Lots of things churning around in my head today. Mike Sankowski at Monetary Realism had a great post a couple days ago discussing two different functions of money, its use as a medium of account (MOA) and its use as the medium of exchange (MOE). Art Shipman at his blog was also exploring this topic. I think this is a very important subject that gets to the heart of much of the disagreement/confusion amongst the various economic schools of thought.
I think of MOA as "dollar sign" and MOE as "dollar". Obviously they are related but they are not equivalent. One is describing the price of something, the other is a proxy for a credit which can be redeemed for something. The price of something simply tells you how many of the credits you need to obtain it. Most everything in our economy today can get a dollar sign attached to it, or assigned to it. We refer to that as its value or worth. Its not the only measure of value nor is the claim that it is the best measure of value but it IS the value, within this system, we can agree to use to somehow promote exchange of goods within this system. Additionally it allows us to come up with measurements of activity, like GDP, so we can have some sense of what is going on in between us. It is NOT a qualitative measure but simply a quantification based on an agreed quantifier. One complicating element is that "the dollar" our MOE also has a price component to it, due to the trading within currency markets. So our MOE has a MOA component to it. Things with dollars signs can generate dollars for the holders of these things, even if they are not directly sold.
It appears to me that what has resulted within our economy is actually the presence of two economies, separate but intertwined. Banks, financial institutions and the very rich deal with assets that trade as money like and only use the MOA aspect of our money. They are priced in dollars, placed on the asset side of balance sheets or sit in trading accounts and act as wealth, generating income (MOE) for their holders. The rest of us simply receive MOE each week or month and use this to purchase goods, services or some of those fancy MOA things from the other economy. The MOA side of the economy competes for our MOE. The solvency of financial institutions plus the level of borrowing an individual can take on are greatly influenced by the MOA. As a borrower holds more MOA they can borrow more MOE. Additionally as a bank holds a greater amount of MOA they can suffer more and more people failing to pay their MOE (loan losses) before being insolvent.
One problem with the MOA side of the economy is that it suffers from a fallacy of composition. Those values they use on the asset side of their balance sheets cannot possibly be true for all those assets at once. Their value is dependent upon only a certain percentage of them being liquidated at any one time. Allowing all these things to hold a value they cannot possibly hold at once seems a very serious problem. All layers of transactions based on those values will simply add more and more instability to all the balance sheets carrying that asset or its derivative. The more layers you add, the more balance sheets that become dependent on that asset value, the more affect a small price disruption will have.
The MOA side of the economy is capable of growing to levels which can never be supported by the MOE side, since prices can simply reflect desire and not ability. Additionally they can shrink well below levels which support adequate MOE generation for their holders when panics ensue. An economy relying too heavily on the MOA side will be fragile.
We have an economy now that is too oriented around our MOA.
Wednesday, November 14, 2012
Friday, August 24, 2012
What I'd do if I could
Its been a while since I've had anything that I felt was worth posting about. Ive got two or three half posts in the "Hopper" but I just couldnt complete the ideas satisfactorily. This is going to be a different take on an earlier post of mine where I imagined a day when a part of our country seceded and examined how they might go about setting up their own monetary system. I imagined an interview of someone else in the position of creating a country/monetary system and tried to see what kind of questions would need to be asked and answered. I would write that post a little differently today because I have acquired new information in the interim and have developed some of my thoughts to a greater depth but the overall view of that post remains; If your going to start your own country you need your own money and whatever money is used there will be a "state" making a choice about some very important things. The choice they make will mean differences in levels of freedom and levels of aggregate wealth.
Today Im going to be the guy has been put in charge of developing a monetary system for our a new country. Maybe I go in with some German guys and buy a couple Greek Islands.... I dont know or a couple million of us petition the US govt to let us have a portion of land on the Left Coast of the United States and create our socialist paradise. I will have to take a page out of the neoclassicals playbook and make a couple very dubious assumptions. 1) We didnt need a war to get to this point 2) Most/all who are going are behind the project and understand fully what we are embarking on (perfectly rational agents with full view of past and expectations of future)
One of the points I hope to illustrate is that during this time of creating a new country and its monetary system is that these decisions are being made BY GOVERNMENT. Its not a matter of starting a new country, delineating borders, picking a leader, start trading stuff or use the money you have left over form your old country, bring in some banks and over time a new "best" currency emerges by consensus. In the modern world especially a monetary system is by the government and for the people.
There are many options to running a currency. Peg it to another currency or a commodity or let its value float? Do you allow this currency to trade as a commodity on the currency markets or even if you desire it to will investors have any interest in it? How will you arrange the way your Central Bank functions with a Treasury? Will you even have a Central Bank? These are all political decisions and have no free market which shapes them much, but these decisions you make will impact the private markets you hope to be vibrant in your country.
So how would I do it if I could? Seems to me there are only a few real options but I ll go over what I see as all the options and try to eliminate the bad ones.
