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Continuing My Debate with Warren Mosler, MMT

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February 25, 2013 – Comments (37)

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.  

Mosler Speaks

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)

http://www.moslereconomics.com/mandatory-readings/full-employment-and-price-stability/

"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:

http://www.moslereconomics.com/mandatory-readings/a-general-analytical-framework-for-the-analysis-of-currencies-and-other-commodities/  "

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Full Employment 

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
government spending.

All this while the MMT folks cheered Argentina as a prime example of a successful implementation of their ideas.

Price Stability

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

37 Comments – Post Your Own

#1) On February 26, 2013 at 12:54 AM, wargame1 (< 20) wrote:

Maybe you should write a book (like I have said before) and get it on their shelves. Chop chop!! I know I would buy it.

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#2) On February 26, 2013 at 3:30 AM, thomgonz (< 20) wrote:

Yea, but why do you hate ROADSSSSSSSSSS?

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#3) On February 26, 2013 at 7:37 AM, thomgonz (< 20) wrote:

Hey David I posted a link to your article over onhttp://www.reddit.com/r/Libertarian/comments/1990mr/whereaminow_debunks_mmt_arguments_great_economic/  trying to get discussion over this way. Here's a response from TheMania.

 

"Made my head hurt that article - there's no debunking there, just rhetoric.

Rhetoric one: "There is no way for the government to bring about full employment without completely elimating (sic) the market."

Not at all. MMT merely proposes implementing an open bid order for laborers at a fixed wage. The full market still exists on top of that - just any laborers the market decides to not employ (perhaps due to there being no demand), instead of falling to unemployment, are hired by the government.

How is this "completely eliminating the market"? It's no different in market effect to the gold standard. Under the gold standard, there's an open bid order placed by the environment for laborers at the amount of time it takes to panhandle for gold. They can work mining the environment at that rate, and turn it into money, implementing a price floor on labor - just like under a JG. How is the latter "completely eliminating the market" but the former not?

If he means "without influencing the market" that would be an acceptable statement, but utterly meaningless - of course the government can't bring about full employment without influencing the market. But no, he said "completely eliminating" - just rhetoric, buzzwords.

Rhetoric two: "Transition jobs destroy price signals and distort the economy, yet increase the size of the private sector."

"Destroy price signals" again, in no way more than choosing the gold standard.

But distort the economy? Really? Whatever choices you create as you design your monetary system creates the economy, distort is hardly an appt word because there is no reference "pure" monetary system that we can compare it to.

If I choose to base my monetary system around gold it's going to give incredibly different results to if I decide to base my monetary system around Bitcoin to if I decide to base my monetary system around Freicoin to if I decide to base my monetary system around a money supply that grows at 2% per year to one that recycles lost coins etc. It's madness to call any of these "distorting" - they're just completely different monetary systems that would lead to completely different levels of real economic growth, because the real rate of interest (and therefore spending/employment) varies with all of them.

When discussing monetary systems it's quite meaningless to consider "distortions" as anything different than "effects". We can talk about how well an economy would run under a given monetary system, but "distorting" is not an appropriate term. If he wrote:

"Transition jobs destroy price signals and distort affect the economy, yet increase the size of the private sector"

does that really sound so unreasonable? A monetary system that maximises the size of the private sector? Sounds win/win to me!

Rhetoric three: "Unsurprisingly, since the advent of Price Stability doctrine in America, the only thing stable about prices is their never-ending trend upward."

In effect, we are always fixing the nominal cost of one thing or a basket of things, and everything scales around that. There's no distortion of price signals here - we're just setting the nominal value of one thing, or a basket of things, to make doing business easier in nominal terms.

Mainstream decides to make the average nominal price of a basket of goods to rise at 2-3% per year, and have everything scale around that. They have achieved in this goal, as David has astutely noted in his rhetoric "never-ending trend upward". This was by design! No knowledge has been imparted by this statement except that central banks were able to do what they set out to do. Whooptidoo.

Austrians in favor of the gold standard propose we fix the price of a unit of gold, and have everything scale around that. As new mining techniques and gold reserves are discovered prices rise, as we exhaust mines prices fall.

MMT'ers such as Mosler propose we fix the price of lowest demand labor through a fixed price job guarantee, and have everything scale around that.

Bitcoiners propose controlling the supply, with the nominal prices of everything varying around their arbitrary implementation of their monetary system - from block sizes, to money supply growth/shrinkage rates, to demurrage fees, etc - and all of them will affecting prices differently and would result in very different economies - all based around their arbitrary, perhaps calculated, choices.

Of those systems, the MMT one makes the most sense to me. It's extremely similar to the gold standard - just instead of being tied to the amount of time it takes to panhandle for a unit of gold (which varies considerably and between territories), it's tied to labor. And instead of labor having to run to a part of the country with gold to relieve a spending/income shortage, labor knocks on their local JG center and begin mining government jobs for fiat. This seems far more rational an approach to money than gold to me - instead of spending time mining a resource from the ground that people don't need, they are instead mining infrastructure or providing services for society. Oh, and instead of sending your limited gold reserves to foreign nations to cover for trade deficits, you're merely sending fiat. It's pretty optimal.

Again, they all affect only nominal values - none of the systems affect price signals, except for how they influence interest rates. Re: interest rates, you ideally always want spending to be supportive of a fully employed economy - the MMT approach guarantees this (as one can always work a JG and the government can lower taxes should demand ever collapse to keep the private sector large), the gold standard largely guarantees this (as one can always panhandle), the mainstream approach does not (for interest rates at 0% may be insufficient to encite sufficient spending to fully employ the economy, as we see today, and governments are hesitant to accrue debt [not a concern in MMT]), the Bitcoin approach does not (minimal real interest rates are the negative of the deflation rate, and there's no guarantee this'll correspond to anything meaningful).

Rhetoric four: The whole milk parable.

This is the whole point of price stability.

By keeping the price of the minimum demand labor stable, your savings - despite being in fiat - are completely safe. They always buy as many man-hours of labor as they used to.

A more correct analogy would simply be that Johnson's bought more cows and began producing more milk. Yes, their payments to you used to be 10% of their total milk production - after they've bought more cows it may only be 2% - but the product does not become diluted. It's the same.

Yes, the labor force may expand, but your fiat always buys the same amount of man-hours of labor as it could before. Not the same proportion of the total workforce, for that workforce has expanded (what would make for a most immoral distribution of production - that those with "old money" get the most buying power), but the same total man-hours of labor. Can anyone really call that immoral?

Rhetoric five: "Left alone, labor always tends toward full employment."

Completely meaningless. There is nothing to say that that "trend" will be quick or that that wage would be capable of sustaining life. If it goes through a period of people self-immolating in protest to wage cuts - that's hardly a win for the free market. If the "equilibrium" means high crime because those with low skills cannot find work capable of paying the a living wage - again, hardly a win for the free market.

Now David doesn't attempt to say that a completely free labor market would find good results, only that it'd clear - but the nature of the equilibrium is even more important than that it clears. If he's going to sell a completely free labor market to us - that's what he needs to show us. That it'd produce optimal outcomes. But of course he can not show us that, so he does not even attempt to in his essay."

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#4) On February 26, 2013 at 8:08 AM, warrenmosler (< 20) wrote:

Pretty good response from TheMania, thanks

Let me remind that without govt, in a non monetary society there is no unemployment (as we define it).  

