M Again, de-Aged

A slightly younger Warren Mosler today, but like choice wine his past appearances age well. (Intellectual wine for me, I don’t drink intoxicants except coffee. Healthy body, healthy mind, and all that.) Mosler at the Berkely Forum c.2022.

This aged Mosler goes down well, but the youtube comments section is something I hardly ever get to read, since I’m typically too early to see critics, or far too late to be bothered. But for this one I had a few comments to make.

Myth of Barter

Good ol’ “Rob” inserts his usual simplistic critique of MMT. He points out, for the case of pre-colonial Africa, Mosler is saying there was a non-monetary economy, until the British came in to force the natives to grow coffee by imposing coercive tax liabilities — the infamous and downright cruel Hut Tax.

Rob claims Mosler is being contradictory with Randall Wray, since Wray insists there were never pure barter economies. The thing is, both Mosler and Wray are correct. It is far too simplistic to say barter equals “non-monetary”. It’s a logical subset fallacy: the “non-monetary” is a far larger category than “barter” — when we define “money” in very specific terms, to with state tax credits.

With a broader definition of “money” then a barter economy can be seen to be a monetary economy. Just not using a tax credit. But to the extent such a small economy is using a type of account record, it is not pure barter. In pure barter you cannot put anything “on credit”. Where can you find such economies? They are rare, and tend to be village level in size, everyone knows everyone else, meaning little need for account records.

My counter:

Note that “barter” vs “non-monetary” are two different things, there is overlap, but not perfect coincidence. No large scale economies have ever been barter, it is too inefficient and people know it instinctively, there are thus always accounting records (records of who owes whom what) and technically that is a monetary system, but not in the sense Mosler talks about. Mosler is talking specifically about a fiat currency driven by coercive tax liabilities, not just accounting records. But in a simple economy with a large number of people who cannot afford to trust each other blindly, there will be accounting records, and that is “the money”. Never pure barter. A few households can run pure barter, but not more than a few thousand.

Governments are “implementing MMT”??

This is a giant “WTF!” One youtube poster was essentially blaming “MMT” for all the ills of today’s inflations, etc., the usual straw-man attack on MMT.

My counter:

No government is implementing MMT recommended policy (ZIRP, JG, eliminate payroll tax and VAT/GST), but all governments outside the EMU have an MMT operations system. You cannot legitimately criticize MMT for politicians who do not understand their own currency system, MMT activists have been struggling for decades trying to get politicians to understand, and they either do and refuse to admit it, or choose to be ignorant for their own political purposes. As Phil Waller, and a few others, remarked: where is the country implementing a Job Guarantee? Not even “MMT Japan” is implementing.

The interesting thing here is that tax return is often considered deflationary, but demand withdrawal, but that’s a slight myth. Tax liabilities drive the demand, tax returns withdraw demand, but do not immediately alter prices. Firm have to actively reduce prices to clear sales, but they tend not too, especially these days with credit cards all around. It might be a whole different story of not for credit cards and overdraughts, in fact it would be totally different. But as things stand today, tax return does not actively lower the price level, it can prevent the prices from going up too fast. Tax drains certainly tend to suppress the stock market for a week or so — hardly a catastrophe for the real economy.

The more interesting thing is the vast free-up in real terms when payroll and GST taxes are eliminated. Mosler estimates it would free up around 10% of GDP, maybe more. Governments seem to have no clue about this, and probably do not know the massive amount of wasted human lives spent on needless tax compliance. Eliminating GST and payroll taxes would likely be inflation neutral in the mid-term, since although increasing effective demand, it frees up a huge amount of human labour hours to do better things. What is demanded when GST and payroll taxes are dropped to 0% rate would be an offset fiscal policy to employ the newly unemployed.

We could call that a Job Guarantee, but really there is no good reason to use the JG this way, it is an abuse. The proper thing to do would be to employ all those unemployed tax lawyers and accountants for the public purpose in skilled work — if they want it — say in investigating financial fraud, or helping out at the local school or orphanage — teaching MMT of course! ;-)

Mitchell: “We wake up every day to severe labour shortages.”

Inflation Fear-mongering

The usual critics appear blaming MMT for inflation. At this point in history I am almost prepared to ignore them, they’ve become total idiots. A few years ago maybe they were excusable, since MMT was largely unknown, but there is no excuse today, you can get models that are mainstream/IS_LM/DSGE and models that are more MMT-like, and compare. The mainstream models are just plain wrong, on the empirical evidence. Douglas and the boys over at AppliedMMT are trading in almost a naïve way, which should not work at all, but they make winning trades, because they’re using the MMT lens.