We could operate like the 51st state and use the US dollar. We would have full leeway as to how we set our institutions up like our tax system our court system our road system our school system. We could determine what level of govt influence or spending we put to these systems. We could make it as publicly driven as we like but if we are using the US$ we have constraints as to how much we spend. That constraint is how many dollars we can get. Within this state we would certainly have some production capacity already (not a totally dubious assumption yet in reality not as simple as it sounds) and some resources that would be ours to extract, refine and create stuff out of but is it possible that we have everything we need? Doubtful. Now if everyone there were happy to live only on the things which we produced ourselves, ("Buy Left Coast first...... and second.... and third" could be our state motto), we could exist, survive and be happy but we would have constraints on growth. This option does not sound like one which enhances our freedom or one that gives us a lot more options from where we are now. I think if you are seceding from somewhere you must stop being beholden to their currency.
We could go the route that many libertarians push for. A private banking driven, sovereign, gold standard currency. What questions would I have about this arrangement? First off, if we are going to go with gold standard, where do we get the gold we need to back our currency. I will grant that we have some land with gold within our borders but (this is another neoclassical level assumption that would be a huge game changer if false.) how much is the right amount for our population and the amount we intend to spend. Ive seen some goldbugs say that its not necessary to set an exchange rate with a gold standard but if you dont guarantee an amount of gold for x amount of your currency what is the reason for a gold standard and how would that be any different from the US today? Putting aside that particular discussion, I WOULD set an exchange rate of gold for our currency if I were to choose a gold standard but my question would still be.... How do I get the gold I need? I have to pay for it somehow. No one is going to give it to me to go start my country. Would all the dollars my now Left Coast citizens still had have to go to buying the gold we need to start a currency system? Actually it would likely be the banks that would have to answer this question as well. How does a bank, created ex nihilo, acquire gold reserves? What can it spend on gold when the previous currency of the new country is no longer desired by the citizens of that country? Answer me that gold bugs. Additional questions I have about this libertarian utopia are how will you interact with the rest of the world. Seems to me that the situation I described above where it would all "work" fine if you just consumed only what you produced equally applies to this scenario. If you are the only place using gold for money, what do you get in payment for the goods you might wish to export? If you wish to import how do you keep your gold supply up? It seems to me that this is not only not an improvement over what we have today, here in the USA, its even worse than above. Especially for those who value freedom as highly as libertarians profess to. In this instance your soveriegn but you limit your ability to spend to how much gold you have.
So lets scratch a gold standard off the list if we want a vibrant new world economy that interacts with the rest of the world and tries to give its citizens the best life they can achieve
How about a private banking driven system with no gold standard? Each bank just issues its own money and there are multiple competing currencies circulating. The currency you are paid in might be different than the currency which a store prices its goods in but exchange rate tables are everywhere so its just a math problem. Eventually the soundest bank currencies start to squeeze out the weaker ones and we are all better off because we are all using a sound currency that for the most part exchanges one for one. So when we start this country everyone already has dollars. Thats the only money we ever used, maybe some converted it to some commodity before the change over but they are on the margin. Most everyone kept their dollars because they needed them to transact. So when "First Left Coast Bank" opens up what do they do? Seems to me step one is acquire some capital. Ill go all neoclassical again and "assume" that most of these banks were here when the previous regime was in place AND they just kept their "real" capital in place. They would hold some US Bonds , some real estate maybe some gold or other commodity contracts but they would still have the question of "what do we have as capital that we can lend against" to answer. In addition, when they go about taking deposits, the only thing every other citizen has are US$. So they must take a US$ deposit and then decide how much "First Left Coast Bank" bucks they are going to extend to them in credit. And each bank will make this decidision differently. This doesnt sound easy, smooth, better, efficient or more freedom procuring to me. It just sounds like a mess. So Im scratching this off the list.
So how about we just play all dictator and stuff and just tell our citizens,
"In spite of what the Zero Hedge morons proclaim your US $ are not worthless. You can keep them if you like and go to the US and buy stuff or you can exchange them to your new national Treasury for "Lefties". We will give exchange at the rate of 1.5 Lefty to a dollar. All transaction within the Left Coast will be in Lefties and anything we purchase from outside our borders will be with Lefties. It may take some time for our Lefties to be accepted but I have a few suggestions for you to speed up that process. Keep doing your job to the best of your ability. What we produce says something about us. Remember, produce something you'd sell to your neighbor. If your neighbor has a problem with it youll never hear the end of it so make it something he'll have no complaint about."