A currency like the dollar is a simple, coersive, public monopoly, and the introduction of any monopoly is a 'distortion'

That is, the thing needed to pay taxes ultimately comes only from govt (or its designated agents) spending and/or lending. 

In this case the currency itself is the cause of unemployment. Specifically, a tax causes unemployment (as defined), and spending causes the unemployed to be hired, etc. to the point where there are no more unemployed.  

I say it this way- unemployment is the evidence that govt spending and/or lending is insufficient to allow the economy to pay its taxes and net save as desired. 

I wrote this way back:

http://www.moslereconomics.com/mandatory-readings/full-employment-and-price-stability/

Warren Mosler 

www.moslereconomics.com 

 

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#5) On February 26, 2013 at 8:47 AM, whereaminow (29.10) wrote:

Splendid.

It's funny how MMT viees their central planning as "just like the gold standard" LOL. And exonimic theory is just "rhetoric."

You guys have really copied the argumentation method of the Socialists very nicely. "There is no economics. There are no exonomic laws. It's only rheteoic."

i have a busy day today but hopefully I can find time to respond. If not, please have patience with me.

Thanks

David in Liberty 

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#6) On February 26, 2013 at 9:16 AM, whereaminow (29.10) wrote:

This one is really easy so let me start with it:

Rhetoric four: The whole milk parable.

This is the whole point of price stability.

It has nothing to do with price stability.  Our tool maker has no interest whatsover in how other goods are priced in Johnson's milk.  He has no concern how the general price of milk calculated using a basket of goods is performing.  He has no concern how many cows are used or the percentage of milk/cow.

His only concern is a private property agreement to exchange X amount of tools for Y amount of milk.  

If that changes, his wealth is changed  Period  There is no "well the amount of cows is changing."  Wrong. No cows changed. LOL. These central planners don't even let me arrange my own imaginary private property agreements.  I'm such a nerd that I get a kick out of this.

David in Liberty

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#7) On February 26, 2013 at 2:20 PM, somrh (86.56) wrote:

Hi David,

I am curious about something:

Labor is an economic good and it is no more immune to the laws of economics as any other.

Which "economic laws" are you referring to in this discussion?

I ask this because I always assumed, with respect to neoclassical nonsense, that you and I were in agreement in rejecting neoclassical macroanalysis. 

But since you're talking about aggregate labor markets obeying laws, you must be referring to that same neoclassical nonsense of "supply" and "demand" and you're assuming those things follow those same "curves" and that their intersection is "equilibrium" and "maximizes quantity".

I'm curious because I don't even like the supply-demand neoclassical nonsense for regular commodities.

But the idea that you can commoditize labor and then treat it identically is even more dubious. It's as if all of the same dubious principles (such as The Law of Demand and The Law of Diminishing Returns) applies to labor markets. Is that what you're saying? Or are you saying something else?

 

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#8) On February 26, 2013 at 2:35 PM, whereaminow (29.10) wrote:

TheMania,

Made my head hurt that article - there's no debunking there, just rhetoric.

I knew this was going to be a weak counter the moment the word "rhetoric" was employed.  If your opponent makes a strong argument that cannot understand or counter, it makes it easier if you can marginalize it by claiming it's just rhetoric.  As I stated in a comment above, this is how the Socialists attacked Economic Law.  At first, they claimed there was no economic laws and all reasoning of such was just empty rhetoric of bourgeois economists.  Then they attacked the study of economics itself.  Finally, they threw out reason and  logic as worthless areas of study.

My debate partner here has already taken step 1.  My words are just rhetoric, hence, they can be easily dismissed. 

Rhetoric one: "There is no way for the government to bring about full employment without completely elimating (sic) the market."

Not at all. MMT merely proposes implementing an open bid order for laborers at a fixed wage. The full market still exists on top of that - just any laborers the market decides to not employ (perhaps due to there being no demand), instead of falling to unemployment, are hired by the government.

I did my best to market it perfectly clear that the only reason the market "decides not to employ", or more appropriately stated, the only reason that the market is not tending toward full employment, is because of an intervention the market.

Again, this is not rhetoric. It is Economic Law arrived at by the same deductive reasoning that provides the truth of "1 + 1 = 2."

So this "lack of demand" is not a market problem. In the labor market, lack of demand is either:

1. a pricing problem from labor voluntarily refusing to take a wage lower than they desire.

or

2. a pricing problem from a violent intervention that forces labor to only accept wages at a certain price, i.e. a price control that creates idle labor.

"Lack of demand", like many MMT concepts, is just another Keynesian theory that has been debated endlessly.  Austrian School economists view it as a pricing problem, one that only persists because of intervention.  Keynesians view it as a market failure, since they are sure that labor needs to be paid more than the market desires.  

Austrians want the market to solve the problem through the peaceful negotiation of market actors. Keynesians want to solve the problem through intervention.

But if intervention caused the problem to persist in the first place...

So MMT falls on the side of the Keynesians in this debate. They often do, which is why you will find so many of our left-leaning friends running to the MMT field in the next few years. Just watch :) 

There is on "government market that resides on top of the market".  That is a nonsensical statement.  Resources are scarce, and they can either be used by one person (or group of persons) or another person (or group.)  Whatever capacity that person works in, whether governmental or civilian, does not create a whole new market that operates on another level. 

How is this "completely eliminating the market"?

This, in itself, is not.  And I made that clear.  That's because this plan won't bring about full employment.  It's simply another intervention that takes resources from the voluntary exchange of market actors and hands it to violent interventionists.  This leaves the private sector to adjust to the new information and moves it further from full employment.  In other words, it just creates unemployment in other sectors, distorts wages, creates perverse incentives, etc.  

Allow me to sum up: Job transition programs do not create full employment and they never will. They simply create distortion.  If they did create full employment, it would be because there is no market anymore and the government hands out every job. 

Is there full employment in Argentina? Did the Jefes program create full employment?  Is there any job program every instituted that created fulll employment? Nope, nope, and nope.  

So much for evidence-based theory.  The Keynesian and the MMTer can see the employment provided by government.  The curious task of economics however is to see the unintended effects of these policies, the effects for all groups, all labor, all employers.  Those are conveniently left out by those who purport that transition job programs are "unqualified successes."   That's because this is much harder to grasp and impossible to quantify.  It is, nonetheless, reality. 

It's no different in market effect to the gold standard. Under the gold standard, there's an open bid order placed by the environment for laborers at the amount of time it takes to panhandle for gold. They can work mining the environment at that rate, and turn it into money, implementing a price floor on labor - just like under a JG. How is the latter "completely eliminating the market" but the former not?

Because the laborer panhandling for gold (cuz that's how it happens in 2013, right?) works under the condition of voluntary exchange, hence the price for his labor has real meaning to market participants.  This is rather basic economic theory.  Prices are formed through exchange based on subjective values.  The JG is not a price system formed through same.  It is formed through an intervention in the market that distorts prices.  


If he means "without influencing the market" that would be an acceptable statement, but utterly meaningless - of course the government can't bring about full employment without influencing the market. But no, he said "completely eliminating" - just rhetoric, buzzwords.

