieving its stated aims by examining how much or how little the policy in question seeks to act in resistance to the course of economic law.
Your implication that Austrianism is "liquidationist" or revels in the idea of a downturn in the economy is a similar mischaracterization/misunderstanding. All Austrian econ states is that such a downturn is the natural and unavoidable consequence of an artificial boom. It states that, from the perspective of a sound economic system, the pain is greater the longer this inevitability is put off and therefore, anyone interested in participating in a sound economic system would be similarly interested in permitting such a thing to happen. But Austrian econ does not take any pleasure in knowing that many individuals will suffer material hardships in such a correction.
dissenting comments encouraged,
ReplyDeleteTo conant, I have argued with mosler for over 10 years now, he used to talk about PAYGO rules being a good thing on his old board, but he doesn't mention that much lately - I wonder why. Arguing with mosler and his friends is like playing super mario brothers, it is fun for awhile, you may even reach a high score and kill bowzer, but in the end it doesn't pay you anything and it doesn't put real food on your table, like that movie WARGAMES, perhaps the only way to win Conant, is not to play. Quit wasting your time doing FREE work debating these suckers, all those idiots on mosler's webboard who come there for FREE and spend massive amounts of thier time for FREE thinking about and spreading his ideas haven't realized yet they are playing super mario brothers for FREE and there will be no real resources at the end of thier useless journey. Mosler gets speaking fees he can use to buy a steak or a game of super mario bros - what do his minions get?
Of course, you are right. The fact that Mosler is cited by James Kenneth Galbraith in an approving fashion in the Prologue to the 7DIF should be sign enough for any clearheaded person that what you are about to read is uneconomic, wrong-headed and just plain old arbitrary.
And I believe it is. And I believe you're right that, I will never change any of these people's minds. I don't have to and, frankly, I don't even want to. As I mentioned, it's more fun to just torment them a little. But beyond that, there are people who are undecided or are trying to understand these issues and I hope that I can be of service to them in providing a resource that demonstrates the errors of these cranks.
I don't expect Mosler or RMM to ever e-mail me and say "Wow, I was way off base, thank you for setting me straight!" When I saw RMM's book cover, "Free Money", with Uncle Sam holding a pile of money in his hands, I knew right there RMM had nothing original or correct to offer to economic thought.
There is no such thing as a free lunch. Mosler, RMM and JKG are just a few more figures in a long, long (and likely never-ending) line of redistributionist, interventionist schemers. Economic disaster always has and always will follow wherever these people's misconceived ideas may go.
dissenting comments encouraged,
ReplyDeleteCYBERSPACE, HAHA! Mosler used to tell me that when the chinese come to the USA to buy up our real resources with that paper fiat, we will just go into the fed/treasury computers and do some fun accounting with zeroes and rob the chinese of all thier purchasing power! What silly mosler doesn't understand is that perhaps the chinese can ALSO go into those computers and do the reverse, change some zeroes themselves and ADD to thier purchasing power - reference this
Right. Their logic "works" so long as all the economic and political activity takes place within a closed system where the government can enforce a legal tender law. Outside of that closed space, their system doesn't work at all (at least it won't the moment those outside actors decide they've had enough of it). Maybe the monkeys in the cage can't run away from the scientists experimenting on them, but the visitors at the zoo surely can.
What's more, as I pointed out in one of my last comments to Mr. Banker, all "monetary sovereigns" currently exist within a state of monetary anarchy vis a vis one another. As of right now (though this may not last and many are plotting and scheming diligently to bring an end to it), there is no world currency and therefore there is no arch-monetary sovereign who can fully impose legal tenderism on all the earth's human participants.
What's more, as I have repeatedly made an effort to explain in my essay, none of these legal tender schemes actually create any wealth. All the legal tender laws do is permit the government to steal from everyone else and thereby redistribute any wealth that does exist.
In other words, economic law continues to function despite the presence of a monetary sovereign, and it continually buts up against the interference of the monetary sovereign and his legal tender laws, with very REAL consequences for the total production of wealth by the private sector.
dissenting comments encouraged,
ReplyDeleteMosler has admitted to me at least 2 times, but maybe more, that all of society rests on the cruelty of a thug with a gun to do violence, this is no way to build a sustainable long term future for humanity.
Thank you for the links. I will check them out.
Yes, this admission is key, it demonstrates that Mosler is at least honest enough with himself at some level to know he is a fraud. He knows that all he is doing is describing the way things are, not necessarily the way things should be or the way they'll always be. He knows he is just assuming into his policy recommendations that this state of affairs will continue for awhile and therefore he feels free to make a few suggestions about how to "fine tune" them.
Of course, as I keep repeating, it doesn't work like that. The government might succeed in forcing people to accept its currency (for a time) but it can not succeed in ending the operation of economic law otherwise, and there will be very real consequences on the economic system as a whole thanks to Mosler's meddling. The "stimulating" that he proposes won't build a long run, sustainable economic foundation, as you've said he admits. At some point, his scheme fails and there is a realization, once more, that the issuance of new money is not the same as the creation of new wealth-- a scramble to control what real wealth actually exists will ensue.
still dissenting,
ReplyDeleteSO much for warren and his business cards and his gun, the world has told him and everyone associated with him to piss off :(
Yes, I do travel internationally at times. And yes, I am aware of the issues of which you speak. I think I was mentioning that in my earlier comments to you just now about the state of economic anarchy between monetary sovereigns.
If you are at all interested, feel free to e-mail me personally sometime by sending a message to my last name (at) the URL of EPJ. Sounds like we have a lot to talk/commiserate about.
Anon3(?),
ReplyDeleteMMT doesn't say that a sovereign government can create real goods and services. What it does say is that if these are for sale in the currency of issue, the government can always purchase them.
Perhaps you could point out why they can't do that.
Then MMT is useless because it is a tautology. It is just a statement of the obvious.
"The government can always purchase things with its currency so long as people accept that currency at time of purchase."
In other words, the government can buy stuff with money it issues until people decide they don't want to sell it for that money, then it can no longer buy stuff with that money.
Great. What a contribution to economic science.
Anon4(?),
ReplyDeleteAgree that the scoreboard analogy is quite silly.
Unfortunately, the rest of your argument is not persuasive enough, because there's a lot to criticize in MMT - mostly that the facts as they present them are not the facts at all. The presentation style is very obscurantist and deceptive. There's been plenty of debate and objection along these lines on the various MMT blogs. Intellectual dishonesty is what comes to mind.
What?
My argument isn't persuasive enough? Does that mean it's still persuasive?
Or it's not persuasive enough because I haven't critiqued everything about MMT? Do you realize this is Part I and I am getting to the rest?