Now every Left Coast citizen knows what they will get for their old currency. What does the Treasury do with its acquired US$? Well it can certainly go and procure goods and services that it is unable to produce in house as long as their is a dollar price on that, and of course this requires another "neo-ass" (shorthand for neo classical assumption) that these dollars would be honored, they could say No Left Coast dollars. NOW banks can enter the picture, because the citizens now have a net worth in Lefties that can be assessed and an appropriate loan amount can be determined. Seems to me until this point banks have no reference point other than some real asset which could be of indeterminate value. It seems that until a bank can determine your net worth in something pretty ubiquitous loaning is a very high risk operation. So high risk that most borrowers would say no thanks. Would Left Coast have a Central Bank? Sure. The system would need a borrower of last resort and lender of last resort to keep payments flowing but Im not sure there needs to be a lot of manpower dedicated to it. It could mostly be a computer program that simply issues electronic reserves and measures banks health via an algorithm designed by conscientious bankers (I know there are some). We definitely dont need these annual treks to Jackson Hole where nothing of substance happens just a proclamation that "We are concerned about blah blah blah in the global system and we wish for further emasculation of our fiscal bodies so the fate of the worlds economy is at our behest........ oh and Milton Friedman rocks!!!"
Additionally, since we can never run out of our Lefties I would provide a citizens income to everyone form birth. As a citizen it would be your right. The exact administration of this would involve ways to add to it for certain education milestones being met or deduct from it if certain violations occur. Financializing more of our life seems inevitable so why not find an acceptable worth for a newborn citizen and one who meets certain criteria as they age. Now banks have a minimum income they know can be used to pay back loans. Seems to be a stabilizing force to banks. Might it result in fewer consumer loans, likely, but I dont view that as a negative. Although people might be encourage to take more risks if they werent going to lose everything so I dont think its a given that this would lead to complacent citizens who just spend their dole money on basics and dont search for innovations.
One thing I need to point out is that it would additionally be necessary at some point, maybe not at first but eventually, to assess a tax in Lefties. This tax would simply be necessary to insure that Left Coast citizens seek some lefties. At some point, once the economy is up and running, we might find people preferring to just cross the border and work for dollars which would be fine to a point but might reach a point where Left Coast businesses cant find labor. To keep our currency area going and to keep us from devolving into a 51st state which just uses dollars but has no rights, something would be needed to keep people seeking and hopefully saving in lefties. It seems to me its just a fact of modern nation states, if you wish to have autonomy you should have your own currency but to keep your own currency viable some form of gentle coercion (no 9mm necessary hopefully) thru taxation would be necessary. Some citizens might think of their taxes as "paying for their govt" but your treasurer would know better (that that citizen wouldnt have the lefty to pay the tax unless the treasury had issued it first)
I just cant see any market mechanisms that this new country could use to find a new currency but I m open to someone showing me some.
Today Im going to be the guy has been put in charge of developing a monetary system for our a new country. Maybe I go in with some German guys and buy a couple Greek Islands.... I dont know or a couple million of us petition the US govt to let us have a portion of land on the Left Coast of the United States and create our socialist paradise. I will have to take a page out of the neoclassicals playbook and make a couple very dubious assumptions. 1) We didnt need a war to get to this point 2) Most/all who are going are behind the project and understand fully what we are embarking on (perfectly rational agents with full view of past and expectations of future)
One of the points I hope to illustrate is that during this time of creating a new country and its monetary system is that these decisions are being made BY GOVERNMENT. Its not a matter of starting a new country, delineating borders, picking a leader, start trading stuff or use the money you have left over form your old country, bring in some banks and over time a new "best" currency emerges by consensus. In the modern world especially a monetary system is by the government and for the people.
There are many options to running a currency. Peg it to another currency or a commodity or let its value float? Do you allow this currency to trade as a commodity on the currency markets or even if you desire it to will investors have any interest in it? How will you arrange the way your Central Bank functions with a Treasury? Will you even have a Central Bank? These are all political decisions and have no free market which shapes them much, but these decisions you make will impact the private markets you hope to be vibrant in your country.
So how would I do it if I could? Seems to me there are only a few real options but I ll go over what I see as all the options and try to eliminate the bad ones.
We could operate like the 51st state and use the US dollar. We would have full leeway as to how we set our institutions up like our tax system our court system our road system our school system. We could determine what level of govt influence or spending we put to these systems. We could make it as publicly driven as we like but if we are using the US$ we have constraints as to how much we spend. That constraint is how many dollars we can get. Within this state we would certainly have some production capacity already (not a totally dubious assumption yet in reality not as simple as it sounds) and some resources that would be ours to extract, refine and create stuff out of but is it possible that we have everything we need? Doubtful. Now if everyone there were happy to live only on the things which we produced ourselves, ("Buy Left Coast first...... and second.... and third" could be our state motto), we could exist, survive and be happy but we would have constraints on growth. This option does not sound like one which enhances our freedom or one that gives us a lot more options from where we are now. I think if you are seceding from somewhere you must stop being beholden to their currency.