I've made it clear this is not rhetoric. It is an undeniable truth.  However, at least, TheMania admits that MMT openly wants to interfere with market processes.  Influencing the market simply means putting a gun to your head.  It's fancy-speak.  What really happens is this:

1. You/We/Us are the market.
2. We are not performing as MMTers want, because we lack demand for hiring at current wage rates (which again, are higher than the market rate because of government intervention)
3. So, a law/program/regulation must be passed to take scarce resources and hand them over to the government that caused the problem in the first place
4. Since a law not backed by force is meaningless, guess what...

The only twist from the standard Keynesian playbook is that MMTers would claim that they are only expanding the resources available to all by printing pieces of paper and handing them to the government, rather than going out and physically confiscating goods.

Of course, when pressed, the MMTer will admit that resources are indeed scarce, so we go back in the circle to the next round of standard Austrian-Keynesian debate.

Let's skip ahead a bit as this is getting a bit stale:

Austrians in favor of the gold standard propose we fix the price of a unit of gold, and have everything scale around that. As new mining techniques and gold reserves are discovered prices rise, as we exhaust mines prices fall.

The gold standard is not a price fixing scheme. (Bitcoin is another fun topic, but we'll leave that for another day.)  Austrians do not propose that we "fix the price of a unit of gold."  I recommend reading Austrian School works to familiarize with the actual arguments.

The classical gold standard, by and large in place in the West until World War I, was a private property agreement.  This is why my milk parable went right over TheMania's head.

MMT'ers such as Mosler propose we fix the price of lowest demand labor through a fixed price job guarantee, and have everything scale around that.

"Fixed price, didn't we all already agree that price controls don't work?

Of those systems, the MMT one makes the most sense to me. It's extremely similar to the gold standard

It is nothing at all like the classical gold standard, or the actual Austrian School position of competing market delivered currencies.  Again, I recommend reading Austrian School works.

Rhetoric five: "Left alone, labor always tends toward full employment."

Completely meaningless. There is nothing to say that that "trend" will be quick or that that wage would be capable of sustaining life. If it goes through a period of people self-immolating in protest to wage cuts

It's not meaningless at all. In fact, much of modern economic theory is built on the concept of markets tending to equilibrium, even MMT.

Here is the crucial difference, and if you follow this, you will understand a major point of mistake made by Keynesians in reference to equilibrium, and copied by MMT.

Austrians and classical economists understood that while the market always tends toward equilibrium (which means towards full employment of the labor market as well), the state of equilibrium will never exist.

The reason for this is simple.  Values change.  Markets must always adjust.  Every change in the market - no matter how slight - causes in adjustments. And the market starts to move to a new equilibrium point.

Notice how carefully I avoided saying "the market produces full employment" in blog.  That would be incorrect.  Only a state of equilibrium would produce full employment. (Or the removal of the market itself.)  But the market is always tending toward equilibrium.  That's why it works so beautifully.

As for it not working 'quick' enough for the taste of TheMania, so what?  That's a subjective and non-scientific, non-rational opinion.  Certainly not something that justifies violent intervention.

The market is not some car that you tinker with the motor. It's real people that make decisions based on ever changing tastes and preference.  Saying that the market "immolates" or whatever evil imagery you can assign to it is saying that people are evil and destructive. It's possible that is so, but then again, we already jobs for those people. It's called government service.

Now David doesn't attempt to say that a completely free labor market would find good results

You bet your arse I don't. That's because I do not promote utopia.  That's MMT's job (full employment is, as I have demonstrated above, a utopian goal.)

I only promise that the exchanges made will represent the best use of resources according to those making the exchange.  It won't be the best use of resources according to Warren Mosler, TheMania, or the Keynesians they side with.

And that's why they see it as a tragedy.

David in Liberty

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#9) On February 26, 2013 at 2:48 PM, whereaminow (29.10) wrote:

One further very crucial point I should not leave out.

You don't actually ever want the market to reach a state of perfect equilibrium. That could only happen in a condition with no economic change. In other words, reaching full employment (equilibrium) is a destructive economic goal.

I think an MMTer would probably respond that he's trying to reach full employment without reaching equilibrium, but I don't see how that makes any more sense, since that's impossible.

I know Keynesians and MMTers will not understand this. There's not much I can do about that.  But if you're curious, read Rothbard's MES, particularly the chapter on the evenly rotating economy.  He explains it beautifully.

Tending towards equilibrium and being in equilibrium are two vastly different things.

David in Liberty

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#10) On February 26, 2013 at 2:50 PM, whereaminow (29.10) wrote:

somrh,

I believe in economic laws, just not in the way they are typically formulated by the mainstream orthodoxy.  I believe Economic Law can be, and is derived from deductive reasoning that begins with a priori maxim, same as mathematics discovers laws.

I think that's a good idea for a future blog or follow-up comment later.  Economic Law is widely considered to be true only when "perfect conditions" are present and other nonsensical justifications for deviation.  

David in Liberty

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#11) On February 26, 2013 at 3:33 PM, somrh (86.56) wrote:

David,

So which economic laws are you subscribing to? 

I asked this because your reasoning all sounded similar to the same kinds of principles advocated by neoclassicals. I've always figured that Austrians accepted most of microanalysis but you're applying all of this to macroanalysis. 

Let me know if/when you have a discussion on epistemology and mathematics which is actually more to my expertise.The idea that you can have science which deals with human behavior as being "a priori" is silly. I think most of this just confuses a priori knowledge with model construction.

The comparison von Mises made with mathematics was with David Hilbert's formalism. If you're not familiar with formalism, wiki is probably a decent start.

As a side note, you can think of the game of chess as an axiomatic system (or in principle it could be made into one... it wouldn't surprise me if this wasn't someone's doctoral thesis at one point).  You can also read my somehat related blog: Was Chess Invented or Discovered?

I'm actually OK with laws that have counterfactual condititions. A lot of laws in physics are like this. But a lot counterfactual conditionals are useless either because reality never comes close to the conditions or if it does approach it, it doesn't behave as what the law states. Many economic laws are like this.

Good physics laws can be tested empirically, either by testing the predictions that the model produced from assuming said laws or by the fact that when you asymptotically approach the counterfactual conditions, you get closer and closer to the conditions obtained by the consequent. (The ideal gas law is probably a good example of the latter.)

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#12) On February 26, 2013 at 4:07 PM, whereaminow (29.10) wrote:

somrh,

I'd love to have that discussion with you, but let's try for a future date.  We are opening a whole new can of worms.  But yes, I love discussing the methodological approaches of the different sciences so that would be a lot of fun.

David in Liberty

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#13) On February 27, 2013 at 3:04 AM, TheMania (< 20) wrote:

I'll start by first writing that had I known I'd be discussing with you directly David, or having Warren as an audience, I would have put a lot more effort into it. It started out as a small reply to the thread title on /r/libertarian "Whereaminow debunks MMT arguments. Great economic theories from my friend David" that grew into an essay. I posted the first draft. I do apologise for seemingly dismissing as rhetoric out of hand although I hope you realise I had considered each of your arguments - hence the paragraphs explaining why I thought each criticism was misplaced.

Anyway, I'll do my best to address the points you've raised:

He has no concern how the general price of milk calculated using a basket of goods is performing. 

Under the gold standard, his contract is in terms of gold. That is, his payment will always buy the same amount of gold - nothing else is guaranteed at all. It may buy more/less food at a time in the future, more/less labor at a time in the future. The only guarantee, by pricing in the gold-backed money that the government issues, is that the money always buys the same amount of gold - every other price varies around it.

