Continuing My Debate with Warren Mosler, MMT
Plus Joe Weisenthal humiliates himself and how NOT to argue with a libertarian or Austrian School supporter.
In my previous post on Argentina, I accidentally assigned the commentary of MMT economist L. Randall Wray to Warren Mosler. Thankfully, Warren was courteous as usual, and after pointing out the error, engaged me in debate, as he has been gracious enough to do in the past. I like Warren on a personal level, but I don't agree with his economic philosophy. So without further ado, I'd like to carry on this debate with an as-promised continuation post.
Here are Warren's remarks reprinted in full to ensure they won't be taken out of context. My critique will follow.
"I support offering a transition job to anyone willing and able to work, as an alternative to the current policy of unemployment.
"At the same time we need a fiscal adjustment- tax cut and/or spending increase, depending on your politics- to increase aggregate demand/sales/private sector employment to the point where the number of people in the transition job program is at a minimim.
"Because those in a transition job are 'more liquid' with regard to obtaining private sector employment than unemployed, the transition job program should prove a far superior price anchor/buffer stock vs today's unemployment, which means we can sustain a lower level of buffer stock workers than would be needed for buffer stock unemployed. So in fact the transition job both increase price stability and increases the size of the private sector. (unemployed are not in the private sector)
"By the way, Argentina did this in 2001 and it was an unqualified success. It was called the Jefes program, or something like that. Over 1 million people transitioned from long term unemployment to private sector employment in about 2 years.
"Regarding inflation measurement, CPI is designed as a cost of living index rather than an 'inflation' index in the academic sense. Presumably this is done for the further public purpose of making adjustments for changes in the cost of living for targeted populations, etc.
"That's a political choice to be respected and debated. What MMT can do is show how various policy adjustments can be used to influence cpi. For example, tobacco tax is in cpi, so lowering that tax would lower cpi. and if cpi is going up because of a foreign monopolist hiking oil prices mmt might, for example, be used to show how causing unemployment to go up isn't going to change the price of fuel in any meaningful way, and how we are always better off at full employment that with mass unemployment.
"The important contribution of MMT is it's explicit identification of the currency itself as a simple public monopoly, and all the ramifications thereof:
I'll begin with the goal of "Full Employment."
There is no way for the government to bring about full employment without completely elimating the market. Government can only institute controls, and one of its favorite controls is that of the price control. As Warren agreed in our previous conversation, price controls do not work.
If through a price control, the price of a good is lowered below what the market would set, the supplier will no longer offer it for sale, and the result is a shortage of that good.
Conversely, if a price control raises the price of a good above what the market would set, a quantity will remain unsold. The sellers only recourse is to obey the market and lower the price. Otherwise that inventory will remain idle.
The only way to effect the maximum sale of the available goods is to allow sellers and buyers to determine the price in voluntary exchange.
Labor is an economic good and it is no more immune to the laws of economics as any other. Left alone, labor always tends toward full employment. This is not speculation or rhetoric. It is a fact. It is so much of one, you will never see a Statist compare the unemployment record of societies with a large amount of laissez faire with that of modern day Statism. It's embarrasing. (Side note: they will often, however, whine about wealth inequality in those societies, as if those problems have disappeared today!) Traditionally, unemployment in laissez faire societies was 2-3%, and if it ever went over 3% the socialists went beserk. Imagine that! Today we have government interference in every aspect of the labor market, they can't get unemployment under 7% in a supposed recovery even with the most extensive accounting gimmicks every employed. Ha!
Labor is an economic good, and left alone societies tend toward full employment. If Mr. Mosler really wanted to get people working, to help labor reach full employment, he'd advocate the removal of the
many barriers toward that goal erected by the government.
The first and foremost should be the price control known as the Minimum Wage Law. Setting aside the racism of the law - a racism that few people know about - the Minimum Wage Law is a price control and it's consequences are entirely predictable. As I noted above, it raises the price of an economic good above the market rate, and therefore, the good remains unsold. The Labor remains idle. The more you raise the Minimum Wage, the more labor will remain
unemployed. This an Economic Law.
But notice that Mr. Mosler, like his MMT associates, does not advocate removing these barriers to labor. He advocates even more government interference in the labor market. This is not a market solution. In fact, tt's not a solution at all. It's a treatment of the symptoms of the disease (Statism), rather than curing the disease.
I opened this section with a bold statement:
"There is no way for the government to bring about full employment without completely elimating the market."
Perhaps now you can understand how I arrived at that conclusion. One might infer from this statement that the market is always getting in the way of the government's plans. So to speak that's true. But the reality is that the market has no plan, which is why it infuriates the government.
No matter what plan the government institutes, the market will never cooperate, as it has no plan. This is why you will often hear Keynesians and Socialists complain about the "Market vigilantes" or "Uncooperative markets."
Market actors reveal their preferences through action. Once the government intervenes, it soon discovers that the market's preferences were different than the government anticipated. Each intervention only exacerbates these differences.
