7/01/2018

signing off!

This personal blog, obviously, has long since entered a dormant stage. With the start of yet another arbitrary new year having come and gone, winter finally subsiding in the Great White North, graduation having come and gone, and a summer heat wave blasting through, it is time to make the transition from temporary to permanent, to join the eternal archive of electronic gunk building up for the nearly limitless pleasure of future historians, anthropologists, and conquering aliens.

Assuming our neoconservative overlords don't send us all back to the stone age in the meantime.

Mostly it is the transition to fatherhood, with an assist on the career side as I attempt to make public policy less a hobby and more a profession. It is one of the great ironies of the soft corruption of careerism. The closer one attempts to move toward areas where decisions can be made to change the system, the more cautious one must be in critiquing that system.

It is why theories of change require thought and strategy as well as insiders and outsiders. We can rage against the machine, or seek to understand it, accept it for what it is, and see what our part can be in improving it. That is my theory of change. It is a systemic failure we face, not one or two tweaks here or there but the whole mechanism that is adrift, listing, more off course every day. Change will arise out of the cumulative effects as millions of us make individual choices that there is a better way to do things. There must be. What we are doing now is not working, or to dress that sentiment up in the facade of cheeriness that society expects, there are substantial opportunities for improvement.

On the blog itself, this endeavor certainly has helped me organize my thoughts, reflect, explore. I have written more than I would have without the effort, although that is perhaps not saying much given how little has actually been written, especially these past few years. Generally I am satisfied with the trajectory I laid out for developments in technology and politics. I am a little surprised that such a personal effort, essentially a journal published online rather than handwritten in a notebook, has found its way into nooks and crannies all over the globe. That's exciting on both the technological and sociological fronts. I am heavily motivated by the belief that we need to think globally and act locally. We cannot change the world, only our little corner of it, and yet, in doing so, that is precisely how the world changes. We are coming together, to know each other, to celebrate our diversity, to appreciate our common humanity, whether those who profit from division and hatred and, most of all, fear, desire it or not.

So I thought I would stick a fork in this particular journey by returning to a particular topic that connects a number of strands together for me. It turned out that one of my major group projects in an economics course in graduate school about social insurance programs touched on issues of income and job guarantees. MMT was one of the last areas I looked into three years ago. In short, MMT agrees with mainstream economics that a buffer stock should serve as a price anchor. It then purports to offer a leftist perspective, critiquing both hard money (gold standard, etc.) and NAIRU (reserve of unemployed people) as worse options for that buffer stock than a job guarantee (JG - Public Sector Employment - reserve of employed people where government serves directly as that ELR - employer of last resort).

A taboo that has long fascinated me in the American context of politics is the intensity with which affluent and formally educated "leftists" in the mainstream left/right construct attack "rightists" for not being evidence-based and so forth yet refuse to hold their own ideas to the same level of intellectual rigor and thoroughness that they proclaim to be so important. To state it plainly: if we are not willing to subject our own ideas to the highest standards of scrutiny, then that suggests a fundamental insecurity about their ability to withstand external criticism, disagreement from beyond the carefully crafted confines in which our idea "works". Or even worse, purposefully misleading people in service of protecting the existing power structure even as we claim to address the immorality and unsustainability of that structure.

Were I to go on to a doctoral program rather than wanting to return to practitioner life, I think this intersection of public policy and labor markets is where I would focus, because there is a fundamental question here which MMT presents as an assumption that is actually quite important to explore. Is unemployment the root cause of our social malaise, or is it a symptom of our poorly designed system? In my economics group, I was the only white guy, and I was the oldest participant. The rest of my group was far more hostile to MMT than me. The obvious solution for my group mates to people not having enough money was to have government give people money (i.e., some sort of basic income approach). MMT is completely dismissive of that approach, not merely disagreeing substantively but failing to treat the notion as worthy of respect and serious consideration.

This is a particularly opportune time to revisit the topic because some of the key US academics pushing MMT over the past couple decades have released a report this year updating their perspective on why some form of a JG program is so important. This is great because it adds some concreteness to what has frequently been a rather vague and ambiguous discussion. However, it also demonstrates the rut in which MMT finds itself. In 50+ pages, most of the interesting questions are sidestepped or ignored. We are in this odd state of academia where writing profusely seems to be valued more highly than writing profoundly.


Following is a top ten set of questions where I would push MMT to provide straightforward answers to be able to deal with differing preferences, experiences, and interpretations of how the world works.


1) What evidence is there that buffer stocks work? Just in recent US history alone, never mind a broader sweep of human history, we have tried six different buffer stocks. Each one has failed to anchor prices. The MMT notion that monetary policy plumbing can override the political process is inconsistent with the historical evidence and inherently anti-democratic in terms of the theory. Gold was devalued in the 1930s, silver was taken out of coinage in the 1960s, the London Gold Pool collapsed in the 1960s, the international gold window was closed in the 1970s, copper was taken out of pennies in the 1980s, and NAIRU (unemployment) has utterly failed to reign in prices for items such as housing, stocks, medical care, and college over the past four decades. This last example is particularly glaring since MMT's JG policy proposal focuses on employment as its mechanism for addressing the problem yet MMT does not offer a coherent explanation for how the labor market currently impacts prices.