And hey, I am not going to disagree with the intellectually dishonest remark, but those are your words, not mine. I wouldn't DARE call into question someone's character or mental abilities on this here blog! (Especially not the apparent low reading comprehension of the average "thoughtful" MMT adherent/advocate and/or inability to decipher meaning within specific context.)
Oliver,
ReplyDeleteIf that is the way you normally use the term, then you normally use it incorrectly :-). Solvency is a purely nominal matter
From a purely technical interpretation of the term solvency, you're correct, solvency just means "do you have enough assets to cover your liabilities". But it is an abuse of the concept of solvency to say that I could emit a nearly infinite supply of currency, use it pay off my debts and thereby declare I have maintained my "solvency" and have repaid my debts in good faith. That's an obvious act of fraud because the creditor is not receiving anything close to the value he anticipated receiving according to contract at the time the debt was created.
That is my point.
Since when is the inscription 'promises to pay the bearer one ribeye' printed on a $ note?
I am not saying that the value of a dollar is or should be constant. What I am trying to communicate is that Mosler's claim that the government can always meet its liabilities, like its Social Security benefit payments, for example, by issuing new currency, is a deception. Yes, the individual might get the "$300" they were promised each month (for example), but if, due to the massive issue of new money, $300 now buys a toothpick whereas, at the time Social Security was first brought into existence, $300 would pay a person's average living expenses for a full month, the government really hasn't managed to make good on its promises.
Mosler would tell that proud new toothpick owner, "Smile, the government has kept up its end of the bargain! The government is solvent! Hurrah!"
This is a deception, and a poor one, at that.
quote=Banker)Can you show me, specifically with page and paragraph, where in Mosler’s PDF he states that finance is “arbitrary” like scoring points in bowling or marking points on a scoreboard?(/quote)
ReplyDelete(quote=TC)Check page 16, 2nd paragraph. This is what I quoted immediately following the ":" where you inserted your question.
In the paragraph right before that, he states "Computer data doesn't come from anywhere. Everyone knows that!" The clear message to be taken from Mosler's discussion on pages 16-17 is that the Fed's dollar accounting system is arbitrary, that is, it is an abstraction, a fiction, a means simply used to facilitate its ends.
He likens it to the points of a ballgame and states that just as the points of a ballgame come from nowhere, so do the Fed's dollar accounts. From this Mosler tries to draw the inference, which he builds upon throught 7DIF, that the dollar monetary system is a similarly arbitrary game and that because the dollars don't come from "anywhere", ie, are merely digits within Fed computer sheets, there is no need to worry about the Fed/governments ability to pay for things.
This is false. I explained why in the following comments of my original piece.(/quote)
Response: So he doesn’t actually use the word “arbitrary” then, you merely interpret his message to mean that it is “arbitrary”. I’m glad we settled that. Regardless, I think you may be getting lost in terminology as what you have written above still does not reflect and arbitrary system. The fed has the ability to pay any debt denominated in US dollars as they can create dollars ex nihilo. That is not arbitrary, that is definite. Maybe the word you’re looking for is “fungible”?
Mr. Banker,
ReplyDeleteI can't really do anything for you. It's your problem that you don't like my choice of words, not mine.
This was always "settled" and my argument and refutation of Mosler's ideas doesn't rest on whether you like my use of arbitrary or not.
It is definitely an arbitrary system. They can create new dollars at their sole, arbitrary discretion. There is nothing restraining them from doing so (besides the decision by market participants to ultimately reject the currency outright), there is no "law", natural or otherwise, that prevents them from arbitrarily deciding to create dollars or not create dollars.
(quote=Banker)Would the analogy work better for you if we assumed that in one particular stadium, instead of putting points on a scoreboard, the scorekeeper instead handed out pieces of paper with his signature on them to represent points? Score a touchdown and the scorekeeper hands that coach 6 pieces of paper with a signature on them. The scorekeeper would still have an unlimited supply of these and the “score” of the game could still be kept but now the points ARE represented by something physical. Although this does nothing to improve the quality of the original points analogy it does remove one of your objections that points have no physical existence.(/quote)
ReplyDelete(Quote=TC)My objection has nothing to do with the physical existence of the "points" or lack thereof. I stated that they have neither a physical nor even metaphysical existence. I stated they have no physical existence simply to establish an emphatic contrast between the lack of a metaphysical existence, as well. My intent was to not have people like you assume my issue was that the money doesn't have a physical existence. Unfortunately, your reading skills aren't up to snuff and you got confused about that which I specifically tried to avoid anyway.(/quote)
Response: The irony in this post is humorous but clearly lost on you. You claim that points have neither a "physical" nor “metaphysical” existence and than chide me on my reading skills! I would check the definition of “metaphysical” before you go any further with this argument. P.S. If points have neither a physical nor a metaphysical existence what kind of existence do they have??
Mr. Banker,
ReplyDeleteEconomic scarcity is not being ignored at all. It is clearly stated that if the amount of dollars circulating within the system begin to exceed the ability of the economy to produce that inflation will result. “Scarcity” as you are calling it reflects in the value of the individual dollars. Produce too many dollars and your dollars are worth less, tax too many out of existence and the dollars appreciate.
The creation of dollars is not occurring in any proportion to any economic scarcity. There is nothing objective or scientific about the Fed's dollar creation. It judges (according to whatever process it uses to judge things) that more or less dollars should be created or removed from the system and acts accordingly.
There is no predictable, quantifiable relationship between any level of economic production or scarcity, and the Fed's decision to create money.
(Quote=Banker)In a very real sense, rank of wealth is almost more important than the actual number of dollars possessed as the value of one dollar is not fixed and fluctuates from moment-to-moment and day-to-day. If you have $10 and I have $20 we cannot draw any definitive conclusions about the exact amount of goods and services that each of our holdings of currency can purchase as the value of $1 is not fixed. Today your $10 may be able to purchase 1 bushel of wheat but tomorrow it may only be able to purchase ½ bushel. Truly, all that can be said with any degree of certainty is that, at any moment in time, I have two times the purchasing power that you have.(/Quote)
ReplyDelete(quote=TC)Fine. That still isn't what a monetary system is for. Monetary systems are not for "ranking" "players" in a "game". They're for facilitating exchange of real goods and services.(/quote)
Response: Your taking the analogy much too literally, but if referring to the monetary system as a “game” that “ranks players” is causing you this much distress I assure you that I certainly won’t refer to it as such.
(Quote=Banker)Can you point me to the specific page and paragraph where Mosler claims that governments create new wealth?(/quote)
ReplyDelete(Quote=TC)He doesn't make this claim. I provided an explanation of this mechanic to facilitate the readers understanding of why Mosler's explanation is flawed. The reason is it leaves out any understanding or acknowledgement of a critical piece of the economic picture.
It is precisely because the government does not produce its own wealth that it is not free to spend whatever it pleases with no risk of going broke or insolvent. The government's ability to create new money and spend is constrained by the faith the other market participants put on the government being able to control real goods and services via taxation.