We could go the route that many libertarians push for. A private banking driven, sovereign, gold standard currency. What questions would I have about this arrangement? First off, if we are going to go with gold standard, where do we get the gold we need to back our currency. I will grant that we have some land with gold within our borders but (this is another neoclassical level assumption that would be a huge game changer if false.) how much is the right amount for our population and the amount we intend to spend. Ive seen some goldbugs say that its not necessary to set an exchange rate with a gold standard but if you dont guarantee an amount of gold for x amount of your currency what is the reason for a gold standard and how would that be any different from the US today? Putting aside that particular discussion, I WOULD set an exchange rate of gold for our currency if I were to choose a gold standard but my question would still be.... How do I get the gold I need? I have to pay for it somehow. No one is going to give it to me to go start my country. Would all the dollars my now Left Coast citizens still had have to go to buying the gold we need to start a currency system? Actually it would likely be the banks that would have to answer this question as well. How does a bank, created ex nihilo, acquire gold reserves? What can it spend on gold when the previous currency of the new country is no longer desired by the citizens of that country? Answer me that gold bugs. Additional questions I have about this libertarian utopia are how will you interact with the rest of the world. Seems to me that the situation I described above where it would all "work" fine if you just consumed only what you produced equally applies to this scenario. If you are the only place using gold for money, what do you get in payment for the goods you might wish to export? If you wish to import how do you keep your gold supply up? It seems to me that this is not only not an improvement over what we have today, here in the USA, its even worse than above. Especially for those who value freedom as highly as libertarians profess to. In this instance your soveriegn but you limit your ability to spend to how much gold you have.
So lets scratch a gold standard off the list if we want a vibrant new world economy that interacts with the rest of the world and tries to give its citizens the best life they can achieve
How about a private banking driven system with no gold standard? Each bank just issues its own money and there are multiple competing currencies circulating. The currency you are paid in might be different than the currency which a store prices its goods in but exchange rate tables are everywhere so its just a math problem. Eventually the soundest bank currencies start to squeeze out the weaker ones and we are all better off because we are all using a sound currency that for the most part exchanges one for one. So when we start this country everyone already has dollars. Thats the only money we ever used, maybe some converted it to some commodity before the change over but they are on the margin. Most everyone kept their dollars because they needed them to transact. So when "First Left Coast Bank" opens up what do they do? Seems to me step one is acquire some capital. Ill go all neoclassical again and "assume" that most of these banks were here when the previous regime was in place AND they just kept their "real" capital in place. They would hold some US Bonds , some real estate maybe some gold or other commodity contracts but they would still have the question of "what do we have as capital that we can lend against" to answer. In addition, when they go about taking deposits, the only thing every other citizen has are US$. So they must take a US$ deposit and then decide how much "First Left Coast Bank" bucks they are going to extend to them in credit. And each bank will make this decidision differently. This doesnt sound easy, smooth, better, efficient or more freedom procuring to me. It just sounds like a mess. So Im scratching this off the list.
So how about we just play all dictator and stuff and just tell our citizens,
"In spite of what the Zero Hedge morons proclaim your US $ are not worthless. You can keep them if you like and go to the US and buy stuff or you can exchange them to your new national Treasury for "Lefties". We will give exchange at the rate of 1.5 Lefty to a dollar. All transaction within the Left Coast will be in Lefties and anything we purchase from outside our borders will be with Lefties. It may take some time for our Lefties to be accepted but I have a few suggestions for you to speed up that process. Keep doing your job to the best of your ability. What we produce says something about us. Remember, produce something you'd sell to your neighbor. If your neighbor has a problem with it youll never hear the end of it so make it something he'll have no complaint about."
Now every Left Coast citizen knows what they will get for their old currency. What does the Treasury do with its acquired US$? Well it can certainly go and procure goods and services that it is unable to produce in house as long as their is a dollar price on that, and of course this requires another "neo-ass" (shorthand for neo classical assumption) that these dollars would be honored, they could say No Left Coast dollars. NOW banks can enter the picture, because the citizens now have a net worth in Lefties that can be assessed and an appropriate loan amount can be determined. Seems to me until this point banks have no reference point other than some real asset which could be of indeterminate value. It seems that until a bank can determine your net worth in something pretty ubiquitous loaning is a very high risk operation. So high risk that most borrowers would say no thanks. Would Left Coast have a Central Bank? Sure. The system would need a borrower of last resort and lender of last resort to keep payments flowing but Im not sure there needs to be a lot of manpower dedicated to it. It could mostly be a computer program that simply issues electronic reserves and measures banks health via an algorithm designed by conscientious bankers (I know there are some). We definitely dont need these annual treks to Jackson Hole where nothing of substance happens just a proclamation that "We are concerned about blah blah blah in the global system and we wish for further emasculation of our fiscal bodies so the fate of the worlds economy is at our behest........ oh and Milton Friedman rocks!!!"
