Friday, December 30, 2011

Bill Mitchell answers John Carney

Read it at billy blog
Whatever – its either employment or unemployment buffer stocks
by Bill Mitchell

John said he wanted to spark a debate. Well, he's been quite successful. :)

Note to myself that others may be interested in: Let's do our best to keep this debate not only civil but cordial. We are attached to our own ideas, but human knowledge is tentative and advances through open debate of contending issues. No one has the ocean in their bucket. Heated debate is no more effective than cool-headed reasoning, and it may be less effective.

UPDATE: Scott Fulwiller comments at Bill's on the post link to above:
Very nice, Bill!
To re-emphasize . . .You are either in favor of an employed buffer stock or not. If the latter, you are in favor of an unemployed buffer stock–note that believing inflation doesn’t become an issue until productive capacity is reached (as MMT supporters of every stripe appear to believe) is inherently implicating a buffer stock of one or the other variety. There is no way around being in favor of one over the other.
And if you are in favor of an unemployed buffer stock, then you are also implicitly in favor of all the additional social and economic costs that come from involuntary unemployment relative to an employed buffer stock. As Bill has shown in earlier research, virtually every social problem has a a statistically significant relation to involuntary unemployment–crime, child/spouse abuse, divorce, poverty, poor physical and mental health, malnutrition, lower educational attainment, and so on. And because government’s invariably end up spending more in an attempt to alleviate these problems (via spending on welfare, unemployment benefits, the courts system, special education programs, healthcare for the poor, crime prevention, incarceration, and so forth), you are also in favor implicitly of such spending relative to what it would be under a job guarantee. And because such spending uses real resources, you are also in favor of whatever additional taxes are necessary to avoid inflationary impacts of such spending relative to what there would be with an employed buffer stock. And because any cost benefit analysis incorporating all of this in addition to whatever macro benefits there would be to an employed buffer stock, it’s conceivable that a well-conceived employed buffer stock can accompany a smaller govt and lower taxes than pursuing the same macro goals using an unemployed buffer stock. And so the argument that somehow the employed buffer stock necessarily requires “more govt” falls flat–it does not. And for the same goals and orientation of macro policy, it could very well require less.
It is certainly the case that a well-run employed buffer stock would be an enormous undertaking, and that is a valid cause for some to have their reservations. But it must also be recognized that the opportunity cost of the employed buffer stock is not private sector employment and productivity, but rather involuntary unemployment and all the social and economic costs that come with it. And if it is determined that an employed buffer stock is desirable, then it is possible to carefully study and prepare for such a program (however imperfect given political realities, etc.) as with Bill’s 300 page study and numerous others. There have been large and complex government programs before–military, infrastructure, etc.–given the political will. And regarding the latter, it is rather odd for an MMT supporter to suddenly worry about current political realities of MMT policy proposals. Certainly the employed buffer stock, at least in the US, has many more political obstacles in front of it than understanding how the monetary system works at the current time, but it’s generally been accepted by MMT supporters that the latter is a long way off, too.
In short, this is not to “ram” the JG down anyone’s throat. It is simply to encourage clearer thinking about what an employed buffer stock is, and what one who is against the buffer stock is inherently in favor of. The majority of arguments against the JG cropping up recently (Carney’s is a classic example) are simply ideological and don’t contribute anything to discussion (seriously–I haven’t heard even one argument against the JG on the blogs that I didn’t hear dozens of times the past 15 years from academics). I would be interested in seeing those against the JG address why they believe an unemployed buffer stock is superior–MMT economists in favor of the JG are not infallible and we don’t presume to have all the answers or to have thought of every possible continencies, but without such explication, those in favor of an unemployed buffer stock aren’t actually making a coherent argument to support their difficulties accepting an employed buffer stock.
Best wishes and happy new year to everyone (and happy birthday to my daughter, who turns 5 today–not that she’s reading this!),
Scott [emphasis added] 


Dan Kervick said...

Cullen Roche also has a very good post today on the Market Monetarist account of the causes of the recession.

Mario said...

Rogue Economist is chiming in on the JG as well by attempting to find "middle ground" between the non-JG'ers and the more "pure" MMT-ers.

He and I have been having a lively and most courteous discussion. He's a friend in my book and truly a rogue economist.