If I were smart, I would skip mentioning this, but there has been some drama between “Richard J. Murphy” and MMT proponents. Since I mentioned him recently, I blundered into creating a moral obligation to dip further into this mess. I do not really know who Richard J. Murphy is, but he apparently is high profile among some section of British progressives, which is the source of the drama. As a crotchety old school Canadian Prairie Populist (who is inexplicably stuck in Montreal), intra-left drama is not something I find surprising nor interesting. The issue here from my perspective is that Murphy is attempting to commandeer “MMT.”
I strongly support the job guarantee, but despite a lot of reading, don’t understand its anti-inflationary function other than to have the JG wage be a maximum as well as a minimum.
It provides a psychological anchor for wages, certainly at the low end of the wage scale. Unlike a minimum wage, firms are competing for workers against the JG, and so they need to set their wages at a markup versus the JG rate.
The ability to stop wage inflation (and not deflation) is weaker, but the JG pool is a counter-cyclical income flow. As workers leave it, the government spending on it drops. Realistically, progressive income taxes are going to be a greater macro brake.
I'm not sure I'd endorse the notion that inflation can be described much less countered at a purely macro level. But as it was explained to me by some of the mmt OGs the productive use of Labor resources is broadly seen as counter inflationary and price stabilizing. Which is why people like Pavlina Tcherneva stipulate the job guarantee jobs can't be simple make-work.
The JG is not a single policy, it has a variety of possible implementations. Only an abstraction of a JG is truly "core narrow MMT" - because you take what you can get from the policy makers here - but regardless, the JG as a transition job guarantee to set a wage floor (not psychological, very real) is at least counter-cyclical. Meaning it is not necessarily anti-inflationary, but works counter to the cycle. As an economy booms, the JG pool decreases, so government deficits likely drop, which is contractionary. Opposite way when a recessionary dynamic is in play, when a rising JG pool acts as a fiscal injection.
Brian, I agree with you that, at least in the short run, Richard Murphy's description of MMT and his critique of Warren Mosler is going to generate more heat than light. You describe yourself as a "crotchety old school Canadian Prairie Populist"; the terms "crotchety" and "old" describe many likely to participate in this controversy, myself included. When teaching MMT and macroeconomics, I've used books by all parties concerned in this tiff. Though I wasn't overly impressed with the first PDF version of Murphy's restatement of MMT -- he has issued a second version in less than twenty-four hours (!) which I haven't gotten to yet -- I continue to recommend his 2015 book, "The Joy of Tax," which has never been formally published in the U.S.
There will be a strong temptation for MMT advocates to line up on one side or the other -- a temptation which should be resisted.
I mainly write about economic theory, and unless Murphy can add value there, I am not going ti read him. Re-stating MMT primers is definitely not adding value.
On the political angle, I’m a prairie populist. The objective is to put in place a policy, and you need to build a coalition to get there. Theoretical disputes make coalition building harder. You need to focus on policies, and not theories.
What's MMT's position on work, the daily work of people? Does it have a concern for the psychological, emotional, and cultural values of daily work or is it merely concerned with the economic inpurssnf outputs? Can you share links to some info on this?
I write about economics from the perspective of a bond market participant, so it’s not my area of interest - I look at aggregates. The Job Guarantee literature discusses the micro effects of the policy, which are argued as positive. But beyond that, the key parts of MMT that distinguish it from the post-Keynesian literature are macro.
Thanks! But MMT teaches that government spending is not (necessarily) inflationary. So why would JG advocates use that to show the JG is anti-inflationary?
If you are buying something at a fixed price, how can it be inflationary? This turns into a complicated discussion of the inflationary process, which does not fit into standard neoclassical models.
The only reason to up their bid is if it is harder to hire employees. That will eventually happen - but nobody is claiming that private wages will never move. The question is whether wages are stickier than it is without any nominal anchor, which is the case now. The JG pool shrinking and increased tax take provides the countervailing force.
The JG is not going to do anything about imported oil prices going through the roof, etc. Without doing a microeconomic intervention, macro policies are mainly about demand.
Thanks for all your responses. I like to tell people about MMT and the JG and I think I’m pretty good for a layman, but the JG as anti-inflationary is the one thing that had me stumped. I think the easiest thing is just say it’s an anchor on prices. Of course even if it has minimal anti-inflationary effect, its anti-recessionary (and basic humanity) effect is huge. And it’s popular! Dems should make it a policy goal.
