How one thing leads to another, huh? After a long gap between Ōhanga Pai posts I have two in short succession. This one could turn out juicier, since it is a complex topic. The occasion is coming across a Santa Fe Institute public talk on central planning: “Comrades, Let’s Optimize! The Surprising Rebirth of the Planned Economy” at SFI, March 10. The guest speaker was Francis Spufford who wrote a book called “Red Plenty”

Setting the Scene

I am pretty sure Spufford is getting a lot of things wrong. He reckons the Soviet Union was founded on a sort of communist fairy tale of the merits of a planned economy.

But as Michael Hudson will often point out, all economies are more or less centrally planned. The question is whether they are “centrally planned” nebulously by Wall Street (or your nation’s equivalent) or the public via a representative democratic government, or via an autocracy.

The secondary question concerns what methods each form of government will employ. That makes a huge difference, if one of the goals is efficiency and minimum waste, then there are serious scientific questions to ask about which form of planning is the superior. I think it is fair to say economists do not truly know the answer.

Yet is aught to also be fair to say all economists should agree unemployment is a massive waste of real resources, and that any economic system tolerating unemployment is not the best one you could have.. Unfortunately, and this is truly crazy, it seems most mainstream orthodox economists are quite happy in thinking unemployment is not a waste, and is in (their) facts a necessity, for market efficiency.

Only MMT can truly point out why this is false. (The post-Keynesians never could make the argument against tolerating unemployment.)

Also, the fairy tale of the Soviets may have been a thing, a hoped for future many Soviets thought was realistic. But the (false) myth about this is that the Soviets were in fact communists. they were not. They never got even close to any form of socialism. From the Bolshevik get-go gun it was a hierarchical system, anti-democratic, ruled by a powerful committee of elites armed with a secrete police (and all the other police). Hence closer to Wall Street lobbyist controlled USA government than to say an extremely large kibbutzim or the like.

The fairy tale was probably real in the minds of many Russians, but they were hopeless deluding themselves, or perhaps not, perhaps they innocently believed in the benevolence of the central committee, so were not to be faulted. Who doesn’t want to believe their government is benevolent? (That’s rhetorical, rugged individual libertarians who never had any parents need not answer.) Same as any child: you do not like learning your parents are stupid normal people with nothing special about them, except hopefully they love you nearly unconditionally.

((I am not invoking the false “government as household” analogy here, just an analogy about an internal power dynamic within a given system.))

Initial Reactions

Maybe I won’t get to the end of it, but forn starters here was my first reaction:

Spufford really nerds out far too much. And the intro was wrong. When there is a monopoly issuer of a sovereign currency there is no “free market”. There is a secondary market that is free enough to determine relative prices. But the macroeconomics price level can only come from one source, the government. Whether you like it or not. The monopolist has to either fix price (let supply float) or fix quantity (and let price fluctuate), or some mish-mash hybrid (out of sheer ignorance, which is the case today with all governments). There is only one good choice for a macroeconomy, which is to fix price and allow supply to float, which means the government deficit float, and is not targeted. Instead full useful employment is targeted, using a job guarantee as a floor.
      The point is, the monopoly currency issuer can always determine the price level, e.g., using the automatic stabilizers (progressive tax brackets for currency withdraw, job guarantee for base currency supply at a fixed price). Net government spending less tax return is the net financial wealth (in the state’s unit of account) of the rest of the economy. At this macro level it is not a “complex system”. It is a monopoly. It is complicated because of political psychology and inherent power dynamics controlling the monopoly, but it does not have to be either 100% planned nor 100% anarchic. It’s a political choice to have unemployment (massive waste of real resources, lost output that can never be recovered), the wrong choice.
      In the USA and most nations, we have oligarchy not because government is “weak” per se, nor because government is beholden to market forces, but rather more because the oligarchs control government. It does not have to be this way. And it does not have to be centrally planned either. If you understand the monetary system you can design any sort of social economy you desire. I’d suggest a proper democracy, with full employment in non-bs jobs, which is nowhere to be found.

I felt I had to follow-up:

Any decent economist who understands dynamics (so is not enthralled by neoclassical equilibrium mush-brain thinking) and non-linearity will know why a job guarantee is not an inflation risk. Rising government net spending is also not inflationary if given a growing population. A growing population must have a growing money supply, otherwise there will be widespread bank credit issuance, which is a major instability without a mechanism for debt forgiveness (a debt that cannot be repaid is a credit that was fraudulently or ignorantly issued).
      The heated-up economy (in monetary circulation terms, not necessarily energy use) does not lead to nominal inflation if the higher circulation results automatically in higher tax redemption, which it almost always does, unless the rich have conned government into getting themselves zero tax rates and interest-income by the trillions. Mosler’s 7th DIF: higher government deficits today can cause higher tax return tomorrow. This is not a myth, it is true, the myth is that it is a bad thing. The truth is it is a good thing. Higher tax returns (with no change in tax code) is a mere signal of a stronger economy. The tax return does not fund the government when the government is the original issuer of the currency by fiat. Tax return is a redemption operation, not a funding operation. Or, for the simple-minded: “Taxes do not finance government spending.”
      It is the imposition of tax liabilities that is import: this drives demand for an otherwise worthless token (scorepoints in bank accounts these days). A “money thing” is worthless unless it is redeemable. Governments have never defaulted on these redemptions, why would they refuse return of their own currency?
      The answer is they might “refuse” in order to not withdraw too much currency from circulation, because they desire a strong economy!! But this “refusal” could simply be lowering tax rates. (Yet in our times little do politicians know this is the reason to lower taxes.) Politicians who think taxes fund the government are essentially “evil” in the form of gross ignorance.
      Same with Treasury bonds. These are entirely pointless instruments when the currency is on a floating exchange rate. On a float there is simply no need for government to offer a risk-free savings asset. That’s because when on a float the Government does not need to sell bonds to lock-up Its own currency for a term to stabilize the exchange rate, the exchange rate is floated! The function of selling bonds is to set a base interest rate. But this is nothing but basic income but only for people who already have money in proportion to how much money they already have. So it is highly regressive. The stable policy is a zero interest rate, and ensure licensed banks can do nothing but assess credit worthiness and run the payments layer (so hold check accounts and term deposits), thus ensuring banks cannot issue fraudulent credit, and the market can determine the interest rate above the government base rate of zero.

But then, I thought, does that not say it all? What more is there to say about the myth of central planning and the myth of free markets?

Perhaps it is worth repeating — but in a different style — for emphasis: