Saturday, June 23, 2012

The Stupid! It Burns! (imagine a new religion edition)

the stupid! it burns! Predictions on the New Atheist Movement by The Wise [sic] Sloth
New Atheism will go the way of Buddhism and academic philosophy [which, "idiots" have turned into what are religions in the anthropological sense]. . . .

Every single argument you find on the internet for why atheism isn’t a religion may be right (smug and condescending but right), and yet…outside of the debate chambers something interesting is happening. . . .

Legions of idiots ... [are] going to* latch onto whatever is most popular, and if they see one group of people being smug, condescending assholes to another group of people they’re going to join the smug, condescending assholes because they would rather be the one picking on outsiders than the one being picked on. . . . [T]he atheist bandwagon is picking up speed. Naturally, it’s picking up idiots at an exponential rate. Those idiots are going to bastardize atheism the same way they bastardized Christianity. . . . I predict that idiots will hijack and screw up the New Atheism movement. In fact, I reckon that process has already started, and it’s not a matter of when the bastardization will begin but how fast it will progress.

*Note the transition from the present tense, "something interesting is happening," to the future tense "idiots . . . [are] going to latch onto." (The original mentions idiots and continues with "They're going to latch onto." The ellipsis and insertion are purely grammatical.)

Happily, the author does not seem to identify as a New Atheist, so we are spared the task of evaluate evaluating the impact of his own idiocy on the movement.

Monday, June 18, 2012

The enduring malaise

Buce does not think he understands the "enduring malaise" we are experiencing today. He seems like a smart guy, but I don't understand his confusion. Things seem pretty simple to me; of course, simple does not imply "easy".

My as yet unproven theory is that the period from 1929 to present represents a class struggle between the professional-managerial class and the capitalist class. The capitalist class was the unchallenged ruling class from the beginning of the 19th century (when they took over from the landowning class) until the beginning of the 1930s. For a variety of reasons, including the Great Depression and the Second Imperialist War, the capitalist class lost its unchallenged grip on political and economic power and privilege; the "levers of power" fell to the professional-managerial class, mostly senior business executives and government bureaucrats. The capitalist class was not going to take their defeat lying down; it almost immediately began the struggle to regain power and once again become the ruling class. They finally succeeded (depending on one's analysis) during the Reagan administration (with the destruction of the Air Traffic Controllers' Union), during the Clinton administration (repeal of Glass-Steagall), or during the George W. Bush administration (Iraq war). Their complete victory is evidenced by the slavish devotion to the capitalist class shown by the nominally Democratic Barack Obama; before Obama, the capitalist class vied for governmental power almost exclusively through the Republican party. A classic story of Boy meets Girl, Boy loses Girl, Boy gets Girl back.

Buce's inability to understand today's "enduring malaise" is, I think, a case of evaluating the currently ruling capitalist class by the cultural norms of the professional-managerial middle class. During its rule, the culture of the professional-managerial class identified as "problems" challenges to the economic well-being of the working classes and created pragmatic, "technocratic" solutions to those problems. The capitalist class, on the other hand, does not consider challenges to working-class economic well-being to be problematic, and there is no need to search for solutions of any kind. Instead, as Corey Robin explores in his book, The Reactionary Mind, the capitalist class considers challenges to social and economic relations of domination and subordination to be problematic, and looks for solutions to those problems. Viewed in this light, the suffering caused by the Lesser Great Depression is not at all problematic to one faction of the capitalist ruling class: it will, in Andrew Mellon's words, "purge the rottenness out of the system. . . . People will work harder, live a more moral life." To other, perhaps more far-seeing factions, the Lesser Great Depression is problematic only to the extent that, in the long term, popular suffering might undermine the legitimacy of capitalist rule. However, any amelioration of present suffering must be both consistent with the internal morality of the capitalist class as a whole, and it must never be allowed to even question, much less actually undermine, the legitimacy of capitalist rule. This "anthropological perspective" helps understand the response of the ruling capitalist class to current economic conditions.