The main comment to make on inflation (defined as the term structure of prices faced by consumers today):

Nominal inflation is never an economic problem, it is a psychological problem (gets you voted out of office sometimes). Real inflation is the killer for the low income households. (But that is not new in MMT, it’s just obvious.)

Note that when we talk about the term structure of prices then that is a rate of change measure, the time period is the denominator. Or at least that is implicit. Look at a table of the term structure, divide the price differences by the time interval, and you roughly get an inflation forecast.

You cannot look backwards and say the reported CPI or PCE (personal consumption expenditures). Even this article here kinda’ gets it wrong, you can take CPI as a good measure, for past changes in the price level. What does CPI tell you about the current rate of inflation though? Next to nothing. Why?

It is because active government policy is needed to sustain inflation. Inflation is not a natural phenomenon. If anything deflation is slightly more natural due to more or less continual productivity gains due to improved technology. Off-setting this is rampant consumerism and greed, of course. Another bias for pro-inflation is demand from the lower paid for better equity, and when that is the inflation driver then it is a good thing, not to be complained about.

I guess you can say human greed is “natural” but I don’t. We are not greedy inherently. We are not ruled deterministically by selfish genes. Tonnes of artificial incentives and artificial scarcity make us greedy and artificially competitive, primarily the excessive tax burden, which MMT claims is overkill.

Another Cup of Fresh Mosler

I was reading a good article by Freddie de Boer on the myths of elite attitudes to education gaps. Quick for synopsis: turns out is is also not about the money! Nuance: it is not about the school) funding. The top funded school systems have no inherently better performance for students outcomes. Gosh! I wonder why? What’s more, poor black neighbourhood schools in the USA receive more funding poor student than all other classes of school. Yet no improvement in outcomes for learners! No surprises there. But Freddie thinks the elites just refuse to know the facts. I think he is partly right.

Turns out (and this was known from New Zealand research due to Prof. Roy Nash a long time ago): what happens in the child’s home is overwhelming in importance.

So, in a way de Boer was a bit off. The money does matter, but it has to be seen in terms of real resources and relief for over-burdened parents, to free them up to choose to act wisely to support their kids. A single Mom working for a living has no such choice. Funding her school to the hilt will have almost zero impact (or near enough to zero) on her son or daughter or unicorn.

Oh yeah, what about Warren?

I had a segment of text in the write-up about de Boer’s article on Ōhanga-pai substack . The full article is below. See if you cna guess which bit I had Warren check and proofread?

Freddie $>$ Alfie

This article by Freddie de Boer here is dynamite. I could hardly agree with him more if someone whipped me with a Love Freddie stick. Going all the way to Freddie > Alfie Kohn might be a stretch, but hey, the two are a tag team really. Alfie is unbeatable on the “problem with gold stars and rewards.” Freddie gets the money issue mostly right.
Synopsis: you can throw all the money at education you like, and the USA does! It does not well correlate with improved outcomes for students. It is a total myth the USA schools are not well funded. Poor black neighbourhood schools are better funded per student. So why the persistent achievement gaps? Freddie mostly criticizes the elites narrative (correctly in my view) and touches on the proper “solution”. One critical thing elites are blind to is the fact at home the kids from the wealthy households have far more resources, which renders the public school funding amount largely moot. Governments need to fund families, not just schools. But I wanted to amplify a bit on de Boer, and correct some of his language framing.

First and foremost, the funding for public schools is not “your tax payer dollars”. Mr de Boer utterly fails to realize he is parroting disgusting right-wing talking points with the “tax payer dollars” framing. All public funding is currency created from nothing by the government votes in parliaments. It is a big part of the annual currency injection (from nowhere but a keyboard at the central bank) that allows people to pay the tax. What does this mean for correcting Freddie’s piece? It just means “finding the money” is not the problem. There is always money if the parliament votes to spend by hiring teachers and other resources, at any wage rate moreover (it re-gauges the currency through relative price adjustments — more people might move into teaching jobs if the pay relative to office work is better, but this cannot guarantee (nor correlate much at all with) better poor income family student outcomes!). To spend the currency to pay teachers and hire resources for schools, no tax payer needs to be anywhere in sight, and no one’s grandkids are held to ransom. Someone at the central bank merely credits someone’s bank account with a computer entry. On the government side of the ledger no bond is needed, the currency can be booked as an increase in the private bank reserves (a liability of the government). It is not first-order inflationary if the government is paying the going price (not out-bidding the private sector). To issue the currency to pay teachers and hire resources for schools, no tax payer needs to be anywhere in sight, and no one’s grand-kids are held to ransom. Someone at the central bank merely credits someone’s bank account with a computer entry. On the government side of the ledger no bond is needed, the currency can be booked as an increase in the private bank reserves (a liability of the government). It cannot be first-order inflationary if the government is paying the going price (not out-bidding the private sector).

