Sunday, April 29, 2012

Market Monetarism and MMT: Frenemies?

       I had to laugh seeing Steve Waldman call them this but the more you think about it the more sense it makes. Let's listen to Scott:

      "There are two broad stories having to do with “sticky prices”. One, the mainstream New Keynesian story, emphasizes rigidity in the price of goods and services, most especially “sticky wages”. The other, emphasized by post-Keynesians and sometimes by monetarists, has to do with the sticky price of satisfying debts."

       " If we mean to pursue reflationary policy, the goal should not be to reduce real wages, but to reduce the real value of debt relative to incomes. One way to do this, which the post-Keynesians’ closest frenemies suggest, is to stabilize the nominal income path at its prior trend while tolerating whatever inflation that engenders. This implies a large increase in nominal income from current levels. Going forward, if we hold nominal income to a gently rising path, the burden of aggregate debt relative to income will never unexpectedly rise. (Unfortunately, predictable distress may not prevent debtors in aggregate from taking on more debt than they can service, due to the competitive dynamic of a boom. I think NGDP targeting would be a big improvement, but not sufficient: We must always be mindful of leverage and debt.)"

       Of course our Market Monetarist "frenemies" do believe the goal is to reduce real wages. In this sense they are on the side of the New Keynesians.

     However, what both the Market Monetarists-indeed all Monetarists- and the MMTers-really all Post Keynesians-believe is that what's important is total nominal spending in the economy.

        Take the MMT idea of the government serving as the Employer of Last Resort (ELR) offering a Job Guarantee (JG). The idea is for the government to pay a flat low wage for those workers who take the JG jobs. This low wage-always lower than they would get in the private sector-is supposed to be little more than the minimum wage-currently the number I've seen bandied about is $8 or so.

        Even this of course would raise the effective minimum wage form $7.25 to $8. However this upwards wage shock would be one time. After this the wage would not rise with inflation and would only rise about every 5-10 years by discretion. In this way this JG wage serves the same function as NGDP targeting does for the MMers.


  1. Oops. Must have been thinking about the other Scott-of course he's the only one here. LOL

  2. Mike, you're starting to go big time now! You were linked to this morning by the Monetary Realism site. Mike Sankowski
    and Cullen Roche have taken notice! Congrats!

  3. Cool-I did notice. They're good guys. Cullen and Mike are both good at explaining this stuff.

    I left another comment at your site. I'm thinking of maybe writing about your post-and site in the next full days.

    I do think Warstler's GI is off in some serious ways starting with the obvious that even if we might be happy if fewere people will be on UI with some sort of JG-which yes in a way is seems like the GI is-we still should have that as a back stop-its called the safety net.

    There are certainly other issues with it starting from the fact that he thinks the JG idea is appalling socialism. So maybe one way is to get him to explain the difference.

    I guess the point of his is to let the market do the work the idea is that supposedly even with no minimum wage real wages won't all go down. Defintely heard this song before!

  4. I didnt get to this in my post either but I think Warstlers idea may be fine as it is, as a possible solution to the employment issue. It would likely get more people doing something and earning something and theoretically it enables people to choose what they want to/are able to do and if they are good they can get their wages bid upward. If everyhting works as well as it could (which it wont but.....)

    However Warstler exposed himself on one of the Interfluidit posts He was in sort of a war with Dan Kervick. taunting him and calling him a pussy cuz he wouldnt critique his idea. He took that as a win over MMT. He was like "MMT wants a JG, I came up with one that you cant successfully find fault with, MMT sucks, I win!" The thing is MMT isnt "just" about a JG. Its a complete macro theory, interested in maintaining full employment and price stability but also interested in returning to days when the FIRE sector of the economy didnt rule and create financial crises every 6-8 years. Without a full revision of our private money system (banks) and a return to more democratically shaped labor policies we might all have "jobs" but we'll be working 60 hours a week just to get by and most of us will be like employees of a country club where all the members just snap their fingers and get someone to wipe their ass for 'em and throw them a nickel tip. Warstlers "plan" is simply about employment. He's tired of people getting something for nothing, but he is not interested in the least in addressing the systemic issues which brought us here.

    Warstlers ideas, with much of the other stuff that Mosler and Mitchell talk about might be OK. By itself, in todays status quo with nothing else being addressed..... SCREW IT!

  5. Well no matter what else you want if you did have a plan that solved unemployment even if it didn't solve the financial securtiy would still be worth doing.

    If you could have full employment now but not all the other things you would-or I would-take it now and still fight for other things.

    But Warstler's idea of ending UI and the minimum wage I think are non starters GI or no.