Many commentators — not only Buce but Krugman, DeLong, Reich*, etc. — are scratching their heads, wondering why the government refuses to implement the more-or-less obvious solutions to our current economic problems. The solution really is obvious: massive government spending to increase aggregate demand and impel business to hire workers to meet that demand. Businesses cannot do so on their own: if an individual business unilaterally increases its own workers' demand, those workers will demand other business's products, and that business will be at a competitive disadvantage because of its higher wages. Because government is not demand-driven, only government can unilaterally increase demand without disadvantage. But economic demand is, well, demand; it is real power.

*i.e. the advocates of professional-managerial class rule that I read regularly.

This solution, obvious as it might be, is morally unthinkable to the capitalist class. Viewed charitably, imagine an invariably deadly, highly-contagious, long-incubation disease. The "obvious" solution is to find all those infected, kill them, and burn their bodies. The moral revulsion to this obvious response has nothing to do with the pragmatic effectiveness of this solution; killing all the infected is just not done. So too with stimulus: the "cure" is worse than the disease, because stimulus (indeed the whole notion of a consumer economy that needs high aggregate demand) would undermine relations of subordination, the sine qua non capitalist class morality.

Buce also misunderstands what's happened to the discipline of macroeconomics. During its rule, the professional-managerial class embraced Keynesian macro. The real value of Keynsian macro is not its predictive character (although it's about as predictive as meteorology, which ain't chopped liver) but in its responsive character. Even if you can't predict what will happen tomorrow (or even know reliably what is happening today), we can at least use Keynesian macro to correct the problems we can reliably know started yesterday. When we see that the economy has become "overheated", we raise taxes, lower spending, and run a government "surplus", thus draining demand from the private economy. When we see that the economy has become depressed, we lower taxes, raise spending, and run a government "deficit", thus pumping demand into the private economy. (The government must also continuously pump a little demand into the economy, i.e. run a "deficit", to match demand to real economic growth.) Even if it lacked any predictive power at all, Keynesian macro would be extraordinarily valuable just for its ability to respond effectively to changes in the business cycle.

If your opponent has an advantage, and Keynesian macro is a huge advantage, one naturally seeks to neutralize that advantage. One strategy was to undermine the academic credibility of macroeconomics. Macro in general is not particularly important to the capitalist class: so long as the government maintains the value of money (the primary signal of capitalist status), it's not that important how the economy as a whole is doing. Since macro doesn't matter, all that was necessary was to flatter and reward academic macro-economists who steered the discipline into irrelevancy. Academics are hard to coerce, but they are ridiculously easy to bribe. (The professional-managerial class, having its own moral standards of academic freedom, both failed to see (as they assumed all academics were part of their own class) and were disinclined to correct this effort by the capitalist class to undermine macroeconomics.

The capitalist class has co-opted the entire leadership of the professional-managerial class. Senior executives are no longer managers, they are rentiers. Power in the universities — the fundamental wellspring of the professional-managerial class — has been transferred from the professors to the professional administrators. The professional-managerial class, I suspect, is more relieved than outraged that it no longer has the responsibility to govern; they will not, as did the capitalist class, find in defeat a motivation to redouble their efforts to regain their rule. All that is left today of the professional-managerial class are a few die-hards, pining for the good old days.

Monday, June 11, 2012

Commenting on Wordpress blogs

I can't comment on Wordpress blogs. I had a Wordpress account, lo! these many years ago, and my email address seems inexorably tied to this account. Without this password, Wordpress will not allow me to comment on any Wordpress blogs. There appears to be no easy way to either reset my long-forgotten password or delete my account.

Please don't give me advice on how to fix the problem. This is not the sort of problem that should require advice to fix.

Sunday, June 10, 2012

Understanding Modern Money: Introduction.

Understanding Modern Money: The Key to Full Employment and Price Stability. L. Randall Wray. Cheltenham, UK: 1998. Pp. x + 198.