Under MMT with a JG, his contract is in terms of number of hours of minimum wage work. That is, his payment will always buy the same amount of minimum wage labor - but nothing else is guaranteed. Seeing as nearly everything can ultimately be boiled down to an amount of labor required to produce - this does at least provide a good guarantee of future return. Indeed, as productivity improves through technology it would be reasonable to expect gradual deflation to occur. Money will over time become more valuable in terms of real goods and services, for 1 hour's labor becomes more valuable as labor can produce more and more through advancements in technology.

Now, seeing as he's chosen to nominate in his contract in terms of the governments fiat - which is in turn denominated in a number of hours of labor - how can he feel cheated by the system? His contract always buys the same amount of labor as it used to - it is reasonable to assume that it will always buy *at least* as much real goods and services - is that not more useful than always buying the same amount of gold?

Because the laborer panhandling for gold (cuz that's how it happens in 2013, right?) works under the condition of voluntary exchange

We do not have the gold standard today in 2013 (I know you're aware of that, so please don't misrepresent my argument - beating down straw men is completely counterproductive to debate). Money/spending shortages today don't result in gold appearing any more attractive to mine than any other commodity as prices float, never resolving the money shortage. No net savings in the money the government issues are created by mining gold, it's merely moved around or borrowed against. If there is a money shortage, due to the government taxing too highly, mining gold today can not resolve it.

Under the gold standard this was different. Under the gold standard, the government had decided that money is mined from the ground. Any laborer can then choose to panhandle for gold at what is effectively a floor minimum wage. The rate at which one can extract gold via panhandling and turn it into money becomes a floor minimum wage. Money is actually created via this mining - not merely moved around.

Under MMT with a JG, the government has decided that money is mined from government jobs and additionally created via borrowing. Any laborer can then choose to mine those government jobs at what is effectively a floor minimum wage - the fixed price job guarantee. Money is actually created via this mining - not merely moved around.

Both systems implement an effective floor minimum wage for labor by implementing an open ended buy order. Both, and their respective floor rates, have been selected by government. In the first, the government says "any number of people can mine the environment and the rate that they mine gold is the rate they mine money". In the second, the government says "any number of people can mine the job guarantee at a fixed wage in fiat". Why do you take offence at the latter, but not the former? Under both systems, your money has been mined - in both, it represents someone's labor.

Note in both cases they are not hard floors imposed by regulation, but rather soft floors created by an always open offer of employment. If you have a job that is a lot of fun, more enjoyable than JG work (under MMT) or mining gold (under the gold standard), you may well accept below the JG wage or gold-mining rate to work it. That is, the JG allows the removal of the minimum wage. It's not needed, a relic, we ought allow people to work for as much or as little as they desire. We ought never prevent people from working for low wages if they desire - all the government does with the JG is offer an alternative, a fixed wage, that wages are anchored around.

I will add that you are right that today labor would have difficulty resolving a money shortage under a gold standard due to mining now being so capital intensive. Back in the gold standard's heyday, the period Austrians yearn for, labor *did* resolve spending shortages through mining. Whenever a money shortage presented, more flocked to the hills - the money mined allowed for more spending to occur, for the private sector to grow, and for the spending shortage to resolve. Today it would be less effective, less of a stabiliser. If we are to talk about the gold standard as it was in its heyday, comparisons with MMT's JG are perfectly appt. The gold standard in its heyday employed a pool of miners expanding and contracting responding to the need for money (or rather, spending) - the JG does the same with fiat. It's simply a pool of fiat miners expanding and contracting to respond to the need for money (or rather spending).

Because the laborer panhandling for gold (cuz that's how it happens in 2013, right?) works under the condition of voluntary exchange, hence the price for his labor has real meaning to market participants.  This is rather basic economic theory. Prices are formed through exchange based on subjective values.  

Under the gold standard the price of one unit of gold is fixed by government. The government will buy unlimited quantities of gold from you at a conversion rate of its choosing, for it has placed an open ended buy order for gold at 1 unit of gold = 1 unit of money. There's nothing subjective about that. There's no market in that. The price of gold is fixed by two-way convertibility, the government buys unlimited quantities at price X and will sell every single backing gold in its reserves at price X. How can you call that "subjective value"?

"Fixed price, didn't we all already agree that price controls don't work?

It's not fixed through price controls. It's an open bid order for labor at a fixed price. This is quite different to the minimum wage you are used to, which is a price control. If you can't get that right, I have to question how much reading you have actually done on the matter.

A minimum wage is the government mandating that nobody can employ anyone below wage X. A job guarantee is the government offering anyone that wants a job one at wage X. They're completely different systems, the first can result in a shortage of jobs - the second can not. If the government sets the minimum wage too high, unemployment skyrockets. If the government sets the fixed wage of the job guarantee too high, prices of everything else inflate until they reach a new stable level where the JG once again is only employing a couple of percent of the population, a percentage Mitchell refers to as the NAIBER (the non-accelerating-inflation-buffer employment ratio). Provided the government then doesn't raise the JG wage again and that the overall budget deficit (or surplus) is appropriate for the time, price inflation ceases and wages are stable. I suggest you at least read the Wikipedia article on the Job Guarantee proposal, it covers this well. Also do read the link Mosler gave earlier - it is an excellent overview of everything.

I think an MMTer would probably respond that he's trying to reach full employment without reaching equilibrium, but I don't see how that makes any more sense, since that's impossible.

Having anyone that wants a job being able to find one does not in the slightest prevent structural changes in employment from occuring throughout the economy. Robotic cars will end the jobs of taxi drivers either way - at least under MMT we wouldn't have the hysteria over "they're taking our jobs" holding back progress.

As for it not working 'quick' enough for the taste of TheMania, so what?

If the market is leaving millions of people unemployed, our quality of life - our levels of production and consumption are not as high as they could be. Every single week the EMU loses over a billion man-hours of potential labor to unemployment. This is very real wastage, its man-hours of potential labor that we will *never* get back. If your economic theories regularly allow for such horrendous wastage of real resources - in this case labor - you'd better have darn good justification for why alternative theories that promise no wastage won't work. I have not seen any convincing argument from you yet.

The self-immolation was not there purely for imagery - it's reality when we allow both the private sector and public sector to retract at once, leaving a huge percentage of the population unemployed. Some set fire to themselves in protest at the money shortage imposed on them - personally, I do not find this acceptable.

Now I do get that you're very annoyed that the government would be basing money around man-hours of labor instead of around gold - however when you realise the latter can be mined by the former, they really aren't so different. MMT offers a price anchor that is as solid as the gold standard, just denominated in man-hours of labor instead of gold. I should have thought Austrians would appreciate that - it seems to me to be greatly preferable to the current system where there is no price anchor - just continuously inflating prices of everything.

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#14) On February 27, 2013 at 10:56 AM, whereaminow (29.10) wrote:

TheMania,

The self-immolation was not there purely for imagery - it's reality when we allow both the private sector and public sector to retract at once,

And your evidence for this Greece?  Do me a favor and expand on this point before we go any further.  I'd like to understand how free market activity caused Greece to end up in riots.

David in Liberty

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#15) On February 28, 2013 at 10:15 AM, whereaminow (29.10) wrote:

I don't if you'll still be around, or Warren wants to chime in.  Two things I am confused on.