Response: Excellent, so once again we’ve established that your claim that Mosler said “governments create new wealth” is not actually true but rather simply your incorrect paraphrasing of his words. Much as was the case when you said that he referred to the monetary system as “arbitrary”. But I do give you credit as you mention that taxation is the driver of the demand for currency.
(Quote=TC)Without a bond market (Mosler says the issuance of government debt and taxation is unnecessary), the government would come to control all its resources by issuing new money and then purchasing them. With each new issue of currency, prices quoted in that currency would tend to rise. To lay claim to the same or a growing amount of purchasing power, the government would need to issue exceedingly larger amounts of money each time it wanted to buy something. This would eventually result in an uncontrolled upward explosion in prices and finally an outright rejection of the money as money (a means of exchange) in favor of simple barter, assuming the government has in place a legal tender law outlawing potential competing currencies (such as foreign currencies, hard currencies, etc.)
ReplyDeleteAll of this would occur as a result of the simple fact that the government doesn't itself create new wealth. The issuance of its currency doesn't do anything but change the distribution of existing wealth. This has consequences for the government's attempts at financing itself.(/Quote)
Response: You are correct in noting that without taxation and bond issuance the money supply would simply expand and inflation would ensue, however, if you think this concept is a revelation to Mosler or the MMT crowd your mistaken. Mosler clearly states that inflation is the ONLY constraint on government spending. See page 17 of the PDF, second column, first new paragraph, words in boldface type…”This is not to say that excess government spending won’t possibly cause prices to go up (which is inflation).”. He then goes on to state in the footnote on the same page…”Question: If the government doesn’t tax because it needs the money to
spend, why tax at all? Answer: The federal government taxes to regulate what economists call “aggregate demand” which is a fancy word for “spending power.” In short, that means that if the economy is “too hot,” then raising taxes will cool it down, and if it’s “too cold,” likewise, cutting taxes will warm it up. Taxes aren’t about getting money to spend, they are about regulating our spending power to make sure we don’t have too much and cause inflation, or too little which causes unemployment and recessions.” So, based upon Mosler, spending can occur without taxation or bond issuance but inflation is the ultimate result.
Mr. Banker,
ReplyDeleteThe irony in this post is humorous but clearly lost on you. You claim that points have neither a "physical" nor “metaphysical” existence and than chide me on my reading skills! I would check the definition of “metaphysical” before you go any further with this argument. P.S. If points have neither a physical nor a metaphysical existence what kind of existence do they have??
Alright, I misused the word. If something exists but does not exist physically then it necessarily must exist metaphysically. Fine. I was wrong in using that word.
My point remains: it is incorrect to analogize between the points of a ballgame, whose total supply is inconsequential, and the supply of money in relation to an economic system, whose supply is consequential.
Wherever the points in a ballgame "come from", they are assigned to players based upon particular achievements in the game and to the extent that they are assigned, they denote how the participants are ranked against one another.
This is not the function of money in an economic system. Ownership of money by economic participants may represent purchasing power or stored value attributable to those participants but it does not demonstrate whether those participants are "ahead" or "behind" one another because there is not some "end game" to the economic system where everyone's money balances are totaled up and a winner declared.
In a basketball game, if one team scores a basket and earns new points, this doesn't "devalue" the prior team's point score. It certainly changes their relationship in terms of who is winning and who is losing the game but the points are still points.
In an economic system, the creation of new money does reduce the value/purchasing power of existing money. It doesn't change who is "winning" or "losing" because there is no winner or loser, but it does change everyone's purchasing power relationship compared with the total supply of goods and services available.
(Quote=TC)You have my example completely twisted and confused. I am not dull to the fact that forcing people to use currency to extinguish tax liabilities (legal tender laws) can create an artificial demand for said currency. That isn't where the purchasing power of newly created money comes from. Legal tender laws explain why it may have some value versus none (because by itself, the currency would not be used as a money in the market without a legal tender law supporting it). Legal tender laws do not explain how the money acquires a specific amount of purchasing power.
ReplyDeleteThe specific amount of purchasing power that the money acquires comes from... all other money in existence. Each unit of money existing before the creation of the new unit loses, as a result of the issuance of the new unit, a fraction of its purchasing power. If X is the number of units outstanding prior to the issuance of the new unit, then each outstanding unit loses 1/X worth of purchasing power.
Because the newly issued money is not neutral, it gains for itself the FULL purchasing power of, in my example, $20,000 worth of money, at the time it is created and first spent, $20,000 worth being whatever kind of purchasing power $20,000 had at that time.
Eventually, as the money works its way through the economy over time from the time it is first spent, all other prices adjust upward by the amount of purchasing power given up to the newly issued money as per my explanation above.
In conclusion, it is clear that the creation of, say, $20,000 doesn't, by itself, result in $20,000 worth of new goods and services coming into existence as well. Instead, that new $20,000 of issued money withdraws from all other $s the present equivalent purchasing power of $20,000 when it is first spent, after which time the purchasing power of $1 will slowly change overtime to reflect that the total supply has been increased by $20,000.(/quote)
Response: I find myself in agreement on much of this. What I think you are neglecting is the effect of savings and the velocity of money. If the government buys that $20,000 truck from me and I put that $20,000 under my mattress and don’t spend it, how does that affect the value of all outstanding dollars? Do you see my point?
(quote=TC)Can you cite the page and paragraph where Mosler claims that the creation of new money simultaneously creates matter out of thin air?
ReplyDeleteHe doesn't state that specifically. He implies throughout his paper that the government doesn't need to concern itself with actual scarcity of real goods and services-- it can always print whatever it wants and spend it accordingly.(/Quote)
Response: Excellent. May I suggest that when, in your future installments, you state that Mosler claims one thing or another, you first double check and make sure that he has actually made the claim you represent? This is the third time you’ve attributed words to him that he does not use. You are simply mischaracterizing his arguments via poor paraphrasing.
Mr. Banker,
ReplyDeleteHigher money prices could also reflect an increase in the money supply with no heightened scarcity. Just a detail but an important one
Of course. If nothing else changes but the supply of money (increase), prices will tend to rise to reflect that.
You seem to have missed a key point within the theory. The creation of currency, in itself does not guarantee a demand for that currency. The demand is created by establishing a tax in the currency of issue. As long as the government can enforce the taxation (ultimately via force if necessary) there will be a demand for currency. The US marketplace has NO CHOICE but to offer up goods and services to obtain the currency as the currency is required to extinguish tax obligations. They CANNOT opt to pay taxes in something else or opt to not pay taxes.
I haven't missed a damn thing. I get this. So long as people respect their tax obligations and respect the authority of the government and its legal tender laws, they must use the currency being issued.