Freddie cocks it up when he criticizes the elite’s/normie meme, “if only the funding was in the right area, if only the funding was spent wisely”. He says this is unfalsifiable: if the education outcomes do not improve the elite policy wonk just retreats to, “well you didn’t spend wisely.” True. However, this is not as vacuous as de Boer makes out. It is, after all, a tautology, so is true. The thing is to add the appropriate minimal real world complexity to make it non-tautological and therefore a different statement which is testable, hence informative. Mr de Boer gives such standards, and they are the obvious ones. We need to worry about how safe, comfortable, enriched intellectually, but also enriched spiritually, the children and teens are in school but also at home! At home! The research of Prof. Roy Nash as Massey University was critical in showing this! What happens at home is of huge over-riding importance! But do not burden the parents you policy wonks! Make sure the parents have material means for living decent lives satisfied! But do not try to legislate for their moral behaviour, that never works (see the research of Samuel Bowles). For moral education people need to be free to make mistakes, because that exercises their moral thinking. The critical thing is to ensure parents or guardians have ample material needs satisfied, for then the temptation to choose poor options (e..g, work overtime and underpaid for a shitty boss to get an income) is minimized. Parents need to be free of financial fear so they at least have the option to help their kids out a lot. Like say hours a day if the kid wants the help. Cooking a nutritious & tasty meal is a learning help, whether the child knows it or not. Overwhelming evidence tells us students who love learning do well, regardless of innate genetics or parenting or environment. But these are highly correlated! To love learning it helps incredibly to have supportive unburdened parents, a clean and safe home, a safe school, a wise teacher, and all the rest, and in particular some decent nutritious food moving through your digestive system (turns out that is linked to the brain, who would know?!! pffft!)

Mr de Boer makes a good point about the lower decile. Straight out of based W. Edwards Deming. No matter what you do, there is always someone at the bottom in any ordinal ranking. If they are living a decent life and are enfranchised, then the gap to the top level skilled people in skill-level is irrelevant, provided the wage and income gap is small, which it can be made to be; moreover, who ever proved high skill correlates with high emotional and spiritual capacity? No study I ever read. But which people do I value more? I am sure you can divine the answer. When I want a brain surgeon I’ll consent to the guy/gal not who knows a lot about brain surgery, but in particular the guy/gal who makes fewer mistakes and fixes the problem, and could care less about their bedside manner. But who do I spend most of the time with? The lovely nurses who look after the patient pre and post-surgery, that’s who, and their “skill” is predominantly in spiritual qualities, not just fetching medicines and changing bandages. A robot could probably do the latter.

It is not hopeless. Policy wonks like to complicate things beyond necessity, but also end up with simplistic policy! What gives? It is because they are viewing the world through a mainstream macroeconomics lens, and missing all the humanity and spirituality that cannot be seen in a school or even a classroom, but which is in every child’s soul. Nourish the soul. In practical terms that means also nourishing the body, and all the rest. The very last thing to worry about is test scores. If you want a child or teen or adult to master a topic, keep teaching and helping until they master it. The test score can always be 100% or near enough. If the person does not wish to master a subject then why administer the test? If you fret about “standards” then test the teacher, but test the teachers wisely, don’t make them conform to your artificial standards either. So why is it not hopeless? Mr de Boer gives the answer: nurturing learners is the critical thing. That’s just how the human mind & soul learns best, particularly when the student challenges themselves, so the test is inner and the reward is intrinsic (mastery, confidence, fun of learning, etc., also renewed awareness of one’s relative ignorance, hence hunger for more learning). None of this is hopeless to get going. But it will exercise the tiny brains of education policy wonk elites, because to them it seems an insurmountable obstacles to try to craft policy to force people to enjoy learning. The policy wonks need re-education. You cannot legislate for fun and enjoyment of learning, but what you can do is release teachers and students from the shackles of standardized testing and extrinsic reward motives, and free them into the wide open spaces of the incredible fun of learning. To this end, while the Free School movement is not perfect, nor is the Home School movement, both have valuable insights from their systems that can be incorporated into public schools. Ditch the authority figure top-down lesson plans, and get the students involved in the lesson planning, with the guidance of humane teachers. Employ a few more teacher aide workers, lord knows there are plenty of unemployed people who can aide teachers without being a hazard to students. (Finding the money for the wages, recall, is never the problem.)