Additionally, since we can never run out of our Lefties I would provide a citizens income to everyone form birth. As a citizen it would be your right. The exact administration of this would involve ways to add to it for certain education milestones being met or deduct from it if certain violations occur. Financializing more of our life seems inevitable so why not find an acceptable worth for a newborn citizen and one who meets certain criteria as they age. Now banks have a minimum income they know can be used to pay back loans. Seems to be a stabilizing force to banks. Might it result in fewer consumer loans, likely, but I dont view that as a negative. Although people might be encourage to take more risks if they werent going to lose everything so I dont think its a given that this would lead to complacent citizens who just spend their dole money on basics and dont search for innovations.
One thing I need to point out is that it would additionally be necessary at some point, maybe not at first but eventually, to assess a tax in Lefties. This tax would simply be necessary to insure that Left Coast citizens seek some lefties. At some point, once the economy is up and running, we might find people preferring to just cross the border and work for dollars which would be fine to a point but might reach a point where Left Coast businesses cant find labor. To keep our currency area going and to keep us from devolving into a 51st state which just uses dollars but has no rights, something would be needed to keep people seeking and hopefully saving in lefties. It seems to me its just a fact of modern nation states, if you wish to have autonomy you should have your own currency but to keep your own currency viable some form of gentle coercion (no 9mm necessary hopefully) thru taxation would be necessary. Some citizens might think of their taxes as "paying for their govt" but your treasurer would know better (that that citizen wouldnt have the lefty to pay the tax unless the treasury had issued it first)
I just cant see any market mechanisms that this new country could use to find a new currency but I m open to someone showing me some.
Saturday, April 28, 2012
An Interesting Idea From a Dubious Source
Much of the talk on the econ blogs I follow revolves around the idea of a Job Guarantee (JG). This is an idea deeply imbedded into the MMT macro view. Some say its a necessary component and that "You are not an MMTer if you dont endorse the idea". Others are less dogmatic about it but it cant be denied that full employment, defined as anyone who wishes to earn an income is able to, is a primary goal of the MMT macro view. The other part of the trick is price stability though and the macroeconomists within the MMT school argue that price stability is best achieved by a wage anchor. The design of a JG can run anywhere from a fully federally controlled "make work" type program to a subsidy of private businesses at whatever level is necessary to "hire" everyone. The common denominator in both ends of the spectrum is recognizing the reality that the govt, as currency issuer, can fully fund a full employment economy. There are tradeoffs in every system but there is no saying "we dont have the money to do this". Thats a huge hurdle for a large portion of the population. Many believe the govt would run out of money if such a venture were tried.
One idea that has been offered involves an income guarantee, payable through a paypal debit card account. Here is the originator of the idea (as far as we know, the originator) Morgan Warstler;
Using a clone of Paypal and Ebay platforms, the US govt. should establish a Guaranteed Wage of $240 per week. Anyone who wants to work registers, receives a Debit Card,and each Friday has their GI deposited. All recipients have their labor weeks auctioned online. Bidding begins at $40 per week ($1 per hour). Bid increases by .50 cents per hour ($20 increments). Recipients keep 50% of the top bid, if they take it. If they opt for a lesser bid outside certain boundaries there are penalties (fraud measure). Recipients cannot be made to work outside a radius of a couple miles. Bidders must deposit money into system before they bid. They must accurately describe the job. Feedback will be given both ways. If you are familiar with Ebay, you understand what this accomplishes. There are no taxes paid, there are basic workplace protection requirments. Umbrella insurance is sold on site for folks bringing labor into their home. Expect 30M to register so approx $345B is our cost assuming 30M are auctioned at $1 (The govt. is picking up $5.50 and bidders are in for $1) At an avg. bid of $4 per hour, avg. worker is making $8, and the govt. is spending $250B a year. There is no more UI. There is no more minimum wage. That’s why there are 30M in program.
I would have to say that normally I would be 75-100% behind the idea. Its simple, it allows choices, there is a lot of bottom up thinking to it, the framework for it is in place already and I do think many people on both sides of the spectrum could get behind it. My primary reservation is knowing who came up with it. Not that I really KNOW Mr Warstler. He's as anonymous to me as Arthur Shipman or Mike Sax, guys on the internet I talk to with my keyboard. I wouldnt know any of these three if they walked in my house but I have read a lot of what they have to say on the sites I visit. I feel like I know them and know what kind of people they are. Mr Warstler is NOT good people, as they say.
First off Morgan is a fan of and I think a contributor to the late (yea!!) Andrew Breitbarts site. I'm not sure who is (was) a more despicable person, Breitbart or Limbaugh. Its close. So anyone who contributes to anything that guy did is only making the world worse. Not that bad people cant come up with good ideas, and vice versa, but in general I prefer ideas that come from people who at least seem to not be psychopaths.