Key assertion: MMT seems willfully oblivious to the massive increase in the cost of a decent standard of living and the disconnect of median wages from productivity growth.


2) Even if buffer stocks worked, why should policy makers care? The whole point of freely floating exchange rates in our global macroeconomic system is that nominal prices are irrelevant outside of extreme circumstances. What matters is the distribution of currency units within the economy, not the arbitrary total number of them. MMT authors have been systematically obtuse to the matter of distribution, talking around it or not mentioning it at all.

MMT has apparently been feeling the heat of criticism on this front at least a little bit. In the April 2018 report, the word inequality is actually mentioned (once). Income distribution and poverty are mentioned in a few places. Yet, the authors offer no insight into why we have extreme concentration of wealth and power. How does a 50 page economic report on fixing the economy not talk about what is broken about the economy? Understanding the problem is the most important step in a problem-solving process. Nor do the authors explain how a JG materially changes the power structure. They simply assert that JG would solve poverty and distributional problems.

Here is the uncomfortable truth. Before the JG program, the top 20% of American households control virtually all the wealth in the country. After the JG program, the top 20% of American households would control...virtually all the wealth in the country.

Key assertion: Inequality is a root cause problem. This is not some flippant or tangential issue. It is the core matter to understand and address.


3) Why do MMT proponents make sensationalist claims that they do not back up with evidence, reasoning, and logic? For example, the report claims this:


One full-time worker in the PSE program could lift a family of up to five out of poverty.

No, actually, it couldn't. This statement demonstrates such a poor understanding of personal finance that it calls into question the credibility of the entire report.

$31K a year in the US context is a subsistence level wage for one person. The notion that five people can live comfortably on that income depends upon such a warped definition of poverty as to render the word meaningless in leftist thought. The cost of housing alone would blow up the household budget, never mind education, healthcare, transportation, retirement, and food. It's like the economists and financiers pushing MMT have never actually done anything related to personal finance. Or perhaps they have and are purposefully advancing a deceptive framework anyway?

Key assertion: MMT proponents have to sensationalize the benefits of JG programs because they don't actually accomplish that much, particularly if compared fairly to alternative courses of action.


4) Why does MMT ignore major causes of inequality? Public policy isn't some ambiguous exogenous shock. It's a series of concrete decisions made by real people about budgets and regulations and executive orders and so forth. Where is the discussion of restoring progressive income taxation? Where is the discussion of prosecuting financial fraudsters and war criminals? Where is the discussion of waste and bloat in national security and healthcare? Where is the discussion of systematized and institutionalized racism and environmental destruction?

That is not to say these things are not complicated, or that nuanced analysis is not involved, or that reasonable people do not bring legitimate differences of opinion to the table. Rather, it is to observe the much more fundamental curiosity that MMT proponents appear not to want people talking about these matters at all.

Key assertion: MMT studiously avoids controversial policy areas where the power structure operates.


5) Why does MMT focus on aggregate analysis? While paying lip service to inequality and poverty, MMT resorts to aggregate numbers when it wants to make a concrete claim. For example, the very first bullet point the authors highlight in their Executive Summary says this:
Real, inflation-adjusted GDP (2017Q4 dollar values) would be boosted by $560 billion per year on average, once the PSE program is at full strength (from 2020 to 2027).
Even if numerically true, what is the importance of that boost?

Key assertion: GDP is not a measure of societal welfare. Furthermore, it says nothing about allocation of resources. It's an aggregate argument. We have lots of GDP in the US. The question is how to distribute it.


6) Why does MMT ignore the environmental and public health concerns of working more? One of the more astonishing aspects of the April 2018 report is that they offer no evidence, reasoning, or logic for why we need more labor hours in aggregate.

Is there a shortage of food, for example? No, quite the opposite. We actually face a public health epidemic from having, in aggregate, too much. The 40/40 number highlights this well. About 40% of food production in the US is wasted, and about 40% of all overweight people on the planet live in China. Is starvation and malnutrition a problem under some limited circumstances in some parts of the world? Absolutely. That's a distributional challenge. In aggregate, we humans have so much food that our biologically rooted craving to feast in plentiful times to prepare for famine has created the biggest public health problem facing 21st century humanity. This exists across traditional national, cultural, racial, linguistic, and religious lines.

And that's just one specific policy area. More broadly, the economic question has been solved. We no longer live in a world dominated by scarcity, particularly those of us in the industrialized nations where MMT proponents focus. We have enough to provide a decent standard of living. This requires thought leaders who can shift from the old economic question of how to make more stuff to the new economic question of how to make life more meaningful, equitable, and sustainable.