This Immolation Confusion

I opened by saying the market tends toward full employment.

You responded by stating that's not good enough if the market immolates.

I said it doesn't. That's imagery.

You mention Greece,

So either you view Greece as some type of market failure, in which case I would really like understand that, or maybe the blog just got too long and that's not what you're saying.

Man Hours

I'm not annoyed by your interpretation of how our monetary systems works, but I am confused. Is this an update on the Marxist labor theory of value?

Under a gold standard, the value of "panhandled" gold is not determined by how many man hours went into gathering it. Its value is based on gold's marginal utility.  Marginal Utility determines how much gold is panhandled. Not the other way around.  

Under fiat unbacked paper, no man hours go into its creation (or however many hours it takes to click a button).  Yet, its value is also determined by Marginal Utility.

Are you saying that Marginal Utility doesn't exist for money?  Or that you believe in a Labor Theory of Value?

Help me out.

David in Liberty

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#16) On February 28, 2013 at 1:10 PM, somrh (86.56) wrote:

David,

I'm fine with putting off such discussions for some other point. But that still doesn't answer my questions. I specifically asked which economic "laws" you're referring to and why you endorse them. 

Allow me to make two observations (which I alluded to above) that make the standard treatment of "labor markets" dubious.

1) Aggregation

Now I know you, like most Austrians, feel that aggragating vastly different commodities is dubiuos. So you while still accept some form of the micoanalysis, you reject the macroanalysis. 

So tell me about labor supply and what appropriate way you can aggregate labor. After all, if a firm is looking for labor they are not looking for a generic any type of labor; they are looking for something specific (say someone with an MBA and 10 years of supervisorial experience).

So at what point is appropriate to aggregate the commoditize labor the theory is proposing? Or are applying the aggregation criticism only to other commodities but not to labor as commodity?

2) We can get around the whole aggregation business by consider 1 individual. The presumption of the standard model is that the supply of labor is given by a function P(Q) (price as a function of quantity) which is monotonically increasing. The idea is in order to convince me to work more hours I have to be offered more pay. 

But while I can't speak for anyone else, my P(Q) (assuming one exists) is not monotonically increasing. If you pay me too little of a wage, I will be required to pick up extra hours (or another job) because I have bills to pay and a family to feed. If you pay me more wages, I'll eventually stop picking up hours. If you pay me even more, I may not even want to come in to work during the week.  (If you give me a few million I'll retire early.)

The other observation to all of this is that it's given in terms of a trade-off between working (and receiving a wage) and leisure. But as Keen points out, leisure can be a lot more enjoyable if you have money to blow. So the neoclassical characterization fails.

So if my supply curve doesn't follow what the model describes, what makes you think if you aggregate enough individuals who also supply labor as commodity will have an upward sloping function?

Or are you advocating different laws entirely? (We can get into the demand of labor too which has equally dubious premises.)

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#17) On February 28, 2013 at 2:28 PM, whereaminow (29.10) wrote:

somrh,

It's derived from the Law of Marginal Utility. 

Here are a few links:

http://mises.org/efandi/ch16.asp
http://mises.org/daily/2610
http://mises.org/daily/931
http://mises.org/community/forums/p/3021/41745.aspx
http://mises.org/Community/forums/t/28945.aspx

Again, I love your discussion. I just can't have it right now. Time is scarce. If our MMT friends do not wish to continue, I will happily engage. In the meantime, if you want more immediate answer, hop over to the Mises Community and throw out some of these questions. They will be very helpful. 

But I want to focus on MMT right now, especially how they view Euro issues as an example of market failure.

David in Liberty

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#18) On February 28, 2013 at 4:54 PM, whereaminow (29.10) wrote:

A Third Question (if we ever get past the first two):

More on Price Stability

You mentioned in your first response that the Mainstream econ profession has been successful in acheiving 2-3% price inflation.

But you didn't ever touch on what I pointed out, which is that there is no reason to do this.  It's like "hey, look how well they achieved this goal which has no purpose."

I'm wondering if you want to open up the floor to why MMT thinks stable price inflation is a good idea, and how this overturns theory on utility being non-quantifiable.

David in Liberty

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#19) On March 01, 2013 at 12:13 PM, somrh (86.56) wrote:

David,

I'm familiar with marginal utility. It's the same assumption the neoclassicals use to make their conclusions (granted, you can't derive much of anything from only that assumption). So I'm not sure how the Austrians are really all that different here (unless their reasoning to those conclusions were different but I didn't see anything in your links that actually worked out those reasonings.)

I will respond to the third question to your MMT buddies:

Price Stability

Suppose you have 2 clocks: 

Clock 1 is extremely precise but never accurate. Say, it's always off by 1 hour and 3 minutes.

Clock 2 is pretty accurate but not precise. Let's say that its difference from the correct time follows a normal distribution with mean =0 and some standard deviation (say 23 minutes). 

Now which clock would you prefer? 

Most physicists would prefer Clock 1 because you can do a relatively simple transformation that would turn Clock 1 into both a precise and accurate measure of time. The same can't be said for Clock 2.

Now I'm not sure what this has to do with utility and quantifiability. Anything can be quantified provided you have a standard and an operational definition that allows one to assign numbers via the standard.  Whether such a definition really is (or measures) utility is one of those ontological discussions.

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#20) On March 01, 2013 at 12:30 PM, whereaminow (29.10) wrote:

somrh,

If you can name me one constant in economics that can be measured with the quanitifiable certainty that I find in physics, I will tell you which clock I prefer.

 http://en.wikiquote.org/wiki/Friedrich_Hayek#The_Pretence_of_Knowledge_.281974.29

David in Liberty

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#21) On March 01, 2013 at 3:43 PM, somrh (86.56) wrote:

David,

You may want to look up the phrase "operational definition" (not to be confused with operationalism though they are related). There are many operational definitions in economics.

I suspect you're more concerned with making precise/accurate predictions, not measurements. That's an entirely different matter.  

Quantifying any concept involves establishing a standard and a set of procedures (operations) that allow you to assign a numerical value (in terms of the standard) to it. Whether you accept that operational as adequately measuring the concept in question is another matter of course (the operationalist I mentioned above will actually insist that there is no more to a concept than its operational definition... another goofy ism.)

In any event, the methodological issues you said you wanted to discuss another time. I was suggesting that currency is a standard, a unit of measure. I wouldn't be surprised if that's in the MMT literature somewhere.

What makes for a good standard?

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#22) On March 01, 2013 at 4:30 PM, whereaminow (29.10) wrote:

somrh,

I suspect you're more concerned with making precise/accurate predictions, not measurements

Actually both:

In the science of physics, we know that water freezes at 32 degrees. We can predict with immense accuracy exactly how far a rocket ship will travel filled with 500 gallons of fuel. There is preciseness because there are constants, which do not change and upon which equations can be constructed..

There are no such constants in the field of economics since the science of economics deals with human action, which can change at any time. If potato prices remain the same for 10 weeks, it does not mean they will be the same the following day. I defy anyone in this room to provide me with a constant in the field of economics that has the same unchanging constancy that exists in the fields of physics or chemistry.

http://www.economicpolicyjournal.com/2012/04/my-speech-delivered-at-new-york-federal.html

There are no constants which could be used to make a prediction such as "X will travel Y distance under Z conditions."