It is conceivable that the government become so irresponsible in its issuance of new money that people reject the use of the currency in favor of black market (non-taxable) exchanges and/or barter. Meanwhile, this is just what is happening within a country. Outside of it, it is possible for the rest of the world to drop the use of the currency altogether, ending international trade with the country in question, in order to avoid using the devalued currency.
(quote=TC)An economist who pays no attention to economic scarcity is no economist. This is my entire point in writing these refutations. Mosler isn't doing anything besides describing the particular mechanics of the current system as they exist today. From that, and I will get to this in my coming posts, he assumes that this means there is no scarcity and the government can solve all of our economic problems by simply printing up more money.
ReplyDeleteHe repeatedly, even in this section, is baffled and frustrated with people who are concerned about the government's spending and debt issuance IN RELATION TO THE SCARCITY OF REAL GOODS AND SERVICES. He repeatedly claims that the government doesn't need to worry about issues of economic scarcity because it is monetarily sovereign and can always print up whatever it wants or needs to acquire real resources for itself (and then force people to accept this currency as payment less they end up in prison or worse).(/Quote)
Response: Can we put this one to bed? If this is the entire point of you writing these refutations than you are engaged in a fools errand. Clearly Mosler states that inflation is the result when an expanding money supply meets a dwindling supply of real goods and services. See the quote I listed above for concrete and irrefutable proof. Once again you have caricatured the argument and then go on to refute your caricature.
(Quote=Banker)This is a small sampling of the errors you have made thus far and I don’t think we’re even one quarter of the way through your opus. I hope that suffices for now and I hope you can logically rebut these points without resorting to name calling or claiming that what you don’t understand is akin to “magic”(/quote)
ReplyDeleteI fully understand all of this. I get Mosler's point about the present day mechanics of government digital money creation. I get how the Treasury doesn't need the IRS's phone numbers and vice versa. I get all of that.
What Mosler doesn't get is that observing the way this system works is not a proof that it will always work this way and that therefore the government doesn't have to concern itself with economic scarcity.(/Quote)
Response: Heh...The Scarcity again.
If Mosler’s 7DIF was a paper intended to address possible future monetary systems, then I would be forced to agree. But since it is geared toward explaining the operational realities of our CURRENT monetary system, I must disagree with your assessment of the paper’s shortcomings.
Mr. Banker,
ReplyDeleteYour taking the analogy much too literally, but if referring to the monetary system as a “game” that “ranks players” is causing you this much distress I assure you that I certainly won’t refer to it as such.
Listen, snob. This is the analogy Mosler used. It's supposed to represent his idea. If the analogy isn't clearly explaining the idea, he should use a different one (or you should, since you seem to find it to be a disagreeable analogy as well).
As it stands, by using this analogy Mosler is comparing the issuance of money to the issuance of points in a game. The only way this can be interpreted, if they're meant to be analogous, is that because we don't have to worry about where points come from, we don't have to worry about where money comes from, either. We can play the game without fear that we'll run out of points and we can run our monetary system without fear that we'll run out of money!
Great. Agreed. The government can create a potentially infinite amount of money. It doesn't follow that because it can do this, the government doesn't have to worry about paying for anything it wants to buy.
It doesn't matter if there are legal tender laws or not. If the government took Mosler's theory seriously and just started issuing money any and everytime it wanted to buy something, it would collapse the economy. Anticipating such huge issuance of currency, no price would be high enough to compensate a person for holding currency. People would flee into real goods and any production processes requiring long periods of time and multiple stages of production would cease to occur because people would not want to sit on money waiting for them to finish and the producers themselves would not be able to exchange the partially-completed goods for anything useful. The division of labor requires a sound money that can be used as a reliable store of value. Without a sound money that can reliably store value, the division of labor falls apart because people will not be able to make exchanges that do not involve a double coincidence of wants. They will have to produce exactly what another person would want in exchange. This makes impossible the production of a number of goods that require the labor of many and the completion of the project in timely stages.
(Quote=TC)From Mosler's Introduction (which I planned to address LAST):
ReplyDelete"This book's purpose is to promote the restoration of American prosperity...and the full restoration of American prosperity."
It is clear from this that Mosler believes that, after explaining all the "innocent frauds" (people's concerns about government money creation and economic scarcity), he can then present a "plan for prosperity" whereby the main implement to be utilized is the creation of new money by the central government. He specifically advises that various taxes be abolished and that the government make up for them by the creation of new money.
...
The chain of causation as professed by Mosler looks pretty clear: Government issues new money to finance its operations in lieu of collecting various taxes --> people will spend what they don't have to pay in taxes any longer and government will spend new money --> this will result in new wealth and the return of prosperity.
Yet, if the government's issuance of new money does not by itself create new real wealth (as explained with my truck example), then how does substituting the siphoning of wealth via a tax for the siphoning of wealth via new money creation, result in the creation of new wealth?
It doesn't.(/quote)
You've neglected a few steps. Actually the chain of causation is thus: Government issues new money to finance its operations in lieu of collecting various taxes --> people pay down debt and begin the process of deleveraging with increase in disposable income--> people begin to spend more as their debts are paid down and they have more disposable income due to lower taxes.--> The deficit increases.--> demand begins to increase due to increased spending.--> Businesses begin to hire to meet increased demand.--> unemployment drops from 10% to 3% and new REAL GOODS AND SERVICES are produced due to the employment of these idle resources. --> This will result in new wealth and the return of prosperity.--> Taxes are increased as inflation begins to creep in due to full employment, low tax rates, and increased spending.--> Economy cools.--> Wash, rinse, repeat.
(Quote=Banker)Please keep in mind that creating and dismissing caricatures of your opponent’s arguments does nothing to further your cause. If you want to disprove Mosler’s theories I applaud your efforts as only through careful analysis and deconstruction of ideas and theories can we separate the wheat from the chafe. I have no intellectual loyalty to thoughts or theories although I do want to understand the truth. Thus far Mosler’s theories seem to make sense and are supported by the operational realities of the banking system (of which I am a part of). If they are incorrect or need to be refined I want to understand why and gain a greater understanding of the competing ideas or theories that purport to replace them.(/quote)
ReplyDelete(quote=TC)I really don't need you telling me how to conduct an intellectual operation.
I didn't create caricatures or abuse strawmen.(/quote)
Response: You most certainly have, on at least three sperate occasions or more, and the proof is noted above.
(Quote=TC)I am attacking the (for now) underlying, implicit logic of Mosler's system. I fully accept and agree with Mosler's observations of the "facts" of how things operate now, (ie, the government creates new money and manages the monetary balances of the various participants in the economic system by changing digits on virtual spreadsheets, not actually moving physical money around, etc.)