Chapter 1: Introduction
Chapter 2: Money and Taxes: The Chartalist Approach (coming soon)
Chapter 3: An Introduction to a History of Money (coming soon)

His phrasing is more scholarly, but in his introduction, University of Missouri, Kansas City professor of economics L. Randall Wray begins Understanding Modern Money by claiming that everything we know about money is wrong*. According to Wray, Governments can run a balanced budget only in the perfectly ideal case; in practice, a government must run a deficit, and there is no a priori optimal deficit or debt limit (1). It is not the monetary policy of the central bank but the fiscal policy of the Treasury that determines the value of money (1-2). The central bank does not determine the inflation rate by controlling the amount of money in circulation; indeed the central bank cannot control the money supply; the only effective tool the central bank has is determining the interest rate at which it supplies short-term bank reserves (2). The Treasury need not "finance" government operations with bond sales; bond sales serve only to "drain" excess bank reserves and the central bank effectively determines the bond interest rate (2). Just as Marx did to Hegel, Wray and the Modern Monetary Theorists want to turn our upside-down understanding of money back on its feet.

*with apologies to Firesign Theater

With this new understanding of money, Wray offers some alternatives to present economic and political policy. Rather than trying to manage incentives to achieve full or nearly full employment in the private sector (and provide welfare, because the private sector never actually manage to achieve high employment), the government can act as "'employer of last resort' by offering a job to anyone who wants to work at a nominal wage fixed by the government" (2-3). Instead of fixing the quantity of government purchases by direct policy and paying market rates for those purchases, the government can fix the anchor price of a key commodity, i.e. labor, and let the quantity consumed float, thus maintaining a "buffer stock" to maintain overall price stability (3). Wray believes this approach would deliver price stability and zero involuntary unemployment (3).

Wray continues by sketching a simple model. A government enforces a tax liability on its citizens, and determines "that which is necessary to pay taxes, (twintopt)." All governments today use "money" as twintopt; the terms are interchangeable. The government then purchases goods and services from its citizens in exchange for money, and the citizens supply goods and services so they can pay their taxes. People must receive enough money to have enough to pay their taxes, so total government purchases must at minimum equal the tax liability; in the long run, the government must at least operate a balanced budget and cannot operate a long-run surplus. Even if the government were the only consumer of goods and services, people would probably want to hoard some money, so they could be assured of paying future taxes, and some money will probably be "lost in the wash", so realistically, the government ought to operate a long-run deficit (4). The key points here are that tax liability precedes government purchases, and payment of money by the government precedes the collection of taxes.

The government can adjust the value of money in two ways: changing the nominal amount it demands in taxes and changing the nominal amount it pays for goods and services. If the government were to double its prices, while holding the tax liability constant, it should see a reduction in supply, as people would then be required to work half as hard to fulfill their tax liability. We would see a similar effect if the government held prices constant while halving the tax liability. Changing prices or liabilities in this way would generate "inflation" instead of increasing the quantity supplied (Wray 5). Fundamentally, the value of money is the relation between the tax liability and the prices paid by the government.

Of course, the government is not the only consumer of goods and services. Not everyone will need to pay taxes, and not everyone who needs to pay taxes will have goods and services the government wants. So people will also exchange money for goods and services among themselves (hence, as noted earlier, it behooves the government to supply more money by purchases than it demands in taxes, so they will have the money to do so). There can even be other forms of money (bank money), but there must be some correspondence between bank money and government money, i.e. twintopt (Wray 5). Even if the government is only a small part of the economy, its purchases and taxes will have an direct effect on the value of all kinds of money, bank money as well as twintopt (6). It is the special nature of government, its exogenous supply of money in exchange for goods and services to satisfy its exogenous imposition of tax liabilities that fundamentally sets the value of money.

The government can use its exogenous pricing power to control the aggregate price level. Wray argues that the government should not set the money price of each and every good independently; unless it matches those prices perfectly to the private market, private prices will have to deflate every time the private sector switches from the most efficient product to the next most efficient. But neither should the government accept market prices for everything; it can then control the price level only indirectly, by creating unemployment and underutilization of capital (7). Instead, governments can set the "anchor" price of one good and maintain a "buffer stock" of that good to support the price, and let other prices adjust around the anchor price. Historically, governments have used gold as the anchor price, but Wray argues that the poor substitutability and limited industrial use of gold renders it an inferior choice. A better choice would be oil; an even better choice would be unskilled labor (8-9).