Even if "more jobs" (rather than more hours worked) was itself a valuable goal, there is an obvious policy solution to that. Namely, continue the progress that we have been building for a couple centuries now of working less. We could reduce the work week from six days to five days to four days. We could reduce the work day from 14 hours to 12 hours to 10 hours to eight hours to six hours. Amending the FLSA (Fair Labor Standards Act) to make a four day workweek and six hour work day the standard job structure for the next couple decades would create more jobs if "number of jobs" is the criterion by which you judge success. We could move to a 20 hour work week. Then a little further down the line, a 15 hour work week.

As our friend Keynes whimsically put it,

"For three hours a day is quite enough to satisfy the old Adam in most of us!"

Key assertion: There is no evidence that we need more work in the formal economy than we already have. What we need are different kinds of work, to shift labor hours from unproductive activities to productive ones. At the margins, increasing aggregate labor hours drives work-related stress and environmental pollution while taking people away from more productive and rewarding activities like parenting, exploring nature, hobbies, civic engagement, and rest.


7) Why does MMT ignore alternative courses of action? Even within the April 2018 report, much of what the authors claim JG solves really comes from other policy avenues. Why not just raise the minimum wage, implement universal health insurance and universal unemployment insurance, provide more grant funding to local governments and nonprofits, raise taxes on the wealthy, prosecute the banksters, and shrink the national security state? This would involve simpler management rather than more complicated administration while directly addressing the public policy challenges.

And of course I've left out some form of a basic income guarantee from that list, which MMT appears so scared of that MMT proponents can't even offer a fair and balanced dissent. It's unclear why they despise the idea of giving cash to people in need, and that lack of transparency suggests an ideological rather than analytical or pragmatic opposition to providing cash benefits. This is particularly odd for economists, since economic theory is quite clear that all else being equal, direct cash payments tend to provide the most utility for recipients.

Key assertion: There are simpler and more effective policy tools to accomplish the goals of a JG program.


8) What is the reasoning behind the assumptions used in MMT modeling? They seem as if picked out of thin air, with no theoretical or empirical guidance. For example, here is how the benefit calculation is described:

The program’s nonwage benefit costs are set at 20 percent.

That's $6K per year. Healthcare alone costs more than that, which means it is intellectually dishonest to claim that MMT provides healthcare through a JG. The JG doesn't add anything to fixing our healthcare system. In fact, JG represents the problem in healthcare. Employment status should not be connected to healthcare delivery.

Healthcare isn't the only odd benefit in that calculation. Childcare, too, is very expensive. For example, check out the EPI childcare calculator. Think a Republican controlled, deregulated state like Kansas for your 'cost controlled' basis. Does any MMTer know the cost? $8K a year. For one child. And since childcare workers are paid a lot less than economists, implementing a JG at $15 per hour means that childcare costs will rise substantially. When you hold headcount and output constant, prices have to go up. Retirement is a major expense as well. Then there's unemployment, workers' compensation, disability, vacations, holidays, sick leave, parental leave, etc. It's like MMTers have never bothered talking to people who are involved in compensation and benefits.

Key assertion: JG numbers don't add up. This suggests a lack of analytical rigor regarding programmatic details.


9) How, exactly, does MMT propose for decentralized administration to work? We have lots of organizations now, and they are doing a great job of creating a labor market characterized by enormous income inequality. Those same organizations are going to magically equalize compensation practices once a few million JG workers are floating around?

Moreover, what truly local organizations invested in the community need is long term capacity, not short-term, transient labor. The best way to help small local governments and nonprofits is to give them grants of dollars to invest broadly in line with their missions and strategic priorities, not a JG program offering a narrow and restricted scope of support. Similar to benefit costs, it's like MMT advocates have not bothered talking to local public and nonprofit professionals.

Key assertion: If we're going to decentralize, then actually do it. Give unrestricted funding to local organizations rather than doing a restricted JG program.


10) Where do unions fit into all of this? Neither unions as entities nor collective bargaining as a worker right are addressed by MMT. Organized labor has decreased dramatically in our society over the past few decades. Essentially, the JG undermines one of the few tools remaining in the union toolbox - the threat of a strike. Why would management care if workers strike if there's a pot of other workers ready and willing to stand in for them? Creating this reserve army of the employed is precisely what MMT seeks to do.

Key assertion: The silence from MMTers on their desired role for unions in the 21st century speaks volumes.


Concluding Thoughts

The MMT JG is a solution in search of a problem. As described in this most recent report, it will not materially change the concentration of wealth and power in the US. In many ways, the report doubles down on ignoring the main drivers of inequality while running pointless economic simulations. Designing a public jobs program whose terms and conditions of employment don't apply to all publicly funded jobs is nonsensical at best and purposefully deceptive at worst.

Wake me up when an MMT economist or financier offers a reasonable theory of human capital for why they should be paid so much more than childcare workers. Until then, this blog is in hibernation.

Stay curious folks.

Çiao

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