ReplyDeleteWhat I contest as false is Mosler's belief that, because this is how the government manages to operate now, there are therefore no constraints on the government's ability to operate as such and the government must pay no heed to economic scarcity and the various other laws of economics that all other, non-monetarily sovereign individuals must deal with.
Probably the best possible demonstration of the flaws of Mosler's ideas, if they are too hard for you or anyone else to grasp as they stand now, is to examine how useful a country's "monetary sovereignty" is within the economic anarchy of assets and liabilities accounted between competing monetary sovereignties. In other words, the US government, for example, can hold a gun to our heads and force a legal tender law on us so that we must pay in dollars, but can the US government hold a gun to a foreign government's head and demand they abide by the legal tender law, as well?(/quote)
Response: Of course not. But even though we aren’t holding a gun to say…China’s head, it appears that they still want to send us goods and services for our pieces of paper with dead presidents on them. They appear to desire our currency without a gun held to their head, no?
Mr. Banker,
ReplyDeleteExcellent, so once again we’ve established that your claim that Mosler said “governments create new wealth” is not actually true but rather simply your incorrect paraphrasing of his words. Much as was the case when you said that he referred to the monetary system as “arbitrary”. But I do give you credit as you mention that taxation is the driver of the demand for currency.
Yikes man. You need to give it a rest. I don't think I ever made the claim that he said that. I do maintain that he implies it through his suggested policies and through what he infers from his discussion of what's wrong with people's understanding of monetary economics.
I never said he refers to it as arbitrary. I said he treats it as arbitrary. It's what is implied with his analogies.
You're beginning to tire me out. I probably won't respond to you any longer. I don't care if you think you've won as a result or you feel vindicated in your ignorance. I don't care if you think I am stupid and don't get it. I can live with self-righteous dullards. The world is full of them and you aren't the first and you won't be the last. So far your entire "response" to everything I've written has been to clarify technicalities. It seems you are bent on proving that all Mosler is really saying is... nothing at all. If none of my critiques apply to Mosler because he doesn't think or say or imply any of the stuff I have raised concerns about, then Mosler isn't saying anything at all-- he's just observing a mechanical operation and stating that it works.
For example, my interpretation of Mosler's 7DIF is that it is a confused exposition on monetary economics which implies that the government doesn't need to concern itself with monetary scarcity in issuing currency. This would be akin to Mosler seeing an automobile driving down the road and claiming that it is being pulled by ghost horses. I explain that his understanding of what motivates the car is flawed and it is in fact motivated by an internal combustion engine. Your claim is that Mosler isn't even making a claim about the motivation of the vehicle but simply making observations about reality, such as "The car is moving" and "When the car moves, the wheels rotate" etc. etc.
I don't know how, then, we get from Mosler's observation of how the monetary system works-in-reality, to his proposals of how the system can be manipulated to provide the economic benefits he suggests, without employing a flawed theory of economic causation, but I'll just take your word for it (so you'll shut up and go away) that this is what is happening.
You are welcome to try to pick apart the semantics and what not of my future posts but you won't be getting any response from me.
Enjoy!
(Quote=TC)What happens when the foreign government demands payment in something other than the continually debased dollar, for example? Will the US govt still be able to perpetually avoid its insolvency at that point?(/Quote)
ReplyDeleteResponse: That will be the point that we either decide not to buy from them or make a political decision to trade in a foreign currency. This is certainly a possibility in the future and highlights the massive benefit we derive from China’s willingness to give us tangible goods and services in the present for a bank statement.
(Quote=TC)Stick around, Mr. Banker, I'm just getting warmed up. By the time I get through the last of the 7DIF and then wrap it all up with a summary post, it should be much more clear to you (who is so concerned with the truth and so unbeholden to any particular biases or dogmas) that Mr. Mosler does not have a firm grasp on anything closely resembling economic knowledge.(/quote)
Thank you Mr. Conant. I certainly hope that you’re “just getting warmed up” as, based upon this initial article, you’ll need to get a whole lot hotter before you even approach room temperature. But I can assure you that I look forward to future installments if only for the sheer entertainment value. Rest assured though, that if you do stumble upon some valid criticism, I’ll be the first to offer my congratulations!
Mr. Banker,
ReplyDeleteSo, based upon Mosler, spending can occur without taxation or bond issuance but inflation is the ultimate result.
Great. Except for the part where "aggregate demand" doesn't exist. There is demand for X by individual Y and demand for Z by individual A, but there is not "aggregate demand for aggregate supply."
Furthermore, the government has no idea what is the "proper" amount of spending power for money to have to keep it in the nice happy medium between prices increasing "too fast" (another arbitrary distinction) and economic activity becoming depressed in general.
Fallacious Keynesian thinking, now adopted by Mosler. So unorthodox.
Mr. Banker,
ReplyDeleteThank you Mr. Conant. I certainly hope that you’re “just getting warmed up” as, based upon this initial article, you’ll need to get a whole lot hotter before you even approach room temperature. But I can assure you that I look forward to future installments if only for the sheer entertainment value. Rest assured though, that if you do stumble upon some valid criticism, I’ll be the first to offer my congratulations!
Great, jackass! I do hope you live a life full of smug, unearned self-satisfaction. If you're lucky, one day you'll be clued in (accidentally).
In the meantime, I hope I never accidentally bank with you. You're as clueless as all the other people who came before you who said, "We can shape a future of economic prosperity with the force of this here gun" and then we're frustrated and confused when their economy stagnated and then collapsed.
That's what Mosler economics rests on: the use of government violence to keep everyone in line and participating in their little currency experiment. Mosler may have done an expert job in explaining "how it works" but he has yet to touch upon anything even closely resembling a sound, sustainable economic theory.
With any luck, I will be long gone from this country by the time Mosler or any of his deluded acolytes get a chance to actually practice on the rest of us what they preach.
(quote=TC)I can't really do anything for you. It's your problem that you don't like my choice of words, not mine.
ReplyDeleteThis was always "settled" and my argument and refutation of Mosler's ideas doesn't rest on whether you like my use of arbitrary or not.(/quote)
Response: Yes. I expected as much. Regardless, words have meanings beyond those that you personally assign to them. When your argument pivots upon imprecise use of language it becomes very easy to make whatever point you wish.
[quote=TC]It is definitely an arbitrary system. They can create new dollars at their sole, arbitrary discretion. There is nothing restraining them from doing so (besides the decision by market participants to ultimately reject the currency outright), there is no "law", natural or otherwise, that prevents them from arbitrarily deciding to create dollars or not create dollars.[/quote]
Response: Can you name me a currency system that is not "arbitrary"? Does the amount of gold not fluctuate based upon discoveries of new gold deposits? Is the discovery of a new mine not arbitrary as well? If "Arbitrary" is your word of choice, you have created a difference without distinction.
Way back earlier in the thread Mr. Conant said: If I'm wrong, I'm certainly open to hearing why. So far, none of you people have done me the "honor" of showing me anything but your disdain and disapproval.