The concept of Price Stability resides upon the belief that there are constants, and that one of them is the definite steps of utility that can be measured precisely.  As I mentioned above, that's lunacy.

David in Liberty

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#23) On March 03, 2013 at 6:33 PM, somrh (86.56) wrote:

David,

The example used breaks down upon further analysis but that would require a digression into physics. Eventually we'd get to the point of quantum statistical thermodynamics and I think I only spent a couple of weeks studying that in thermo so that would be outside my scope.

The analogy fails in another sense. If we frame this in terms of classical statistical thermodynamics, then we're modeling the water is a collection of particles with precise positions and momentums (which would technically violate the Heisenburg uncertainty principle but that's another matter). Temperature is related to "root mean square" of velocities of all of the individual particles. This is a statistical measure (the second moment I believe). 

Suffice to say, uncertainty is fundamental to physics. The question is not whether or not there is uncertainty but how much.

Humans actually are pretty predictable statistically speaking. Perhaps your standards of evaluation are too high. :)

"The concept of Price Stability resides upon the belief that there are constants, and that one of them is the definite steps of utility that can be measured precisely."

I don't understand this statement. Since we're using that horrible thermodynamics analogy, isn't that like saying that:

"The concept of Temperature resides upon the belief that there are constants, and that one of them is the velocity of each particle that can be measured precisely."

We've been measuring temperatures long before anyone modeled temperatures as collections of particles. 

Let me ask you this question: can prices be measured? 

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#24) On March 03, 2013 at 8:05 PM, whereaminow (29.10) wrote:

The example used breaks down upon further analysis but that would require a digression into physics

And that would be making the same mistake again. I work in the computer security engineering field, which is probably closer to economics than physics, since part of what I study is humans who have to make choices.  Even so, I'm not silly enough to pretend that because I know the infosec field, that means I know economics or that I can compare the two to make economic arguments.

If you want to continue your attempts to treat economics like thermodynamics or physics, I wish you the best of luck.  There are plenty of Keynesians who like the pretend that their models have the mathematical and scientific rigorousness found in the hard sciences.  Try to either not look too closely or to at least keep from chuckling too loud when you study their modeling.

"The concept of Temperature resides upon the belief that there are constants, and that one of them is the velocity of each particle that can be measured precisely." 

The velocity of each particle can be measured and has an objective reference point.  I asked earlier, what is the objective reference point for utility?  And how can one quantifiable measure subjective rankings, that are ordinal and not cardinal?

can prices be measured? 

Sure. I don't know who argued otherwise.  

Good luck. It's pretty obvious you don't actually want to learn about the methodoly of Austrian School economics.  You would prefer that economics be treated like the hard sciences.  I wish you all the best in your attempts, and when you find that constant we are looking for, let us know!

David in Liberty

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#25) On March 06, 2013 at 2:37 AM, somrh (86.56) wrote:

David,

Are you really this dense? Seriously David, I thought you were smarter than this. I have not ONCE insisted that economics was a hard science or anything like it. Let's go back to the beginning. Your first question:

I'm wondering if you want to open up the floor to why MMT thinks stable price inflation is a good idea,

I responded to this with a question which you didn't want to answer (why?). Your response indicated that you insisted that if economics wasn't as precise as physics then it wouldn't matter which is frankly silly.

You read far to much into an example as a metaphor and then attributed to me a large set of views which I have not stated.

With regard to your second question:

and how this overturns theory on utility being non-quantifiable.

I frankly didn't know what the connection was at the time; I merely pointed out that all it required was an operational definition. 

I believe I know what connection you had in mind was something like this:

(1) The Law of Marginal Utility implies something about prices.

(2) We can't quantify utility

(C) Therefore we can't predict prices. 

Ignoring the fact that your MMT friend might not even accept premise (1), I pointed out using the thermodynamics analogy that one can do a whole lot with temperature without knowing anything about the velocities (or in the QM version, the energy states) of the particles.  In other words, even if we accept that, say, temperature is related to the velocity of the particles, I can still do a whole lot of thermodynamics without knowing a damned thing about velocities.

Am I misrperesenting you here? If so please feel free to expound.

Regarding actually measuring utility, you might find this article interesting:

An Experiment on the Pure Theory of Consumer's Behavior

So yes, it can be experimentally dealt with. And it's a pretty harsh blow to neoclassical economics. The question is this: is Austrian economics similar enough to the neoclassicals in micro theory that this blows them as well? You can feel to expound on that at your leisure.

As a side note:

The velocity of each particle can be measured and has an objective reference point.

Practically speaking I find this doubtful. Even theoretically it might not be possible without violating Heisenberg uncertainty principle. That's an interesting thought experiment but not on topic because this misses the point anyway.

The biggest difference as far as I can tell is that you're insisting that if it's not as good as physics, it's not good enough. While I agree that physics is no doubt something to methologically aspire to, I think you may be overrating physics and underrating methodological approaches in other sciences (including social sciences). I agree there are definite limitations but I'm not one to throw out the baby with the bathwater (what a shitty metaphor, no?)

There are many themes that run through physics methodological considerations that also run through other sciences. 

In any event, back to price stability, price stability currently is probably less of any fancy ability of neoclassical models and more the fact that the Fed steps in during a downturn. And that does make a nice segue into Austrian predictions regarding your above article:

According to ABCT, it is central bank money printing that causes the business cycle and, again you here at the Fed have certainly done that by increasing the money supply. 

The evidence for this is actually negative:

Business Cycles: Real Facts and a Monetary Myth

In particular they find that M2 (and M2-M1) leads the cycle where as M0 may even slightly lag the cycle.

This evidence is not in favor of ABCT. Granted, ABCT could be modified to say that bank created credit contributes to the business cycle. Apart from Hayek (who fell from grace by suggesting govt wasn't always bad), will any Austrians admit that? Or do you find fault with the study? Or do you have other evidence to the contrary?

Last:

It's pretty obvious you don't actually want to learn about the methodoly of Austrian School economics.

Come on David, really? You said you weren't interested in discussing methodology now because you wanted to play with your MMT buddies which is fine. But the ball was in your court. 

To refresh your memory, I pointed out that both the neoclassicals and Austrians start from the same premises (utility) and end up with similar conclusions (some of the forum discussions on mises were debates over how different or what the difference really is so I'm wondering if it's really all that signficant). I reject the neoclassical nonsense. Is there enough difference between the Austrian and neoclassical derivations?

So if you want to talk your Austrian (and your MMT buddies don't return - where have they gone anyway?) there are at least 3 topics at your disposal:

1) Can utility be measured? (the first article)

2) Is Austrian micro analysis subject to the same criticisms that neoclassical analysis is? (also related to the first article)

3) Business cycles and money creation: central banks or private banking? (the second article)

Regards.

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#26) On March 06, 2013 at 9:20 AM, whereaminow (29.10) wrote:

somrh,

Are you really this dense?

Always possible. But I made six figures last year and I never had to leave the house or even put on shoes.  So I can't be that stupid.

The evidence for this is actually negative:

If you think the evidence for this is in that link, you still don't know anything about Austrian School methodology or how economic theory can be disproven.  

Maybe today I'll have time to respond further.  We'll see.

and your MMT buddies don't return - where have they gone anyway?