"That same thinking also fails to understand *the causes of inflation*, by suggesting that it [i.e. INFLATION] can only be caused by a government refusing to spend enough into the economy to employ all those that the proponents of the job guarantee suggest are made unemployed solely because of the imposition of taxes. There is no economic logic to this claim. There are many causes of unemployment, but imposing taxes is not one of them."
Richard J. Murphy is, sorry, neither sufficiently bright/capable nor sufficiently careful to take seriously.
The problem with the JG AS AN inflation anchor is:
[Ok: Within its framework, which is the Philips Curve concept, it is impeccable, short any close reading of your comments below. In other words, it anchors the price level, of wages, and hence I suppose consumption prices, based on employment, rather than the Federal Reserve current system, targeting an unemployment rate (or worse yet, Powell's version of maximizing unemployment).]
Here: But the framework is wrong. Inflation as tied to employment or unemployment as a concept is just arbitrary, as there are all these other cost inputs, and actually the material cost input theory as the only game denies PRICE SETTING by financial comparative advantage, ownership and all that. Or even Mosler lately likes to mention price setting (for him, by government(s), action or inaction) as what he sees as the major driver of the price level.
Not sure I follow. The Phillips curve is a relationship between "inflation" (I think wage inflation, technically) and unemployment - and the unemployment rate is supposed to be 0%. Setting wages (at the bottom of the wage scale) is emphasised by every MMTer, and is not something that Mosler came up with "lately."
This shows up in the simplest mathematical models of MMT, which I describe in my book.
By "lately," I should have said, I, this armchair economist, saw it lately...
But where I said, "lately," I'm not talking about the JG--and neither was Mosler, in the Steve Grumbine Macro 'N Cheese podcast interview--I'm talking about this alternative model to cost drivers (to cost drivers such as wages or crude oil) as determinant of the general level of prices, the alternative model being price setting.
Sure, as a "price setting" solution, one could set wages or one could set bond prices, or West Texas Crude--Mosler doesn't go into details on specifics. But as to causes, there's no real reason to think employment in particular has any relation to inflation such that somehow a Job Guarantee should have inflation as one of its purposes: it is often discussed as replacing an unemployed buffer stock as a regulator of inflation with an employed buffer stock.
Unemployment at zero percent! In our dreams--has no bearing on the topic of the Fed targeting creating higher unemployment in order to "lower inflation" like Powel keeps explicitly stating that he is doing (the buffer stock of the unemployed). The talk about the JG and inflation is always to replace that model. But in my comment, I say, but the model is nonsense, so replacing using the same assumption that employment is particularly related to inflation--it is not much of a goal.
1) The PK argument is that output prices are set as a markup over production costs. Wages are the most important domestic driver of production costs.
2) The JG is a macro stabilisation tool. All macro stabilisation tools are going to be focussed on demand/wages. For example, you can’t do anything about imported energy costs - a huge swing factor in the CPI - without doing something dangerous like subsidies. Doing things like price controls is an orthogonal issue to the JG.
3) If a JG existed, the unemployment rate is 0%. Unemployment would be entirely voluntary, and people who do not take the jobs should not be counted as unemployed. At most, they are outside the labour force, since they are voluntarily not taking a job. How statistical agencies would handle this is unclear, but the sensible approach would be to redefine categories.
1. As for MMTers, pretty much everyone in MMT thinks Phillips is bunk, yet we give a major rational for the JG as being a better solution for said.curve.
As for me, the markup need not bear a relation to the costs except as a floor--ceiling is by things like ownership and competition--including a competitive relation to the buyer, as no trade is ever between two equal parties, always there is a difference in elasticity.
This idea about wages being the most important domestic driver of production costs was introduced by David Ricardo. As soon as someone starts quoting a.three hundred year old idea, I ask for a bit of a rethink. Many think that it could not possibly be labor, as it is clearly ownership that is this "most important driver" of production costs. But putting that aside, it seems pretty clear to any non-expert that there's any number of domestic cost inputs and labor is but one.
2. JG as macro stabilizer, as related to this specific general price level topic--only rational if wages are actually related to prices... But MMTers pretty much think Phillips is bunk--but if they don't, that's good to know. Again, not anti-JG, just discussing the weight put in this specific buffer stock of the employed inflation targeting rationale.