Turns out Im not the only one who thinks Morgan Warstler reads like a toxic personality. Here is Raul Groom at "The Vanishing Dollar":
As many who read this blog (if any section of this blog's readership can be usefully called "many") probably already know, there is a person out in Internet-land who calls himself Morgan Warstler. He's a blogger for the odd, ugly, and mostly useless righty politics site Big Government (full name: "Andrew Breitbart presents Big Government featuring editor in chief Mike Flynn," and no I am not making that up). He's a gadfly on several well-known economics blogs including Scott Sumner's The Money Illusion, but most of my dealings with him have been at Yglesias' place over at ThinkProgress. All in all, the guy is a nutcase, and I really don't recommend listening to him, reading him, or talking to him at all. It will just make you angry and confused. That said, the Warstler may well be a genius. He's fallen in with the wrong people and has couched his policy recommendations in politically toxic, morally bankrupt packages. But the man is onto something. I know, I know. Forty-two loyal Yglesias fans (the entire readership of this blog, sadly) just threw up a little in their mouths. But Morgan's Guaranteed Income plan is sort of on to something. I'll explain later. Just wanted to warn you, sort of an econ version of the "trigger warnings" on sites that focus on social issues. I will be taking up a lukewarm defense of Warstler this week. Consider yourself on notice.
Dan Kervick, one of my favorite posters of late says; "I call Morgan Warstler a "Darth Vadar Marxist". Those are folks who seem to accept a whole bunch of Marx's theorizing about class warfare, but who then try to encourage everyone to join the dark side of the greedy capitalists"
Obviously Ive made the point that I think he's a terrible guy, but he's also afflicted with some really poor economic thinking. He thinks the whole problem with our unemployment problem is simply too high of wages (Yes if we all made even less more of us would default at the debt levels we've achieved..... making the banks really happy then). He views the economy as a zero sum game where the only way someone who doesnt have something can get it is by depriving someone else of that thing (which would mean in his world the only way the "haves" got it was by getting it at the expense of the "have nots"....... try making the argument that the US is rich only because theyve made Africa, Mexico and Central America poor... I dare ya!). He also in one of his comments at someones site made the statement that consumption was "bad". Bad? Tell that to the worlds manufacturers who are just looking for someone to consume their product How can something which is the other side of the coin from production be bad? Putting a label on an economic variable like that strikes me as religious zealotry. Puritanic.
Now all of this, again,is not to say that he hasnt hit on something quite good. He may very well have. I dont have large objections to it but whenever someone who thinks like an Austrian economist, is friendly to the likes of Andrew Breitbart and is smart (cunning may be a more appropriate description) I think one should look real hard at ANYTHING he proposes.
Im pretty sure that over 90% of the time if Morgan Warstler likes it........ I wont.
One idea that has been offered involves an income guarantee, payable through a paypal debit card account. Here is the originator of the idea (as far as we know, the originator) Morgan Warstler;
Using a clone of Paypal and Ebay platforms, the US govt. should establish a Guaranteed Wage of $240 per week. Anyone who wants to work registers, receives a Debit Card,and each Friday has their GI deposited. All recipients have their labor weeks auctioned online. Bidding begins at $40 per week ($1 per hour). Bid increases by .50 cents per hour ($20 increments). Recipients keep 50% of the top bid, if they take it. If they opt for a lesser bid outside certain boundaries there are penalties (fraud measure). Recipients cannot be made to work outside a radius of a couple miles. Bidders must deposit money into system before they bid. They must accurately describe the job. Feedback will be given both ways. If you are familiar with Ebay, you understand what this accomplishes. There are no taxes paid, there are basic workplace protection requirments. Umbrella insurance is sold on site for folks bringing labor into their home. Expect 30M to register so approx $345B is our cost assuming 30M are auctioned at $1 (The govt. is picking up $5.50 and bidders are in for $1) At an avg. bid of $4 per hour, avg. worker is making $8, and the govt. is spending $250B a year. There is no more UI. There is no more minimum wage. That’s why there are 30M in program.
I would have to say that normally I would be 75-100% behind the idea. Its simple, it allows choices, there is a lot of bottom up thinking to it, the framework for it is in place already and I do think many people on both sides of the spectrum could get behind it. My primary reservation is knowing who came up with it. Not that I really KNOW Mr Warstler. He's as anonymous to me as Arthur Shipman or Mike Sax, guys on the internet I talk to with my keyboard. I wouldnt know any of these three if they walked in my house but I have read a lot of what they have to say on the sites I visit. I feel like I know them and know what kind of people they are. Mr Warstler is NOT good people, as they say.
First off Morgan is a fan of and I think a contributor to the late (yea!!) Andrew Breitbarts site. I'm not sure who is (was) a more despicable person, Breitbart or Limbaugh. Its close. So anyone who contributes to anything that guy did is only making the world worse. Not that bad people cant come up with good ideas, and vice versa, but in general I prefer ideas that come from people who at least seem to not be psychopaths.