Maintaining a buffer stock of unskilled labor to establish an anchor price has many benefits. All economic activities use some sort of labor, and even unskilled labor has high substitutability: unskilled labor can be trained, or processes using skilled labor can be reworked to use unskilled labor (9); rather than adjust aggregate price levels, the private economy can change how it uses labor. Unemployment by itself causes a number of social problems, and using unskilled labor as an anchor directly creates "full employment" (9): everyone who wants to work at the anchor price can do so; someone who can work but chooses not to is by definition not unemployed. Using unskilled labor will act as a "powerful 'automatic stabilizer'" (10). In recessions, more people would be employed by the government, pushing more money into the overall economy; during boom times, fewer people would be employed by the government, reducing the money the government pushes into the system (10-11). No system would be perfect (and the gold standard was so imperfect it was completely abandoned in 1971), but if Wray is correct, using unskilled labor would give us a satisfactory level of price and business-cycle stability while having many beneficial and few negative side effects.

You can read L. Randal Wray and other Modern Monetary Theorists at their blog, New Economic Perspectives

Saturday, June 09, 2012

Life among the Econ

Life among the Econ [pdf]



Thursday, June 07, 2012

Cultural relativism

If anyoney, no matter who, were given the opportunity of choosing from amongst all the nations in the world the set of beliefs which he thought best, he would inevitably, after careful consideration of their relative merits, choose that of his own country. Everyone without exception believes his own native customs, and the religion he was brought up in, to be the best; and that being so, it is unlikely that anyone but a madman would mock at such things. . . . One can see by this what custom can do, and Pindar, in my opinion, was right when he called it "king of all."

— Herodotus, The Persian Wars

Sunday, June 03, 2012

Money as electricity: an economic metaphor

It's tough to wrap your head around economics. The Infamous Brad does a better job than most, and he gets it way more right than a lot of professional economists, when he asserts that the government should act like a household with intermittent income. Basically, when your income comes in widely-spaced chunks, you should be frugal (spend less than you earn) when times are good so you can be profligate (spend more than you earn) during the lean times. This approach entails acting counter-cyclically. The alternative, acting cyclically, would be disastrous: when you have a lot of income, you spend it all (and maybe even more, because you expect you'll getting another windfall each month like clockwork, n'est pas); between paydays, you don't spend anything, letting your income-generating infrastructure decay. Brad describes the perfect way to manage a household with an intermittent income stream. If you think about government as such a household, you will be an adequate citizen and voter: when spending is put to a vote, you will almost always vote in such a way that the national economy does not collapse. You will not, however, actually understand how the national economy works, and managing the national economy like any kind of household, even a counter-cyclical intermittent-income household, is extremely limited. The government is fundamentally unlike a household.

A better metaphor — still imperfect, but closer to the truth — is to look at money like electricity, and the government like a nuclear power plant. Households have to allocate the supply of electricity amongst themselves, but the government is not part of that allocation, it is the ultimate supplier of electricity. Thus the financial wealth of a household is like its share of the supply of electricity, but the government is, by definition, "maximally wealthy", it has all the electricity.

Of course, you can't actually do anything with only electricity. Without toasters, refrigerators, stoves, electric cars, etc., a supply of electricity would be completely useless. So we have to use electricity and human time and energy, i.e. labor, to build toasters, refrigerators, etc., and then we have to use electricity and labor to operate those devices. And again, since there is a limited supply of electricity (and labor), we want to somehow allocate how much electricity each household uses. Households "spend" by actually using the electricity they're allocated to make toast, keep food cold, make dinner, or drive to the park, or to make toasters, refrigerators, stoves, or cars. Households can "save" electricity by not actually using some or all of the electricity they're allocated.