I strongly support the job guarantee, but despite a lot of reading, don’t understand its anti-inflationary function other than to have the JG wage be a maximum as well as a minimum.
Can you explain it?
Thanks
It provides a psychological anchor for wages, certainly at the low end of the wage scale. Unlike a minimum wage, firms are competing for workers against the JG, and so they need to set their wages at a markup versus the JG rate.
The ability to stop wage inflation (and not deflation) is weaker, but the JG pool is a counter-cyclical income flow. As workers leave it, the government spending on it drops. Realistically, progressive income taxes are going to be a greater macro brake.
I'm not sure I'd endorse the notion that inflation can be described much less countered at a purely macro level. But as it was explained to me by some of the mmt OGs the productive use of Labor resources is broadly seen as counter inflationary and price stabilizing. Which is why people like Pavlina Tcherneva stipulate the job guarantee jobs can't be simple make-work.
The JG is not a single policy, it has a variety of possible implementations. Only an abstraction of a JG is truly "core narrow MMT" - because you take what you can get from the policy makers here - but regardless, the JG as a transition job guarantee to set a wage floor (not psychological, very real) is at least counter-cyclical. Meaning it is not necessarily anti-inflationary, but works counter to the cycle. As an economy booms, the JG pool decreases, so government deficits likely drop, which is contractionary. Opposite way when a recessionary dynamic is in play, when a rising JG pool acts as a fiscal injection.
Brian, I agree with you that, at least in the short run, Richard Murphy's description of MMT and his critique of Warren Mosler is going to generate more heat than light. You describe yourself as a "crotchety old school Canadian Prairie Populist"; the terms "crotchety" and "old" describe many likely to participate in this controversy, myself included. When teaching MMT and macroeconomics, I've used books by all parties concerned in this tiff. Though I wasn't overly impressed with the first PDF version of Murphy's restatement of MMT -- he has issued a second version in less than twenty-four hours (!) which I haven't gotten to yet -- I continue to recommend his 2015 book, "The Joy of Tax," which has never been formally published in the U.S.
There will be a strong temptation for MMT advocates to line up on one side or the other -- a temptation which should be resisted.
I mainly write about economic theory, and unless Murphy can add value there, I am not going ti read him. Re-stating MMT primers is definitely not adding value.
On the political angle, I’m a prairie populist. The objective is to put in place a policy, and you need to build a coalition to get there. Theoretical disputes make coalition building harder. You need to focus on policies, and not theories.
What's MMT's position on work, the daily work of people? Does it have a concern for the psychological, emotional, and cultural values of daily work or is it merely concerned with the economic inpurssnf outputs? Can you share links to some info on this?
Regards from Ireland. 🇮🇪
I write about economics from the perspective of a bond market participant, so it’s not my area of interest - I look at aggregates. The Job Guarantee literature discusses the micro effects of the policy, which are argued as positive. But beyond that, the key parts of MMT that distinguish it from the post-Keynesian literature are macro.
Thanks! But MMT teaches that government spending is not (necessarily) inflationary. So why would JG advocates use that to show the JG is anti-inflationary?
If you are buying something at a fixed price, how can it be inflationary? This turns into a complicated discussion of the inflationary process, which does not fit into standard neoclassical models.
Won’t employers outbid the fixed JG in a growth period, leading upward push on wages?
The only reason to up their bid is if it is harder to hire employees. That will eventually happen - but nobody is claiming that private wages will never move. The question is whether wages are stickier than it is without any nominal anchor, which is the case now. The JG pool shrinking and increased tax take provides the countervailing force.
“The JG pool shrinking and increased tax take provides the countervailing force”. Does this presume the inflation is demand rather than supply driven?
The JG is not going to do anything about imported oil prices going through the roof, etc. Without doing a microeconomic intervention, macro policies are mainly about demand.
Thanks for all your responses. I like to tell people about MMT and the JG and I think I’m pretty good for a layman, but the JG as anti-inflationary is the one thing that had me stumped. I think the easiest thing is just say it’s an anchor on prices. Of course even if it has minimal anti-inflationary effect, its anti-recessionary (and basic humanity) effect is huge. And it’s popular! Dems should make it a policy goal.