ReplyDeleteResponse: Well, Mr. Conant. The honor was all mine (literally)!
(quote=TC)I will never change any of these people's minds. I don't have to and, frankly, I don't even want to. As I mentioned, it's more fun to just torment them a little.(/Quote)
response: I thought when you said "torment them a little" that you meant you were going to torment us by macerating our arguments with superior logic, not by the use of ad hominems and foul language!
All Quotes from Mr. Conant:
- Listen, snob. This is the analogy Mosler used...
- You're beginning to tire me out...
- I can live with self-righteous dullards. The world is full of them and you aren't the first and you won't be the last.
- Great, jackass! I do hope you live a life full of smug, unearned self-satisfaction. If you're lucky, one day you'll be clued in (accidentally).
- but I'll just take your word for it (so you'll shut up and go away) that this is what is happening.
In hindsight, I don't think you were being completely honest when you said you welcomed informed dissent!
Have a nice evening!
A Banker
Why so much vitriol in what should be an intellectual examination of ideas?
ReplyDeleteConant, I have given you ammo to help refute some of mosler's ideas as I see them, at least relative to building a sustainable long term future for all of humanity (and hopefully not at the butt of a gun) and I liked to play a lot of super mario brothers when I was a kid so I am looking forward to our talks. I think Mosler does want to do good, he was an old school banker and claims to see the evil of all this "new economy" stuff going on today. I agree with him that 90% of the financial sector is totally useless and we have way too many human beings engaged in the financial casino clicking buttons playing financial super mario brothers (hehe).
ReplyDeleteMosler does talk about fixing the unemployment rate, and that we are wasting worker "cycles" by having these people idle. Now I posted the quote by irving fisher showing how silly it was that in the 30's that to have employment, we would have to find more gold mines, certainly you can agree that was silly too right? Isn't human civilization advanced enough that we can move beyond having to find more gold mines to give people jobs making nintendo DS and super mario games?
What do you think we should do to help unemployment, should we even try to manage unemployment as is a fed mandate? One of my elders told me once we got to pay off the poor or they will revolt and create destruction/chaos/and anarchy, so welfare money and welfare jobs help create peace and stability for the rest of us, I would tell him what about fixing that problem at the other end - baby making incentives/disincentives and he would say well the humans that are already here got to be pacified and to vote democratic. If you saw society about to erupt into chaos and anarchy because too many humans were unemployed, what would be your suggestions if not to give them a gauranteed government job or free money to pacify them?
Dissenting Comments Encouraged,
ReplyDeleteWell said!
You appear to be a thoughtful critic and your analysis is appreciated, at least by the likes of me. Your willingness to engage MMT and critique it upon its merits rather than misrepresenting it and attacking the misrepresentations gives me hope that there are still people who have an open mind and who feel that new ideas are something to be examined, probed and evaluated rather than outright dismissed due to their opposition to traditional thought.
Thank you again for your contribution to the discussion.
Regards,
A Banker
dissenting comments encouraged,
ReplyDeleteI think both of the solutions you discussed with your elder (giving the poor saps some welfare scraps, and controlling their incentives to reproduce) are horrible and contribute to/cause the problem they claim they are addressing. Welfare handouts are a form of economic chaos. They are a subsidy for idleness and anti-social instinct.
I think it is deplorable to adopt an elitist attitude and assume that the reason many people are poor is because they're somehow less capable than others in an absolute (not relative) sense, to the degree that they literally are helpless monkies or sub-human animals without the care of government institutions.
I think if you believe that you need to check your premises before you go any further in advocating any particular solutions.
If you are still confused about these topics and how welfarism contributes to the problem of poverty and social unrest rather than alleviates it, might I suggest to you some particular readings from the Austrian school by Ludwig von Mises and Murray Rothbard?
Concern for the poor and the quest for "economic equality" by politicians and other demagogues has historically proven to be ample cover for some of the most dastardly acts of mass theft and widespread economic destruction of all time.
Conant I have debated mish for more than 13 years now and very familiar with the austrian and rothbard memes. Do you agree with Irving Fisher that back in the 30's the only way to keep people working was to find more gold mines?
ReplyDeleteI really like your ideas on economic scarcity being critical and needing to be at the center of economic thought, they have just started a new masters program at USF on "global sustainability" to try and address short term thinking problems that we seem to be facing today. This goes along with many CEO's I know who say beating the street by a penny every quarter forces them to focus on the short term and not be able to do any long term research/planning (multi-decade) etc
I just saw this movie at the college called BLUE GOLD, it was part of the sustainability of fresh water. They talked about the likes of bechtel and others coming in and taking over the water from poor people to use in coke and such. I asked one of the presenters it seems pretty clear to me, like on the turkey farm my granpappy used to run, if you have more turkeys than feed and water to support, you need to quit birthing more turkeys. He said I was an ugly individual and who am I to tell a woman wether she can have a baby or 2 or none. Let me ask you Conant, what is the solution, we have 7 billion people that need water, and the fresh water seems to be running out, and if something isn't done to manage the situation, all that will be left is violence and war. If elitism and population control prevents war (possibly nuclear war that kills everybody) is that not acceptable?
dissenting comments encouraged,
ReplyDeleteI can't speak for Mish and his "Rothbard memes". Mish gets a lot of stuff right about economics and Austrianism but he is not a purist by any means.
No, I do not agree with Fisher. That was an example of Fisher thinking like a monetarist about what drives production in the economy (production of money) but under a gold standard rather than a fiat currency. It's just as erroneous in thinking.
Short-term thinking is not a problem that needs to be researched and studied and solved. People can develop whatever time preference scale they deem fit. This is not problematic so long as everyone is free to develop their own time preference scales and not be forced (via political efforts) to adopt the same time preference scale as others if they disagree with it.
As for your concern about dwindling fresh water supplies and the avoidance of impending war-- you are completely misframing the problem and that is why the solution is not clear to you.
The problem is not one of "proper management" (ie, top down solutions forced on us by wise public managers). Let me see if you can arrive at a more sensible conclusion on your own with a little prompting from me. Try thinking about the problem like this:
Normally when a good that everyone needs is in short supply, the price starts rising on it. This acts to both attract entrepreneurs who make efforts to increase the available supply of the good, while simultaneously signals demanders of the good to focus on their most important uses of the good in favor of their more marginal uses (ie, it becomes more costly to use the good frivolously, so they "economize" on their usage).
With fresh water, this is not happening for some reason. There is an "imbalance" between supply and demand. The price mechanism isn't working. Why? What is different about the fresh water market, vs, say, the corn chip market, or the Nintendo video game market or the clothing market? (Hint: how are issues of property ownership handled differently in fresh water market vs. others?)
See if you can answer that, then I will give you my thoughts.