The analogy to a "depressed" economy is when people aren't using very much electricity; the analogy to an "overheated" economy is when people are using every kilowatt-hour the power plant can produce and wanting more. The question then becomes: how do we manage the nuclear power plant? As the administrators, we can either encourage people in general or specifically chosen people to use more or less electricity. We can also decide when to use electricity and labor to increase the capacity of the power plant: should we do so when people aren't using much electricity or when people are using a lot of electricity?

One feature of modern economics that this metaphor illustrates accurately is the nature of savings. It's very difficult and inefficient to physically save electricity: batteries are heavy, expensive, leaky, and they have very limited storage space relative to generating capacity. We can and should save physically save some electricity (the power plant tends to wear out faster if it's constantly changing the amount of electricity generated minute-by-minute, and there's a considerable time lag between the decision to increase or decrease the supply of electricity and the actual appearance of electricity on the grid). A much easier way to "save", however, is for one household to let another household physically use the first household's allocation of electricity for a month or so; in return, the second household will let the first use the second's allocation in some later month. From the perspective of the power plant, there's no change in the net usage of electricity, but from the households' perspective, the first has saved electricity one month and withdrawn their savings in the later month; the second has borrowed electricity from the first and paid it back later.

The power plant cannot itself save in this manner. It can, however, use the same sort of tools to help encourage or discourage electricity use among households. If some household has an allocation it doesn't want to use, and no one else wants to use it, the power plant can (if it chooses) "borrow" the allocation; there's never any problem with "paying it back," because of course the power plant generates electricity.

The metaphor makes counter-cyclical policy clearer.

When the economy is "overheated", when people are using as much electricity as the plant can produce, we want to strictly allocate who gets how much electricity. If one household can turn a kilowatt-hour of electricity into 2 toasters, and another can turn a kilowatt-hour into 2.1 toasters, we want to move the allocation of electricity from the first household to the second. When the economy is good, electricity should be in some sense "expensive".

It's tempting to say that when people are using all the electricity we have and are yelling for more, we should increase the capacity of the power plant. However, a couple of severe practical problems arise. First, it uses up a lot of electricity now to make all the things necessary to increase the production of electricity later. That means that to improve the plant when times are good means that everyone has to use less electricity, for quite a while, precisely at the time when they want more. No individual household wants to cut its own electrical usage; they all want those guys over there to cut theirs. Trying to negotiate an agreement to cut everyone's usage "fairly" is an exercise in herding cats. Besides, when electricity is "expensive", everyone will be trying individually to be more efficient in their use of electricity, which increases the effective amount of electricity, i.e. the number of toasters (and number of pieces of toast) per kilowatt-hour of electricity.

What does it mean to say the economy is "depressed"? It's not that people don't want to use electricity — we assume that people as a whole want as much electricity as they can get, up to infinity — it's that the people who have been allocated the use of electricity are trying to "save" it, but no one is "borrowing" it. (I think the money as electricity metaphor can illuminate why this state of affairs can happen, but it will require a whole 'nother post.) This is the time to make electricity "cheap". So you only make 1 toaster per kilowatt-hour; better to make the toaster than let the kilowatt-hour go to waste. Additionally, this is the perfect time to increase the capacity of the power plant: no private household is actually using the excess capacity, so no one will miss it when the power plant appropriates it to increase capacity. And sooner or later, when people start using a lot of electricity again, they'll welcome the increased capacity.

Like all metaphors, the money as electricity metaphor is inexact. We can make it correspond to economic reality a little more closely by adjusting our terms a little bit. "Electricity" corresponds more closely to labor power, the capacity to turn human time and energy into goods for consumption; using electricity is analogous to performing labor, transforming labor power into commodities. The power plant is more like a coal- or oil-fired plant: it takes considerable effort to generate electricity, corresponding to the effort it takes to feed, house, clothe, and otherwise provide for human workers; power plants wear out and need to be periodically reproduced, just as human beings age and die and we need to have and rear children to replace them. Money is the allocation or social permission to use electricity. When firms compete, they are competing (in part) to use electricity (turn labor power into commodities) more efficiently. Increasing the total amount of electricity is analogous to making labor power more efficient overall, with no one firm becoming "specially" efficient.