MMT: overcoming the political divide.

1. Considering the AGW hypothesis:

If the climate scientists are correct, then "efficient" use of resources is actually defined, ie, in order to build the necessary infrastructure to transition to a green economy, then we will have to manage as much change in current resource use as is necessary. A huge task; certainly, there will be no unemployment at all during the transition!

What are the essentials? Food, accommodation, which are available now and engage less than 10% of the workforce.

[The other necessity for a green economy is the establishment of a smart grid (internet of things) because many individual
households will be power generators which in combination will assist in efficiency of electricity supply and demand capacity].

2. Alternatively, assuming the dire predictions of climate scientists are NOT correct, then the question of "efficient" use of resources falls back to markets - with provisos re market failure, and desirable social outcomes which markets fail to address.

Question: is a nation's "wealth" created when firms produce and sell grog (a vast industry btw), or when public universities invest in R&D leading to gains in prosperity?

But I have to ask: are you deliberately refusing to address my post #237 in which I addressed both "productive capacity utilisation", and the implications of currency issuance by government, on inflation.

It seems to me you don't want to look at the issue of what money is - it's a token measuring device, a government IOU - whose supply is unlimited. The government's job is to manage the actual money supply, consistent with the economy's productive capacity, so as to avoid inflation (excess demand on resources).

You say I am "going around in circles", but this is only true if money is a real commodity whose supply is limited.

Because the price of electricity will soar, hurting the lowest income people. Private industry cannot make money out of building pumped hydro storage, unless they charge the higher prices necessary to cover costs.

It's an example of non-market delivery of a basic monopoly service being the most efficient.

 

I wasn't so much arguing that money is a limited commodity, but rather the purchasing power of the aggregate of money in circulation is limited.

 

Well we both agree on that.

Indeed, where have I (or MMT) said otherwise?

In other words, the limit on the sovereign government's currency issuance AND private banks money creation (money denominated in the government's currency) - IN TOTAL - is the nation's available resources, and the productive capacity of the economy.

It seems to me you just don't recognise a role for money creation by the currency issuer itself.

Hey, if markets could actually employ everyone at above poverty level, there would be no need for society to fall back on the currency issuer's capacity to create money for specific purposes, eg, to fund a Job Guarantee as a superior automatic stabilizer in the economy......or to fund what can be regarded as an above poverty 'UBI', in this pandemic when most of us are forbidden to work!

Starjet says the shut down will result in another GD, as unemployment remains at elevated levels even after firing up the economy once the pandemic passes.
Well, that's why we need the currency issuer to feed and accommodate unemployed workers ...to avoid another GD, and avoid passing the cost of the present rescue package - through paying interest to bond holders - onto younger generations, resulting in endless government-imposed austerity.

https://www.unz.com/mhudson/the-use-and-abuse-of-mmt/

 

Some resources are presently in the ground, some assets can be transitioned from the fossil industry. Education and R&D (mostly time and mental effort) can be fired up.

Indeed the relevant public sector workforce will have to design the necessary infrastructure and estimate the resource requirements.

Some change in present resource use may be required.

But ultimately the government will have to 'value' those resources, as part of engaging the private sector (as required) to build the infrastructure.

Nothing about resources being 'undervalued' in the above; like kazenatsu, you don't recognise a funding role for the currency issuer (ie government).

Meanwhile the FIRE sector (finance, insurance, real-estate/rentier) sector of the economy is laughing all the way to the bank, as government is forced to borrow funds from that sector, rather than investing directly into commodity development in the real economy.

 

I guess I don't understand how you are using terms like the "nation's resources." What are you including as the nation's resources? You apparently are not counting the nation's GDP since apparently you consider it undervalued (dollar wise), so if you are not counting economic activity, what exactly are you counting?

 

That definition still doesn't make logical/mathematical sense, since currency issuance is theoretically unlimited, and you still have not given a good explanation of the exact sort of relationship between money supply and the productive capacity of the economy.

Nor have you even given a good definition (truly relevant to the argument) what the "productive capacity of the economy" really is, or how you define it.

So how am I misunderstanding you?


In addition to all of that, the question has also been raised in another thread whether the 'money creation' in private banks really contributes anything to the inflation rate, which some apparently suggest it does not.
However, that may be a relatively minor point here and may not really be worth arguing about in this thread.