One of the comments at the water sustainability forum was that the problem was with too many economists coming from the chicago school of economics. They believed that at high enough price there would be some substitute in thier models for 1000 dollar a gallon water and the presenter said there was not.
ReplyDeleteMy granpappy got his water for free from the river next to his farm in alabama, this was many many decades ago, but then his richer, more politically connected friend upstream starting using so much of the water, what came down to my granpappy was eventually reduced to a trickle. Because of this my granpappy had a bad year, and the bank came in and took my granpappies large farm and sold it for pennies to that richer friend. Currently in florida near the strawberry farms large sinkholes are forming all over the place because farmers are using too much water and the land can no longer support them and government intervention is not fixing the problem it seems to me.
Conant I am leaving the USA, I hope to be able to renounce my citizenship so I can escape her taxman and all his sillyness. Even if I can't though, the bigger issue is that the USA and all her subsidies have killed my sex life, that is the real issue. Over here there are welfare mothers who otherwise would be very dependent on a hard working mule like me to survive and thrive, but they have uncle sam subsidizing everything for them, so I have nothing to offer. My granpappy said I would never have the life he did (with a long marriage) unless I left the USA. So I am leaving somewhere to the third world where they don't have social welfare programs like the USA, where my wife/girlfriend can't get anything she wants from the state for FREE while spitting on me, the hard working mule who the state takes resources from to give to her for nothing. I implore you conant, if you want a long 50 year marriage like my granpappy had, you certainly know that is not as likely in the USA as it used to be. I have friends in the USAF who manage the nuclear budgets for our country, and they are always so stressed from thier shopping machine spoiled wives and I just don't think that can be good for our military. They tell me about friends who come back from vietnam with foreign wives who are so much more appreciative for the marriage. The friends I have in jail because the legal system has been perverted to favor the mother, even if she is a crackhead, the father has little recourse in divorce.
I will end here before I get too emotional how state subsidies and an unfair legal system in the USA have ruined family formation.
Anon,
ReplyDeleteMuch too much silliness in all of that for me to feel like responding any longer. You stumbled upon the source of the problem when you mentioned your "granpappies" politically connected neighbor-- of course, he can use such connections to have property rights defined in his favor and at the expense of your grandfather. That's about the whole problem, open and shut.
Sorry about your sex life. Some of us manage in spite of it all but I do understand the changed incentives can be insurmountable for some.
Good luck abroad, I'll be joining you as soon as I can. Don't forget they've got you in their tax net for a full 10 years following the day you renounce, though.
"Let me see if you can arrive at a more sensible conclusion on your own with a little prompting from me. Try thinking about the problem like this"
ReplyDeleteIs this sort of arrogant hammerlock necessary in an intellectual discussion?
Bob,
ReplyDeleteNo loss, whatsoever. You, like many other MMTers, don't know what a theory is. Even though you keep pointing out, as MMTers themselves do, that MMT ISN'T a theory, but a statement of positive reality ("fiat currency systems work like so and so"), you seem to be unable to get over the hump that observing the way something works doesn't tell you anything about how they should work, or if what they do is a good thing, a bad thing or a neutral thing.
I can't help you people with your ignorance of epistemology. You've got to help yourselves on that one.
Dear Mr. Conant,
ReplyDeleteI find it amusing that you didn't actually allow my comment to post, but instead only posted your response.
Regardless, you seemed not to pay attention to the fact that I came here looking for critique. I've only recently started reading about MMT, and I want to learn what's wrong with it. I suspect things are wrong with it, but your response struck me as quite inadequate.
I am rather astounded that you lump me into the "MMTer" camp, when I explicitly said I'm looking for critique of the theory. Instead of actually reading my response, you just decided that I must be something that I said I wasn't.
I made my comment in good faith, but you don't want to listen.
So I guess there's only one thing left to say -- Screw you.
You guys are thinking way too much into all this. MMT is saying that in a fiat monetary system the money to pay taxes is provided through government spending. This means that in order to have money left over after taxes the government has to spend more than it taxes. The money the government spends is the money we use to trade goods and services amongst ourselves. If people save a portion of this money, some of the goods and services won't get sold which means less demand and ultimately unemployment. All that is proposed is increasing spending or lowering taxes just enough to overcome savings desires and acheive full employment. Match demand leakages with appropriate injections. Not infinite spending or anything like that. Those are just examples to help people see the bigger picture. We are not advocating inflation either. If money is created and not spent it does not have an effect on inflation/prices. In fact, any inflation created by government is spending beyond the economy's capacity to produce. That is what is meant by the government can buy anything in the economy that is FOR SALE. Trying to buy more than what is for sale is what creates the inflationary spiral. Thats all really. Using the governments money creation powers to acheive full employment and PRICE STABILITY.
ReplyDeleteConsider Mosler's example another way: say that the parents created for themselves thousands of coupons, so many more coupons that the children could not produce the related "value" in chores if they were to slave away 24 hours a day, 7 days a week.
ReplyDeleteBefore we even consider this, where has mmt even suggested we do this?
If I have $20 and you have $10, I am not "winning." Money balances are not a score keeping system. They're simply a means of storing real value and they provide a means for facilitating exchange between real goods and services. The abject failure of Mosler's analogy should be obvious when you consider the following:
Money is a store of value, although, no value in itself. Money is a token representing the double entry accounting system. The government spends its liabilities on goods and services. This is the sellers asset. When the seller wants to redeem his asset he gives it to the seller and now the new seller has an asset in the form of the buyers liability. The owner can also redeem the token in payment of taxes. Money is a scorekeeping system in that it keeps track of assets and liabilities.
This is the model for a command economy, not a free market economy.
You are correct that the economy is not free. It was recognized long ago that the free market will not produce full employment. All sorts of things happen and sometimes people suffer. Right now, if all the unemployed people went out and tried to find work there would not be enough jobs. Why isn't the free market solving that. We as a nation decided to provide basic sustinence for these people. We already employ people to be unemployed. It is not a large step to turn that into people doing productive stuff.
I'll critique some more of your critique after work.
The capital markets, seeing that this is a frivolous use of wealth and noticing also that the government has already pledged to everyone an entitlement in a free car, a free home, a free motorboat and a free college education, decides to refuse to subscribe to the government's issuance of debt to pay for the steaks and so the government is left with no choice but to print up more of its currency to float its own debt
ReplyDeleteagain, where has mmt proposed that we do anything like this. We are not advocating free cars or steaks. This is an unlikely hypothetical. Anyways, debt is not a financing operation. Bank accounts are credited with reserves and those reserves are drained with bond sales to maintain a target interest rate. How can the government borrow its own currency if it doesn't create it first?