David in Liberty

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#27) On March 07, 2013 at 9:54 AM, whereaminow (29.10) wrote:

somrh,

This is why I don't have much time right now.

http://www.informationweek.com/security/attacks/bank-attackers-restart-operation-ababil/240150175

David in Liberty

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#28) On March 09, 2013 at 5:27 PM, somrh (86.56) wrote:

David,

Have fun with your security issues. I was goading you with the "dense" response. I don't waste time talking to people I consider idiots. (I'm not sure what income has to do with it; are they even correlated? Perhaps on some level.)

If you think the evidence for this is in that link, you still don't know anything about Austrian School methodology or how economic theory can be disproven. 

I think you'll find that I understand this far better than you think. The difference is I disagree with the claims Austrians make over how they're interpreting what they're doing. As I mentioned in an earlier post, I consider them to be constructing models (not, of course, mathematical models like physicists and neoclassicals use).

I also suspect a number of claims are false.

In particular here are two doubts/predictions about Austrian methodology:

1) The axioms aren't just definitions or "analytically" true.

We'd have to have a lengthy discussion on the possibility of revising so called "a priori truths". I would suggest that they are better thought of as postulates of the model. They are therefore open to revision, especially if they make false predictions.

At some point we'd have to discuss Quine. I found it brought up in the Austrian literature only once here. Ironically, the comparison is made by Smiling Dave to the "law of gravity" which I assume he means Newton's Law of Gravity. It came into doubt over its failure to explain things (like Mercury) and was subsequently replaced by General Relativity.

As a side note, I think Smiling Dave was probably correct that von Mises was choosing between "induction" versus "deduction" and recognized that induction has limitations. But that's just a false dichotomy to begin with. Abduction plays a greater role in the sciences than induction, in my opinion (as an IT guy, you probably know important it is in your endeavors). If Mises had that at his disposal he might have used that instead. 

2) The arguments are not valid. The conclusions require additional assumptions which are not explicitly stated in the axioms.

This isn't a huge problem per se; for example, Euclid's Elements are not vaild in that sense (e.g., his first proposition assumes space is continuous which is nowhere stated in his common notions or postulates.)

But this will relate back to (1) as some of the unstated assumptions, I suspect, won't be "a priori". 

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#29) On March 19, 2013 at 7:10 AM, skypilot2005 (< 20) wrote:

F. Y. I.:

http://finance.yahoo.com/news/outgoing-bank-japan-head-warns-103534524.html

Outgoing Bank of Japan head warns no quick fix to Japan's deflation

3/19/13

"A lack of cash isn't what's keeping companies from increasing capital expenditure," Shirakawa said, on the last day of his five-year term as governor and his 39-year career at the central bank.

"If there was a single thing that would have cleared the fog and solved all problems, Japan wouldn't have been in this situation for 15 years," he said, shrugging off the view that monetary stimulus alone can revive the economy.”

 

“But Shirakawa warned that Japan's past experience and recent examples in the United States and Europe show there is no longer a clear link between the size of an economy's monetary base and inflation.”

 

Sky 

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#30) On March 23, 2013 at 2:15 PM, anathestalker (66.70) wrote:

Somrth,

David always runs from you every time. Its been a while but I've debated him in the past too. You came in the middle and he abandoned the thread. LOL. and insulted me I might add. 

Correlating his income to his intelligence tells you something doesn't it?

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#31) On March 23, 2013 at 4:23 PM, NOTvuffett (< 20) wrote:

Hey David,

As always, a fascinating read.  I am always impressed by your depth of knowledge in a field that is not your chosen profession.  For a moment there, I thought the discussion would digress into one about quantum chromodynamics, lol. 

I am not an economics wonk by any stretch of the imagination.  The principles you lay out seem so simple that I have a hard time understanding the other side in this argument. How can anything in the free market have anything besides a subjective value?  If today I took a tiny bit of gold and was able to purchase a gallon of milk, then next week it would only buy 3/4 gal, did the gold or milk change?  Perhaps in two weeks it will buy 1gal and 1qt.

If instead the govt. ran the printing presses until they smoked and I bought a gallon of milk for $4 this week, and the next it was $8, what changed?  the milk or the money?

To continue the milk anology- if the govt. affected the consumer's cost of milk either by subsidy or tariff, wouldn't the same amount of labor go into the production of the milk?  So, the govt. would be dictating both wages and prices.  We all know how well that has worked out in the past, lol.

On the face of it, labor = money sounds like a reasonable proposition.  And the govt. sets a lower limit on it, minimum wage. Most of the time, I make my own coffee in the morning, but sometimes I go to McDonald's (i would rather be water-boarded than spend time in the starbucks).  Their coffee is actually pretty decent.  Anyway, I live in TX so most of these low skill low wage jobs are filled by illegal aliens.  But my point is, even these workers are paid above minimum wage.  This is not because of govt. dictate, it is because of market forces.  Still, I wish those biitches would give me coffee with sugar not cream.  I guess you get what you pay for, lol.

 

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#32) On March 24, 2013 at 2:19 AM, whereaminow (29.10) wrote:

Oh fun. A lot has happened while I was gone. WIll make for a fun follow up post.  Sorry y'all, but I've been working some egregiously long hours.  I will get back to this, probably with a new thread that I will post a link to here.

#30) On March 23, 2013 at 2:15 PM, anathestalker (47.39) wrote:

Somrth,

David always runs from you every time. Its been a while but I've debated him in the past too. You came in the middle and he abandoned the thread. LOL. and insulted me I might add. 

Correlating his income to his intelligence tells you something doesn't it?'

Um, who the f*ck are you?

David in Liberty

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#33) On April 25, 2013 at 6:29 AM, skypilot2005 (< 20) wrote:

Krugman won?

http://finance.yahoo.com/blogs/daily-ticker/economic-argument-over-paul-krugman-won-150247189.html?vp=1

The Economic Argument Is Over — And Paul Krugman Won

By Henry Blodget | Daily Ticker

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#34) On May 07, 2013 at 5:55 AM, doughnaught (< 20) wrote:

David,
it's EXTREMELY difficult to debate with a True believer Austrian, but not because of some inherent superiority.

Believe me, I've discussed Mises and Rothbard at length with an online friend on another forum for at least a year and listened to many -- but not all, goodness sakes -- of the MP3 talks he sent me, as well as certain writers peripheral ... like A.J. Nock's take on the Constitution and Jefferson vs Hamilton.

I've got a few bonafides. I've also explored Kevin Carson's writings on C4SS and his own blog, including two LONG articles

THE IRON FIST BEHIND THE INVISIBLE HAND
Corporate Capitalism As a State-Guaranteed System of Privilege
Mutualist.Org: Free Market Anti-Capitalism

Monopoly Capital
An Austrian and Marxian Synthesis
--------------------

Kevin goes into some quite wonky areas in which he has even found partial support for the Labor Theory of Value from Austrian-type writers.  The crux of LVT by the way (imo) is not that MTV is to be discarded, more along the lines of the well-known (Jefferson, Lincoln, Nock) observation that Labor comes before and is superior to Capital.

In practical and political terms, MTV says that a 100% profit from a parasitic extractive credit-funded LBO on a strong company is twice as good as a 50% profit by investing in genuine capital equipment and labor for productive output.  And that was the purpose of MTV as an attack on all forms of socialism, INCLUDING the socialist moral tendencies of Classical Liberalism and Classical Political Economy that was more concerned with Mankind and Society than beautiful abstract math that is inapplicable to real life.