In the end, the only choice is to completely remove the market from the equation. Once that is done, full employment can be accomplished. Of course, there's one problem with this. It requires the most extreme violence you can possibly imagine. The is what the Communists attempted to accomplish. Thankfully, the modern Liberal does not support such atrocity. Neither does Warren or his fellow MMT economists (though L. Randall Wray is so disgusted by the little people of the market, I wonder about him....)
The result is a predictable, steady dance of market disequilibrium, where government price controls
and interventions are supported. Then they fail. Then a new program or reform is instituted. And then that fails. And so on as the market gets paper cut to death instead of a full-on slaughter.
This nonsensical dance is perceived to be morally superior to the free market solution of allowing people to exchange peacefully. For the uninformed layman brought up in government
schools and taught that voting will change the world, I accept such ignorance.
From Mr. Mosler, I do not.
A Note on the Jefes Program
Whenever an economist makes the claim that such-and-such program was an "unqualified success", your first question should be:
In comparison to what???
In comparison to what, was the Jefes program an unqualified success?
In comparison to the free movement of labor and capital, which always tends toward full employment? Ha! Don't make me laugh.
In comparison to other nonsensical Statist ideas of the previous corrupt Argentinian Socialist regimes and dopey Western Statists? Sure. It's easy to look tall in a room full of midgets.
(Note that the 1990's era of Argentinian Statism is portrayed by Left-Leaning economists and MMTers as an era of laissez faire. It was not. But such portrayal has a purpose.)
I'm sure the Jefes program is indeed superior to handing out welfare checks to people for not working. It's not too hard to come up with a program less stupid than that. That being said, it still can't touch the success of laissez faire in providing employment. And let's not forget that this supposedly successful program that revitalized Argentina and empowered (lol) workers is located in the same country that today is suffering from runaway inflation and massive labor unrest due to runaway
All this while the MMT folks cheered Argentina as a prime example of a successful implementation of their ideas.
In the economic world, you run into a lot of ideas that are supposedly "scientific," but when you actually research their origin you find that there is nothing scientific about them. The goal of "price stability" is a prime example.
Let me be absolutely clear:
There is not one single piece of evidence, either "scientific" or garnered from logical deduction, that "Price Stability" benefits an economy.
I have traced the origins of Price Stability doctrine to Irving Fisher, though I am sure he copped parts of the doctrine from others before him. Irving Fisher hypothesized that Utility - the satisfaction one derives from an economic good - could be measured in precisely quantifiable steps.
Consider that for a moment. Fisher is saying that he could quantifiably measure the change in your satisfaction from the raising or lowering of the price of a box of Wheaties, or to be even more clear, from the movements of all prices of all goods on your scale of preferences.
And they think we're nuts. In order to measure anything with cardinal numbers, there must be an objective reference point. What is the objective reference point for happiness? There is none. That's why all "Happiness Economics" is a bunch of 3rd grade garbage. Utility is ordinal, meaning it is ranked. It is impossible to even quantify the differences in rank. It is human subjectivity at work. And as such, any attempt to measure it is a fool's errand.
Yet, out of this fool's errand grew a doctrine called Price Stability, which has dominated the lunatic profession of economics for about a century. Unsurprisingly, since the advent of Price Stability doctrine
in America, the only thing stable about prices is their never-ending trend upward.
Price Stability Doctrine has other important flaws besides being quack science. Prices movements that occur naturally provide meaning to market actors. If the price of stocks was always constant, what information would you be able to gather from that? What could you possibly infer about the
resources being allocated by these businesses? How would you decide how to allocate your resources in the market?
The fact that stock prices are chaotic gives you information about how to allocate your capital. In the same way, prices for goods (both finished goods and the millions of intermediate and higher goods) need to be constanly adjusting to market values in order to provide you with meaning. Any attempt to
control price levels is anti-thetical to the market. It's just another way to institute a price control.
Even worse, price stability can mask inflation. Suppose in an unhampered market, prices are falling due to a massive increase in productivity (prices generally fall every year in an unhampered market). A stable price level - or, worse yet, the modern-and-even-less-scientific doctrine of stable 2-3% price inflation, would mean that a great deal of new money would have to be created to achieve this supposedly noble goal of price stability.
The result is an asset bubble that mainstream economists would never see coming. This is EXACTLY what happened in the late 1920s:
"Far less controversial is the fact that more and more economists came to consider a stable price level as the major goal of monetary policy. The fact that general prices were more or less stable during the 1920s told most economists that there was no inflationary threat, and therefore the events of the Great Depression caught them completely unaware,” - Murray Rothbard, America's Great Depression (1963)
So when Warren says:
So in fact the transition job both increase price stability and increases the size of the private sector.
You can safely translate that as follows:
Transition jobs destroy price signals and distort the economy, yet increase the size of the private sector.
Do you still believe that he's telling you the whole story?
The Monopoly Currency Issuer
As Warren correctly points out, the U.S. government can never default. This is a fact. However, there is nothing new about this revelation, and MMT interprets this significance differently than I do.