The bottom line from the last comment is that, yeah, it does seem like an intractable policy problem to make schools fun for students. So do not even try. Trust people given autonomy and freedom, within reasonable social constraints, will find a way to make learning fun. But imposing standardized tests upon them will sure as hell kill the fun. There are the odd students who love tests and exams, and who may even benefit therefrom. (My very own daughter was one.) So… helllloooo! Give those students the exams. They can take their own sweet innocent time to learn there is far more fun to be had.)
On this score: I had to listen to a university professor complain that the NZCEA exams are not much use for him, he wanted percentage scores and stronger criteria. I was too young at the time to critique, and I sort of agreed with him. But now I know better. What’s the frickin’ harm in him giving prospective university enrollees his own screening test? Lazy dude. He should not have to rely on the high schools. Too much of a burden on his time? I would say it is a university system problem. A university has ample time to prepare and select students who can be admitted. They just don’t give themselves the time. They could choose to give themselves the time. It will not kill anyone prematurely. Why is a PhD entrance exam any more necessary than a freshman entrance exam? If both are needed to screen out ill-equipped prospective students then you should administer both. If such entrance criteria are not needed then for goodness sake do not have an entrance exam. In the vast majority of cases they will not be needed, since why is the student enrolling if they do not want to put effort into learning? If the student is enrolling to “earn credits” then you know the problem is the imposed need to earn credits. So you need to remove that motive, and make sure the only reason a student is enrolling in your course is to learn the subject, for whatever reason they have in mind. In that case, who should care whatever they “qualify” or not? Are they kind and sincere human beings? Are they non-disruptive to the learning of others? Yes? OK, they qualify. What if your resulting class size is too large? omg dude! Why would you complain? I just told you that you do not have to mark 1000 exam papers… unless you want to torture yourself and your students.

If you want “earning credits” to be useful, then, dear university professor, use the UMKC buckeroo system. In order to receive their diploma each student must work 20 hours at a course approved job out in the public or private sector, or for a charity. One option could be to demonstrate their mastery of the subject you taught, but out in the real world work place somewhere.
Wait…. what’s that you say? There is no real world workplace where your course teaching is useful? Sheeesh. I don’t want to go full utilitarian. You never go full utilitarian. OK, so what if you teach some weird poetry or art or useless mathematics? There is an easy job such students could try out, which is to sell someone such art for government tax credits. To get the 20 hours in they could video their efforts. Could make for useful youtube comedy entertainment? If they fail then it is no problemo, they might have learned something in the effort.

I hope readers feel the fun of this article. If my language offends anyone I sincerely apologies. Feel free to copy and re-use any of it for your own educational fair use. License: GNU FDL.

A bit more from Gromov

Over at T4GU I had been bloggin about Mish Gromov. There is relevance here.

Gromov as aksed during hi Abel Prize interview about his thoughts on the future. He reckoned 50 years out is “same as usual”. So the issues in getting better mathematics work done are the same — talented kids go into stupid areas of life, like finance. For 100+ years out he had an “it is unknown” opinion, but warned of a total catastrophe if people cannot unify and sort out the environmental and social unrest problems. He thought the problems were solvable, but had no idea how.

I had some things I would like to suggest to Gromov:

1. The problems are not of a mathematical or strictly economic nature. They are spiritual. All the ills and crises facing the world at large are due to roots in lack of spirituality. In particular among leadership and elites.
2. The fact the problems are spiritual in nature does not make them easier to solve. But Gromov was worrying he had no analysis of the root of the problem, therefore had no solution ideas to offer. Well, I’ve just told him the root of all the major problems.

To be clear: water degradation and soil depletion and GHG climate disruptions are not the real problems. They are drastic and serious symptoms. The problems are spiritual.

No human being has any need to be living like an upper class American or Chinese citizen. It does no harm, and an abundance of good, to have a happy safe family living well below those levels of opulence. Once people recognize the joy in such humility, we can easily solve the energy problems, making a transition away from fossil fuel and cash cropping etc., pretty simple. Technically it is simple. Psychologically it is still very hard.

There is no algorithm for changing the spirit of people.

However, knowing MMT is the minimum prerequisite. If you do not know the full policy space open to your government, then regardless of your ideology, you are going to your government with improper demands.