Turns out Im not the only one who thinks Morgan Warstler reads like a toxic personality. Here is Raul Groom at "The Vanishing Dollar":
As many who read this blog (if any section of this blog's readership can be usefully called "many") probably already know, there is a person out in Internet-land who calls himself Morgan Warstler. He's a blogger for the odd, ugly, and mostly useless righty politics site Big Government (full name: "Andrew Breitbart presents Big Government featuring editor in chief Mike Flynn," and no I am not making that up). He's a gadfly on several well-known economics blogs including Scott Sumner's The Money Illusion, but most of my dealings with him have been at Yglesias' place over at ThinkProgress. All in all, the guy is a nutcase, and I really don't recommend listening to him, reading him, or talking to him at all. It will just make you angry and confused. That said, the Warstler may well be a genius. He's fallen in with the wrong people and has couched his policy recommendations in politically toxic, morally bankrupt packages. But the man is onto something. I know, I know. Forty-two loyal Yglesias fans (the entire readership of this blog, sadly) just threw up a little in their mouths. But Morgan's Guaranteed Income plan is sort of on to something. I'll explain later. Just wanted to warn you, sort of an econ version of the "trigger warnings" on sites that focus on social issues. I will be taking up a lukewarm defense of Warstler this week. Consider yourself on notice.
Dan Kervick, one of my favorite posters of late says; "I call Morgan Warstler a "Darth Vadar Marxist". Those are folks who seem to accept a whole bunch of Marx's theorizing about class warfare, but who then try to encourage everyone to join the dark side of the greedy capitalists"
Obviously Ive made the point that I think he's a terrible guy, but he's also afflicted with some really poor economic thinking. He thinks the whole problem with our unemployment problem is simply too high of wages (Yes if we all made even less more of us would default at the debt levels we've achieved..... making the banks really happy then). He views the economy as a zero sum game where the only way someone who doesnt have something can get it is by depriving someone else of that thing (which would mean in his world the only way the "haves" got it was by getting it at the expense of the "have nots"....... try making the argument that the US is rich only because theyve made Africa, Mexico and Central America poor... I dare ya!). He also in one of his comments at someones site made the statement that consumption was "bad". Bad? Tell that to the worlds manufacturers who are just looking for someone to consume their product How can something which is the other side of the coin from production be bad? Putting a label on an economic variable like that strikes me as religious zealotry. Puritanic.
Now all of this, again,is not to say that he hasnt hit on something quite good. He may very well have. I dont have large objections to it but whenever someone who thinks like an Austrian economist, is friendly to the likes of Andrew Breitbart and is smart (cunning may be a more appropriate description) I think one should look real hard at ANYTHING he proposes.
Im pretty sure that over 90% of the time if Morgan Warstler likes it........ I wont.
Monday, April 16, 2012
Two Grinches
Politics is all about keeping your base supporters energized and ready to go to the polls for your party. You use the media to get out easy to digest messages, you have pundits who articulate these messages in various ways so they appeal to as many people as possible and then there are the think tanks that spend billions learning how to further manipulate people to achieve an end. Part of what you do is spend time pushing the positives of your team and part of the time its pushing the negatives of the other team. Its a back and forth and both parties in our system have enjoyed periods of rather sustained success due to their ideas being adapted at just the right time in history.
Democrats enjoyed success for most of my early life and it mostly started with Roosevelt and WWII. Our responses to the depression, a period of great pain for many that was seen as the end result of high finance run amok, were the cornerstone of democratic policies for decades. Protecting people by insuring their deposits (FDIC), making housing affordable via 30 yr mortgages (Fannie) and guaranteeing an income in old age (SS), were just a few of the important ways that average Americans were spared destitution if economic times turned real bad.
Republicans have enjoyed success from my college days onward. Mostly because they had the presidency when we fought off the inflation of the 70's and it was their policies which have been given credit. One of the strategies they have successfully used since that time centers around an idea by Jude Wanniski, a journalist/economist/author of that day, called the Two Santa Claus' theory.
It is described this way in Wikipedia;
"The Two Santa Claus Theory
The Two Santa Claus Theory is a political theory and strategy published by Wanniski in 1976, which he promoted within the United States Republican Party.
According to Wanniski, the theory is simple. In 1976, he wrote that the Two-Santa Claus Theory suggests that "the Republicans should concentrate on tax-rate reduction. As they succeed in expanding incentives to produce, they will move the economy back to full employment and thereby reduce social pressures for public spending. Just as an increase in Government spending inevitably means taxes must be raised, a cut in tax rates—by expanding the private sector—will diminish the relative size of the public sector". Wanniski suggested this position, as Thom Hartmann has clarified, so that the Democrats would "have to be anti-Santas by raising taxes, or anti-Santas by cutting spending. Either one would lose them elections"
The theory states that, in democratic elections, if one party appeals to voters by proposing more spending, then a competing party cannot gain broader appeal by proposing less spending. The first "Santa Claus" of the theory title refers to the political party that promises spending. Instead, "Two Santa Claus Theory" recommends that the competing party must assume the role of a second Santa Claus by not arguing to cut spending but rather offering the more appealing and publicly sellable option of cutting taxes.