 

The nation's resources, namely, the bounty of nature including minerals, arable land, PLUS the creativity of the citizens leading to technological prowess ('productive capacity', meaning eg, the nation can make "computers out of sand").

I think my above comment addresses this point: the "bounty of nature" combined with the creativity of citizens is literally priceless, though for convenience (measurement, exchange) we place a dollar value on economic activity.

But unfortunately the value of this economic activity is measured by free market activity ALONE (backed by the private banking/finance sector), in our present mainstream (orthodox) neoliberal monetarist economy.

The OP points to an alternative - ie, via recognition of the currency issuing capacity of the sovereign government - that in fact might be required to avoid economic and social collapse, eg if the climate scientists are correct, or if this pandemic persists for 6 months or more.



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The fact that currency issuance by sovereign governments is theoretically unlimited doesn't mean it's possible in practice, since inflation is the obvious outcome, ie the government would soon run out of resources, on which to spend the money.

And as to the second point: I think an understanding of "the relationship between money supply and productive capacity of the economy" must include an examination of the contribution of the FIRE sector to the real - commodity and service producing - economy.

Professor Bill Mitchell has said 90% of this (FIRE) sector, amounting to many $ trillions, is non-productive (in terms of goods and services desired by the public) money shuffling, profit seeking, activity including many OTC and derivative trades (the latter famously referred to as "financial weapons of mass destruction" by Warren Buffet, during the GFC).

So that means much private sector (financing) activity isn't involved in production desired by the nation as a whole.

By now you should be aware I define productive capacity in terms of BOTH a private and a public sector. The latter should complement the former, so that all citizens participate in and contribute to the nation's well-being.
eg, government should fund education - to the highest levels consistent with student's abilities - using its currency issuing capacity.

Without 'crowding out' private sector market activity; so this means elected governments will be tasked with designing broad resource allocation plans that can be presented to and hence chosen by the electorate (a GND for example).

Possibly by not understanding the complementary and different nature of public and private sector economic activity

That surely depends on achieving a balance between demand and supply in the economy; too much demand for too few goods will cause inflation.
But even so, in the GFC, demand for houses was not the problem, rather the financing sector noted above was the problem; and inflation was never out of control during the build up to the GFC.

Well, inflation is the central point in MMT, so it's certainly relevant.

And I certainly agree with this post #15 from Vilhelmo:

 

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"The bounty of nature" has zero economic value unless someone makes it. Otherwise The Congo would be richer than all of Western Europe. Or to put it another way, if the "bounty of nature" has a dollar value independent of people, what is the dollar amount of the "bounty of nature" of the geographic area of the United States? That number should be equal to the number of dollars you can print without inflation, correct?

 

What do you make of the World Bank analysis into sub-Saharan Africa and how trade has actually made countries worse off, reflecting exploitation of resource and localised pollution? Given comparative advantage is such a big thing for free trade supporters, I'm sure you have a properly in-depth viewpoint...

 

But it has intrinsic value.

Originally, the bounty of nature supported life in hunter-gatherer societies, whose 'existential wonder' (as experienced by the individuals in the group) , with a minimum of "economic activity", was no doubt as great as for us, in our post-industrial economies.

"richer"? I repeat: in barter economies, 'value' was arrived at by agreement, at the time and place of the transaction.

Government replaces barter with a 'universal IOU' ie the currency of the group, subject to rule of law (government).

It doesn't. it has intrinsic value which through technological development - via the productive capacity of the economy - is measured in terms of the nation's currency.

Well, measured over the period of last year, it was said to be about $20 trillion (remember: I include citizens' technological prowess in 'productive capacity'). But this year it might be half that figure!!

Yes. That's pure MMT.

Meanwhile, in this pandemic, the government can issue the currency to pay for food and accommodation for workers who are FORBIDDEN to work, without borrowing the money, and without causing inflation, because the resources - food and accommodation will continue to exist and be produced just as before the pandemic (farming being mostly solitary activity requiring about 2% of the workforce).

 

Prof. John Harvey's reference to "productive capacity" contains the clue which explains the concept.

https://www.forbes.com/sites/johntharvey/2019/03/05/mmt-sense-or-nonsense/#3a7ca4405852

2. We have the ability to produce goods and services on a level never before seen by human society. There is no logical reason anyone (e.g., the unemployed) should have to go without. It is immoral.