That said, the abstract IDEAL of a society operating under cooperative agreements sans all force and all fraud is extremely attractive in a gut feeling way, and many of the economic ideas are simple and easily digestible -- even if false.

Carson is someone I mention because he uses Austrian ideals to expose and debunk what he calls "vulgar libertarianism" that discounts human pain or that pretends that pre-existing violence and thefts don't exist or have no impact on today's economy.  Everyone, no more stealing ... starting now, after the robbers have your wallet.  I can't take the time and space to do more than whet your appetite, hopefully.

Austrians have this fetish about the word "Statist" which they at people who disagree.  I have no "love" of govt intrusion, I even understand the role of "private" think tanks cum govt offiicials who promoted 9/11 (a Pearl Harbor event) as abso necessary for vital US hegemony.

But I'm also practical, and I realize that WE didn't create Govt, a bunch of wealthy elites met in secret, threw out the Articles, and imposed a New Design constitutional republic that favored the already wealthy and big property owners, and financial speculators per A.J. Nock.

 

Ekeing out a life that's a bit happy involves fighting to democratize what would otherwise amount to feudal rule by Plotocrats.  Democracy is anti-Plutocrat.  Anarcho-capitalism is pro-Plutocrat, and Rothbard did not say that there would be no government. There WOULD BE Govt in Libertopia -- it would be privatized, meaning it would be owned as corporations and would be responsible for producing profits and growing profits for itself.

Mises even said, if every street and sidewalk is privately owned, the ALL street protests would be illegal trespass. So would walking the dog, unless you purchased an easement from the owners.  THAT kind of "freedom"?  Please.

Warren Mosler was a Tea Party Dem, he also meets with Fed people, Treasury, and other big shots like Pres Econ Advisors, so he's certainly shares irriations with central planning and distant micro-management.

My Austrian friend also pointed me to a Lysander Spooner (Libertarian god!!) article that SEEMED to him to defend a Gold Std, but Spooner was saying the opposite and describing Gresham's Law (of good money and bad money) without the benefit of Gresham. 

That is, when Govt mints a Gold Coin of a certain denomination that is "fixed" --- which is the defn of this "standard", that the price ratio is "fixed" by a bunch of politicians --- the price is almost always wrong.  The gold is usually higher than the Mint price, and the act of Govt creating demand for Gold for coins.  This leads people to spend ANY other form of non-backed nominal value "worthless" money, for routine COMMERCE -- which is the purpose of having an economy -- while hoarding and melting the Govt's gold coins for commodity value, which creates an immediate shortage of money, and is also idiotic.  (Govt would have to buy back the melted gold to create more debased coins.)

 My pro-Austrian enthusiast friend's solution to that dilemma was to stop using money entirely and ONLY trade in raw bullion.  That's barter, no longer commerce.  How do we individuals buy oil from a foreign seller?  FedEx them gold bullion?

Gold Std. is just a ridiculously harsh government regulation on finance and on economy.


You promote abolishing the Minimum Wage, so you assume that Americans could actually LIVE on the two to fived dollars per day that would be necessary to "compete with China". Warren supports abolishing the Minimum Wage to replace that with a loose "floor" on wages.  Employers would probably have to pay more than the base set by Govt.  Then again, it would not be illegal to hire someone for less, like if they wanted to work in an artists bohemian gallery that would not be viable if it had to hire at current Minimum.  THAT would add more FREE CHOICES.

If the purpose of an economy and money is commece, then of course an unbacked fiat currency encourages people to "get rid of" this "bad" money -- electronic swipes are even faster and worth less than paper, which can be burned for heat or saved as a souveneir -- while a currency "fixed" to gold discourages the free flow of commerce, but is fine for hoarding ... if we believe the commodity price will rise.

The value of "fiat" currency is determined by the market, not by the "fiat" edicts of politicians setting a price/ratio.

The MV=PT argument Quantity Theory of Money for a direct mathematical correlation of quantity to price that you describe as 'debasing money" was negated by the guy who wrote that, when he stated it should never be applied to a real economy.  Why?  Because he stated, that ASSUMES that "all other things being equal" more M = more P.  This assumption is that this describes a completely static dead no-growth economy, in which increases in demand (M) won't result in increased supply and more jobs (V velocity).  Even the USSR under Stalin was not THAT static, I think.

Private issuance of a Securities contract (like 1000 mortgages) is another form of sorta-money with fluctuating value.  You notice that even if people buy Securities to store savings, when they go to the grocer they first convert that to Dollars.

 

 Inflation - review the arguments of the Bimetalism advocates -- the Populists (Tea Party) of the 1800s.  They WANTED to "debase the currency" by adding plentiful silver to scarce gold as a legal tender to pay back the Banksters.  Inflation was good for debtors (who were other wise facing waves of foreclosures and bankruptcy, all their efforts destroyed).  Inflation was bad for Big creditors -- J.P. Morgan crowd.

When you have a starting point that a priori "truths" are superior to any empirical evidence, and a hatred of Govt that starts at sane and veers into nuttiness and a fetish, one can't even BEGIN to discuss MMT with you, or anything else that's of an alternative viewpoint, not without addressing Austrian ideas at length.

And I've just scratched the surface.  I could add more points about GOOD things from Rothbard and keen insights.

On the other hand, we've FOUND by experience that a standard state-designated national currency is preferable for us to use, vs 100 non-standard forms of money, and provides safety and security such that the whole world clamors to give us stuff for USD and then buys up gobs of US Securities to store their wealth.

It's possible to PREFER the freedom you describe in absract and prefer some aspects of MMT in practice, even tho it's "statist".  That probably sounds like I'm telling you to just try getting a BJ from Satan, you might like it.

Krugman is out-of-paradigm with MMT or else barely in.

Austrian econ by nature is SO FAR OUT of paradigm from MMT acounting identities and facts that an even more thorough refutation (partial) and discussion would be necessary.

 Or you could try to set aside the Austrian "baggage" and look at MMT in more detail and in context -- not just snippets -- and see how the whole thing fits.

One place to start might be pre-MMT, William Black discussing "Theoclassical Economics" (Austrian or pseudo-Austrian) and the role of that anti-Govt ideology in promoting reckless deregulation of Finance and how that led to what.

 Another would be some monetary history by Michael Hudson and his attack on the "no free lunch" argument by pointing out that the Capitalists who CLAIM there's no free lunch are almost always the biggest recipients of privileged handouts or privileged market access for super profits.

 

Hudson is good on the history of how "progressive" economics was variations of Classical Liberalism that emerged to address growing inequality, and how the Marginal Revolution was created by corporate subsidies --- much like the Tea Party Express --- to debunk not only Marx, not only all forms of socialism, but even much of Adam Smith's actual somewhat radical ideals and those of classical liberalism which threatened disruption of Order.

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#35) On May 29, 2013 at 10:04 PM, skypilot2005 (< 20) wrote:

http://wallstcheatsheet.com/stocks/4-reasons-why-ben-bernanke-is-the-best-central-banker-on-the-planet.html/2/

 

Hmmmm 

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#36) On September 05, 2013 at 10:46 PM, CHill8008 (< 20) wrote:

is this Warren Mosler of Mosler Raptor MT900 fame?  I'm in awe...

 

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#37) On October 03, 2013 at 4:45 PM, mtf00l (44.53) wrote:

Whatever happenned to whereaminow?

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