This theory is a response to the belief of monetarists, and especially Milton Friedman[citation needed], that the government must be starved of revenue in order to control the growth of spending (since, in the view of the monetarists, spending cannot be reduced by elected bodies as the political pressure to spend is too great)[citation needed]. See also Starve the beast.
The "Two Santa Claus Theory" does not argue against this belief but holds that such arguments cannot be espoused to try to win democratic elections. In Wanniski's view, the Laffer curve and supply-side economics provide an attractive alternative rationale for revenue reduction: that under reduced taxation the economy will grow, not merely that the beast of the government will be starved of revenue, and that that growth is an attractive option to present to the voters. Wanniski argued that Republicans must become the tax-cutting Santa Claus to the Democrats' spending Santa Claus."
Interesting stuff. It seems to me that this strategy is blowing up for both parties. Now they are locked in a race to take away the least from their electorate. Both agree that something must be taken away but the what and the amounts differ. Now instead of being the "Two Santa Claus'" they are becoming the "Two Grinches". Whos brand of cutting will be most effective and appealing?
One of the things that may favor democrats is that they are more sincere in their beliefs that we must cut stuff. I disagree vehemently with austerity measures, knowing they are wrongheaded and based on a completely flawed paradigm of how govt financing works, but the democrats are more likely to be seen as sincere in their efforts to make things better. Republicans have shown that they are just about slashing and burning everyone elses stuff and keeping their stuff safe from harm. Unfortunately our politicians keep reenforcing the idea the populace has that the only choice we have is the least bad one.
Democrats enjoyed success for most of my early life and it mostly started with Roosevelt and WWII. Our responses to the depression, a period of great pain for many that was seen as the end result of high finance run amok, were the cornerstone of democratic policies for decades. Protecting people by insuring their deposits (FDIC), making housing affordable via 30 yr mortgages (Fannie) and guaranteeing an income in old age (SS), were just a few of the important ways that average Americans were spared destitution if economic times turned real bad.
Republicans have enjoyed success from my college days onward. Mostly because they had the presidency when we fought off the inflation of the 70's and it was their policies which have been given credit. One of the strategies they have successfully used since that time centers around an idea by Jude Wanniski, a journalist/economist/author of that day, called the Two Santa Claus' theory.
It is described this way in Wikipedia;
"The Two Santa Claus Theory
The Two Santa Claus Theory is a political theory and strategy published by Wanniski in 1976, which he promoted within the United States Republican Party.
According to Wanniski, the theory is simple. In 1976, he wrote that the Two-Santa Claus Theory suggests that "the Republicans should concentrate on tax-rate reduction. As they succeed in expanding incentives to produce, they will move the economy back to full employment and thereby reduce social pressures for public spending. Just as an increase in Government spending inevitably means taxes must be raised, a cut in tax rates—by expanding the private sector—will diminish the relative size of the public sector". Wanniski suggested this position, as Thom Hartmann has clarified, so that the Democrats would "have to be anti-Santas by raising taxes, or anti-Santas by cutting spending. Either one would lose them elections"
The theory states that, in democratic elections, if one party appeals to voters by proposing more spending, then a competing party cannot gain broader appeal by proposing less spending. The first "Santa Claus" of the theory title refers to the political party that promises spending. Instead, "Two Santa Claus Theory" recommends that the competing party must assume the role of a second Santa Claus by not arguing to cut spending but rather offering the more appealing and publicly sellable option of cutting taxes.
This theory is a response to the belief of monetarists, and especially Milton Friedman[citation needed], that the government must be starved of revenue in order to control the growth of spending (since, in the view of the monetarists, spending cannot be reduced by elected bodies as the political pressure to spend is too great)[citation needed]. See also Starve the beast.
The "Two Santa Claus Theory" does not argue against this belief but holds that such arguments cannot be espoused to try to win democratic elections. In Wanniski's view, the Laffer curve and supply-side economics provide an attractive alternative rationale for revenue reduction: that under reduced taxation the economy will grow, not merely that the beast of the government will be starved of revenue, and that that growth is an attractive option to present to the voters. Wanniski argued that Republicans must become the tax-cutting Santa Claus to the Democrats' spending Santa Claus."
Interesting stuff. It seems to me that this strategy is blowing up for both parties. Now they are locked in a race to take away the least from their electorate. Both agree that something must be taken away but the what and the amounts differ. Now instead of being the "Two Santa Claus'" they are becoming the "Two Grinches". Whos brand of cutting will be most effective and appealing?
One of the things that may favor democrats is that they are more sincere in their beliefs that we must cut stuff. I disagree vehemently with austerity measures, knowing they are wrongheaded and based on a completely flawed paradigm of how govt financing works, but the democrats are more likely to be seen as sincere in their efforts to make things better. Republicans have shown that they are just about slashing and burning everyone elses stuff and keeping their stuff safe from harm. Unfortunately our politicians keep reenforcing the idea the populace has that the only choice we have is the least bad one.
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