Note: pre industrial revolution, most of us were engaged full-time in growing our own food, and extra production of goods and services was very limited.

Later, most were able to earn an income in factories, and production of goods and services increased, but the quantum of production was still limited by productive processes themselves (including children working in coal mines)

More recently, goods are produced by robots (eg vehicles). So 'productive capacity' is increasing exponentially.

Hence Harvey's point above. Indeed productive capacity is now so great that government is able to issue its own currency to pay for certain 'social' goods and services that the private sector does not, nor should not produce.

 

I can sort of understand the most rudimentary scaffold of that idea, but still fail to see how that has anything necessarily specifically to do with monetary theory.

 

He's partially right, Lil Mike. If we look at this from a Henry George economic perspective, there's an element of capital that is considered natural, which is not a product of human labor. Even if it takes human labor to make that natural capital into something more useful, we can still assign a component value to it, of how much of its value resulted from labor input.

One example I can give you is oil areas. Some oil areas are considered much lower quality than other oil areas and take much more capital and expense to extract the oil.
It ends up being the same product, but the oil from one of the sources took a lot more labor to obtain.

 

I believe that's a fair enough point, but the way I see it, you could achieve just as much through taxation. I don't see any advantage to using monetary policy to accomplish that sort of strategy, if I am understanding you correctly. (Which I might not)

 

One way to connect the dots re monetary theory and productivity is to consider what happens when robots entirely displace humans from the workforce.....

 

What? That seems totally off topic. Of course, off topic is your shtick so there is that.

 

I'm wondering if you are following less an economic theory and more just changing your mind with each post. It seems, based on this last post, it now seems you are back to an agreed on value of an economy based on it's GDP, rather than any "bounty of nature." If we can agree to a dollar value of the US GDP, than we can probably agree on how much currency there should be. Since M2 is approximately half the the US GDP, it sounds like we already have the right amount of currency.

 

No I'm following MMT, which is based on the currency issuing capacity of sovereign governments and which describes the limit of this currency issuance (productive capacity and hence inflation).

How did you come to that conclusion?

In order to explain the arbitrariness of GDP figures, I noted the GDP last year was said to be c.$20 trillion.

This year if the lockdown persists, actual GDP might be half that.....except that most of this year's GDP would be a result of government money printing, since only food production will be happening this year (though of course Trump is keen to open the economy likely before it should be opened).

But the nation's real productive capacity has by no means been reduced, whatever the official GDP figure turns out to be.

You have clearly misunderstood that point.

We can't, as explained above. The nation's potential productive capacity - resulting from access to and development of the nation's natural bounty of nature - has remained intact, despite and whatever this years official (reduced) GDP figures will say.

Only if we can agree the money supply is related to the nation's productive capacity, not it's GDP....which is proved by the fact that in this pandemic GDP will decease.

That's MMT: resources NOT MONEY determine prosperity, and in this pandemic that means staying at home and being happy….

The right amount of currency in this pandemic is that which the US government needs to issue, in order to pay for food and accommodation(rents, mortgages) of laid-off workers, without borrowing the money from the private sector (via interest bearing bonds which will reduce the capacity of government to spend on social programs in the future).

 

Well, you don't give up arguing, I'll give you that.

 

You're the one who referred to "the bounty of nature" having "zero economic value unless someone makes it". Just referring to how actually, when someone makes use it in capitalism, it can actually generate negative economic value.

 

Well....asking the right question, namely "do we have the resources to support the economy through this pandemic", regardless of how long the pandemic persists, is obviously an important one.

Indeed, you will see increasing panic in the community as time goes by, because our economic masters are asking the WRONG question, ie, "can we afford/find the money to support the economy" (if it has to be shut down for a longer time).

 

OK you've shifted your argument from "bounty of nature" to "productive capacity." Two very different things. This just shows the pointlessness of trying to discuss a subject like MMT, which seems to be built on fairy dust and unicorn dreams. You can never pend down the details because they fly off on gossamer wings if you get too close.

 

Yes quite, quite.

 

Your inability to string a sentence together is acknowledged, but its a shame that you couldn't be on topic. Why did capitalism destroy the 'bounty of nature' and how would MMT change that outlook?