"That same thinking also fails to understand *the causes of inflation*, by suggesting that it [i.e. INFLATION] can only be caused by a government refusing to spend enough into the economy to employ all those that the proponents of the job guarantee suggest are made unemployed solely because of the imposition of taxes. There is no economic logic to this claim. There are many causes of unemployment, but imposing taxes is not one of them."
Richard J. Murphy is, sorry, neither sufficiently bright/capable nor sufficiently careful to take seriously.
Thanks! If I understand your point, it’s that productive JG jobs will increase supply of both goods and services, lowering inflation.
The problem with the JG AS AN inflation anchor is:
[Ok: Within its framework, which is the Philips Curve concept, it is impeccable, short any close reading of your comments below. In other words, it anchors the price level, of wages, and hence I suppose consumption prices, based on employment, rather than the Federal Reserve current system, targeting an unemployment rate (or worse yet, Powell's version of maximizing unemployment).]
Here: But the framework is wrong. Inflation as tied to employment or unemployment as a concept is just arbitrary, as there are all these other cost inputs, and actually the material cost input theory as the only game denies PRICE SETTING by financial comparative advantage, ownership and all that. Or even Mosler lately likes to mention price setting (for him, by government(s), action or inaction) as what he sees as the major driver of the price level.
Not sure I follow. The Phillips curve is a relationship between "inflation" (I think wage inflation, technically) and unemployment - and the unemployment rate is supposed to be 0%. Setting wages (at the bottom of the wage scale) is emphasised by every MMTer, and is not something that Mosler came up with "lately."
This shows up in the simplest mathematical models of MMT, which I describe in my book.
By "lately," I should have said, I, this armchair economist, saw it lately...
But where I said, "lately," I'm not talking about the JG--and neither was Mosler, in the Steve Grumbine Macro 'N Cheese podcast interview--I'm talking about this alternative model to cost drivers (to cost drivers such as wages or crude oil) as determinant of the general level of prices, the alternative model being price setting.
Sure, as a "price setting" solution, one could set wages or one could set bond prices, or West Texas Crude--Mosler doesn't go into details on specifics. But as to causes, there's no real reason to think employment in particular has any relation to inflation such that somehow a Job Guarantee should have inflation as one of its purposes: it is often discussed as replacing an unemployed buffer stock as a regulator of inflation with an employed buffer stock.
Unemployment at zero percent! In our dreams--has no bearing on the topic of the Fed targeting creating higher unemployment in order to "lower inflation" like Powel keeps explicitly stating that he is doing (the buffer stock of the unemployed). The talk about the JG and inflation is always to replace that model. But in my comment, I say, but the model is nonsense, so replacing using the same assumption that employment is particularly related to inflation--it is not much of a goal.
1) The PK argument is that output prices are set as a markup over production costs. Wages are the most important domestic driver of production costs.
2) The JG is a macro stabilisation tool. All macro stabilisation tools are going to be focussed on demand/wages. For example, you can’t do anything about imported energy costs - a huge swing factor in the CPI - without doing something dangerous like subsidies. Doing things like price controls is an orthogonal issue to the JG.
3) If a JG existed, the unemployment rate is 0%. Unemployment would be entirely voluntary, and people who do not take the jobs should not be counted as unemployed. At most, they are outside the labour force, since they are voluntarily not taking a job. How statistical agencies would handle this is unclear, but the sensible approach would be to redefine categories.
1. As for MMTers, pretty much everyone in MMT thinks Phillips is bunk, yet we give a major rational for the JG as being a better solution for said.curve.
As for me, the markup need not bear a relation to the costs except as a floor--ceiling is by things like ownership and competition--including a competitive relation to the buyer, as no trade is ever between two equal parties, always there is a difference in elasticity.
This idea about wages being the most important domestic driver of production costs was introduced by David Ricardo. As soon as someone starts quoting a.three hundred year old idea, I ask for a bit of a rethink. Many think that it could not possibly be labor, as it is clearly ownership that is this "most important driver" of production costs. But putting that aside, it seems pretty clear to any non-expert that there's any number of domestic cost inputs and labor is but one.
2. JG as macro stabilizer, as related to this specific general price level topic--only rational if wages are actually related to prices... But MMTers pretty much think Phillips is bunk--but if they don't, that's good to know. Again, not anti-JG, just discussing the weight put in this specific buffer stock of the employed inflation targeting rationale.
3. Of course that makes sense--thought you were saying the Phillips curve concept us zero percent.