It has long been known by economists that the sovereign issuer of currency can not default. In 1938, Ivy League economists wrote a book called "An Economic Program for American Democrac." The main theory proposed was that, despite the debt racked up under FDR, the government should continue to spend as much money as possible. Why? Well, because... wait for it... the government is not like a typical household and its debt is not the same as private debt. The government can never default!
Before those esteemed Harvard and Tufts professors of the New Deal, there have been quite a few others (G.F. Knapp and the Chartalists), who have made similar claims.
Let me be clear. The U.S government can never default. That, in itself, is true but insignificant. However, the U.S. government is very much like a household. It's just not a household that you would ever voluntarily do business with. Allow me to explain:
For this thought experiment, imagine that you are peaceful producer of a simple item - a tool maker. The house next to you goes up for sale and the Johnson family moves in. The Johnsons - small-time dairy farmers - seem nice enough, but they appear to have some trouble making ends meet. At the behest of Mr. Johnson, you agree to make tools which you will exchange for his milk. This is a private contractual agreement you both will honor.
After a while, you start to suspect that the Johnsons are watering down the milk. After testing it, you discover that, indeed this is so. You complain and wish to either enforce the contract as agreed or sever the deal. Let's assume, however, that the Johnsons hire some muscle and use force to make you accept the new deal of watered-down-milk for tools. In a sense, Johnson has already defaulted. But you accept the deal rather than facing violent actions.
Despite this concession, the Johnsons continue to rack up more and more financial liabilities. It seems there appetitie to consume is endless. The milk is more watered down with every delivery.
Finally, it's just water. No milk.
And then the bottles get smaller and smaller.
And when the water runs low, it's mud. And on and on it goes.
This is intolerable, but just when you think it can't get any worse, Warren Mosler and his band of merry MMTers come along with this reassuring piece of wisdom:
"Don't fret! Because the Johnson household has a comparative advantage in violence, and as such gets to determine the value of its repayment on debts owed to you, it can never default! You never have to worry about getting paid back. Now, stop all this nonsense about their debt burden. They will be fine."
Yep, the Johnson household will be fine (and so will the U.S. government). You, on the other hand... well, clearly you are not of any concern.
Joe Weisenthal Demonstrates How Not to Criticize Austrian Economists
If you have a non-nerd existence, and you avoid Internet economic debates like programmers avoid sex, you might have missed the recent firestorm that pseudo-intellectual and State-worshipper Joe Weisenthal created with this tweet:
People who call Austrian economics a cult often miss the most compelling evidence: That Austrians have invented their own language.
— Joseph Weisenthal (@TheStalwart) February 20, 2013
For example, Austrians define inflation totally differently than real economists. mises.org/easier/I.asp#16
— Joseph Weisenthal (@TheStalwart) February 20, 2013
Oh poor Joe, lol. If only he read my blogs he would know that Austrian School economists didn't invent any such thing. Inflation, defined as an increase in the issue of currency beyond market requirements, was the classical definition before the Keynesian revolution. It was, in fact, the Keynesians who changed the definition. If that's the standard for a cult, Weisey needs to look in the mirror.
To further lower his own character, he then tweeted a picture of Rothbard's tome Man, Economy, and State being used as an unsavory desk prop. Perhaps had he opened it for its actual use (ya know.. reading it...), he wouldn't have made such a gaffe.
The real irony here is that inventing words to describe phenomena that is previously un-explained is neither cultish or lunacy. It's done all the time in the sciences, hard or soft. When the Keynesians created the term "liquidity trap", no one ran for the blogosphere (or would have, had there been one) to decry them for being cultish. So if the Austrians had indeed invented this different inflation "definition", it wouldn't be anything worth discussing. But they didn't and his own ignorance was on full display.
And, sadly for Mr. Weisenthal it didn't stop there.
In his follow-up "apology" tweets,
"I don't know the history, but I might have been wrong about the pre-current definition of inflation. In which case I apologize to Mises..."
so far... so good...
"And still the creation of a novel Austrian economics terminology (Catallactics, Praxeology, etc.) is cult-like."
Oh Joe, you vapid moron! The Austrian School didn't invent those terms either! LMFAO!
Praxeology was first defined by the French philosopher Alfred Espinas in 1890. Catallactics was coined by Englishman Richard Whately in his work "Introductory Lectures on Political Economy" published in 1831. That's 42 years before Carl Menger wrote Principles of Economics, which started the Marginalist Revolution and the Austrian School tradition.
F*ck me, Joe. Just stop.
Thanks, as always, to Robert Wenzel and Bob Murphy for keeping me informed of some of the most delightful (and not-so-delightful) economic debates of the Internet era.
For My Critics
If you want to knock us down a peg, or shred us altogether with your amazing analysis, don't be like Joe. Read the book instead of using it as a prop. Only by knowing our theories can you begin to critique them. We have to read yours. We have to try our best to understand MMT, Keynesianism, Market Monetarism, Socialism, Monetarism, Marxism, Etatism, Liberalism, Conservatism, etc.
We don't always get it 100% right, but at least we try. Your books on my shelves. I've read them. They're not props used as jokes.
Get to reading and let's have some real discussion.
David in Liberty