Taken literally and at face value, this form of economic "planning" is absurd. It would amount to all manner of things and goods being constructed and fabricated in what could only be described as a truly random fashion-- a dam built across a dried up riverbed, a canal dug through the middle of a land-locked city, a road built where nobody would drive upon it. Later, after they are built, the economy would be tasked with somehow finding a use for them.
again, what are you talking about. you finish by saying that taxing is not about controling inflation. Your wrong. If the government aquires one third of the real resources in an economy and then lets the citizens keep enough money to buy all of it. you can expect an inflation ont he order of thirty three percent. Inflation is not the issuance of new money. It is the spending of money in excess of whats for sale.
Mr. Conant, it seems to me that all the adverse reaction to your points is based on a disagreement on what money represents!? You state early on that "This is entirely different from the purpose and operations of a monetary system, even one which is entirely fiat and mostly exists in virtual reality amongst a matrix of spreadsheets, as most modern monetary systems exist in their present form. In a monetary system, the money itself represents potential claims to real, existent goods and services. All else being equal (ie, the money supply is not increasing or decreasing), the amount of money each person has does not represent how they are ranked against other money holders but rather how much actual purchasing power they might lay claim to." If one defines money otherwise, you can't begin to argue about analogies, theorys, inflation, etc.
ReplyDeleteTo us realists, defining money as an abstraction or spreadsheet is what leads Mosler's followers to unsupportable and unrealistic conclusions.
Thanks for taking up the argument though!
ATB, CRiehm
Mr Realist,with all due repect, you seem to be confused in your ultimate conclusion. Money is really an abstraction, this should be obvious at this stage of history. It seems to me that conservatives dearly want money to be "someting real" but alas not going to happen as far as the rulers of our planet are concerned. So what do people want? Enough money to THRIVE - quite simple when you get down to it. So why are we so ignorant of what machines can do for all of us? What (in other words) is the Calvinist bullshit that forces us to moralistic nonsense on the "laziness" of individual humans (Paul Ryan's malarkey) as the source of the problem?
DeleteMr Conant, I appreciate this forum and the lively debate you've engaged.
ReplyDeleteIt seems to me that your emphasis on theory is appropriate in response to the pure mechanics or monetary operational realities of the Mosler Camp.
This in turn requires us to take a metaphysical view of human nature and the "scarcity" of resources implied by "Austrian" economics.
The dynamic equation (changes over time so that net surplus increases with less and less human labor input:)
human labor + technology = net surplus
At what point in time since the nineteenth century does Austrian scarcity-based economic theory become obsolete? Or when do its practitioners finally wake up to see their free market absolutism has shifted them to preaching religious doctrine?
Macroeconomics is scientific because it’s theoretical and Hayek never actually demonstrated that it was wrong or inferior to his theory. Even Milton Friedman said he did not understand him. So you’re plea to the Moslerites boomerangs back at you right here. Mosler’s spreadsheet idea of monetary mechanics is CONSISTENT with macroeconomic theory.
Austrians seem to be confused over the uncertainty of models, equating it with impossible to predict. So due to cyberspace these days, “central planning” cannot be critiqued as it was by Hayek. (How many "Austrians" deny accelerated climate change caused by humans due to this same confusion?)
It's not "impossible", for e.g. to register individual preferences IN A MODEL which can also be improved as time goes on so that predictions become more accurate.
And applying your economics of consumer preferences to, say, the demand for clean water is absurd.
Thus, it's governments role to spend money on infrastructure, without which civilization's wealth is not possible. We can and do know, without a theory of consumer preference, that all humans require clean water.
So common sense: how many jobs right now could be open for unemployed engineers like myself, if a Keynesian stimulus was applied to NEEDED infrastructure.
Of course bureaucrats can screw it up, but this is not economic, it's political! An aroused citizenry now understands the betrayal of both major parties and this is our hope for the future, ending political corruption.
We have free electricity from sun thanks to technology, which means abundant productivity where no human has to lift a finger. But conservatives (Calvinists at heart) so believe there's no enlightenment possible that, alas we're going to continue talking past each other on where progress lies.
Thus I believe that those who cling to theories that obstruct human progress are simple blind at this stage of history. Those ancient views of ever-corrupt human nature and "scarcity" because it’s a god’s punishment continue to obscure the real abundance of our planet.
(I'm NOT saying Mr Conant, that you hold all the views criticized here.)
So due to cyberspace these days, “central planning” cannot be critiqued as it was by Hayek.
DeleteIn State and Revolution, written just before he took power, Lenin wrote,
The accounting and control necessary [for the operation of a national economy] have been simplified by capitalism to the utmost, till they have become the extraordinarily simple operations of watching, recording and issuing receipts, within the reach of anybody who can read and write and knows the first four rules of arithmetic.
If the MMTers want to advocate an open and explicitly neo-Leninist program, I'm cool with that. It makes their bizarre monetary theories understandable if one understands their goals and aims.
Bob, do you understand the central planning of the world system at this stage of history? Do some investigation and reading, e.g. www.globalresearch.ca. The neo-Leninists who have "top down" control are obviously those super financial elites who speculate in derivatives that can destabilize economies of whole countries beyond Lenin's wildest dreams.
DeleteGet it? I'm suggesting that you stop thinking in obsolete 19th century terms, whether "left" or "right". And I'm not an MMTer - just a student who wants to keep up with current recommendations on best way to get back to real capital formation as we deal with the most serious economic crisis in history.
> Bob, do you understand the central planning of the world system at this stage of history? Do some investigation and reading... Get it? I'm suggesting that you stop thinking in obsolete 19th century terms, whether "left" or "right".
DeleteSince you think this is a useful theory to explain the world, let's try and apply it to *one part* of the world. Please explain how the development of the iPad is the result of central planning by financial elites.
If you can, I will be impressed.
If not, then you're ideas are wrong. No matter how pretty or neat they are, they do not explain the world.
Marris, what part of my statement that I takie Hayek seriously don't you understand?
DeleteTaylor, this is fantastic!
ReplyDeleteThe contrast between symbols and underlying reality is very important to remember. Reminds me of this essay I read a while back:
http://yudkowsky.net/rational/the-simple-truth
I'm not convinced by all of Mosler's arguments but this refutation appears to be based on the false assumption that money = wealth. It's not.
ReplyDeleteMoney is a great tool for facilitating exchange - the transfer of wealth. It serves very well as a temporary proxy for value when we use it to fill the gap between selling something and buying something else.
As a long term store of value money is nothing more than an unreliable promise of indeterminate value in an unpredictable future.
By using it as a long term store of value (a proxy for wealth) we abuse the genius of the money tool and create all sorts of problems for ourselves.
"Based on this observed mechanic, Mosler assumes that government finance is similar in arbitrariness to score keeping in a bowling alley or on a football field:" - No he doesn't, you moron. Mis-characterisation of your opponents argument will get you no-where.
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ReplyDelete