Two items this Wednesday before the music segment. First, we saw the stark ideology of…
Welfare generosity increases commitment to work
In Australia successive governments (Labor and conservative) have refused to lift the unemployment benefit in line with inflation. As a result the real benefit has fallen dramatically and the unemployment benefit recipients now live well below the accepted poverty line. There have also been attacks on those who live on single parent pensions, disability pensions and other forms of income support associated with disadvantage and dislocation from the labour market. In the US, the Congress cut entitlements to unemployment benefits long before the damage from the crisis was over. In Britain, both sides of politics talk tough about cutting welfare benefits and the Conservatives has indicated that it will cut benefits significantly to force people to find employment. In the Eurozone, massive damage is being inflicted on the most disadvantaged workers as the austerity mavens hack into welfare payments. All these policy ventures are informed by the intellectually bankrupt profession that I belong to. In universities around the world, mainstream economists prattle on about ‘corner solutions’, which in English means that the provision of income support associated with unemployment subsidises the same and leads to less search effort and welfare dependency. The claim is that if benefits are cut people will search for jobs and ‘fiscal stress’ will be relieved. There is a sanctimonious moralism about it all as well buttressed by terminology such as “lifters and leaners”, “dole bludgers”, “job snobs”, “cruisers” as if those in disadvantage without work have chosen that state as a deliberate strategy to bludge on the rest of the population. The problem for all of this is that the credible research comes to the exact opposite conclusion: employment commitment is highest where the generosity of the welfare state is the highest. The neo-liberals need to go suck that for a while.
I have written about this topic in the following blogs (among others):
1. Changes to unemployment benefit entitlements – the work of sociopaths.
2. Australian government now engaged in psychological torture of its citizens.
3. Our pathological meanness to the unemployed is just bad economics.
4. Why are we so mean to the unemployed?.
5. US unemployment is due to a lack of jobs whatever else you think.
6. Cutting US unemployment benefits is cruel and stupid.
7. Cutting US unemployment benefits is cruel and stupid – Part 2.
8. The unemployed cannot find jobs that are not there!.
There is no solid research to support the view that people deliberately en masse skive off from seeking work when they are receiving income support as a result of their unemployment or other related disadvantage.
The economists make up that story because they can draw neat graphs with lines intersecting at corners (no work and all income support). They make up that story because they want to deny that there can be systemic failures to create enough work to meet the desires of all those seeking it.
The myth fits their claims that individual choice drives economic outcomes – so that unemployment becomes a choice between work and leisure and leisure wins out. The provision of unemployment benefits just subsidises the leisure and makes it easier to choose that option.
According to this view there are spontaneous outbreaks of laziness (leisure preference) whenever we observe a major rise in mass unemployment and significant reductions in economic growth.
It is all supply-side. The demand side – spending etc has no part to play in creating employment and hence reducing unemployment.
Within the profession there are various versions of these theories but they all point to one conclusion – the provision of welfare benefits undermines the incentive to work.
Over my career I have had the opportunity and privilege to work with sociologists, psychologists, and other social scientists who have a much better grasp of the human condition that economists. The latter work with their ‘stylised’ conception of human motivation – the so-called representative agent.
This ‘person’ is a shallow being – selfish to the core, only concerned about their own welfare, individualistic, perfectly rational and calculating, and always able to predict (on average) the future.
In other words, not like humanity at all.
The other social scientists I have worked with understand the nuances of human existence in a social setting – the importance of collectives, interdependencies, self esteem, sharing, co-operation, frailty, etc
They generally can understand that an unemployed person cannot find jobs that are not there. They have a better intuitive grasp of recession and unemployment than most economists especially those economists who influence policy design.
Which brings me to an excellent study that has just been published in Work, Employment & Society, a publication of the British Sociological Association by two Norwegian academics, Kjetil Van der Wal and Knut Halvorsen.
If you have database access through a library you can get it via Sage On-Line. Here is the – LINK – to the abstract.
If you cannot access the paper, here is a summary of its findings.
[Reference: Van der Wal, K.A. and Halvorsen, K. (2015) ‘The bigger the worse? A comparative study of the welfare state and employment commitment’, Work, Employment & Society, February, 29: 99-118]
The paper was entitled – The bigger the worse? A comparative study of the welfare state and employment commitment – which, as you will appreciate, is relevant to the topic of today’s blog.
First, their major findings:
1. “welfare generosity is associated with higher non-financial and non-job specific motivation to work. This is in line with previous comparative articles on employment commitment”
2. “welfare generosity … [is] … not detrimental to employment commitment at an aggregate level or among the non-employed, for instance via lock-in effects or dependency cultures”.
3. “in all groups investigated that traditionally have a weaker labour market attachment, i.e. people in poor health, women, ethnic minorities, the non-employed and those with shorter education, employment commit- ment was higher if they lived in a more generous and activating welfare state.”
4. “the results also showed decreasing educational inequalities with higher spending on ALMP and higher welfare generosity, contrary to the expectations ofthe welfare scepticism approach and in particular the disincentive model. ”
5. “the analyses do not support the hypotheses that ethnic minorities may be particularly prone to be embedded in cultures of dependency”
6. “there was no uniform indication that non-employed people were increasingly different from the rest of the population at higher levels of social spending, as would also be expected if dependency cultures were more widespread in more generous welfare contexts”.
7. “Regarding women’s employment commitment, there was not much support for the welfare scepticism perspective: if anything women were even more committed to work than men at higher levels of welfare generosity … The article does not support the notion that women’s employment commitment would be weakened by the pressure towards employment in ‘bigger’ welfare states.”
The overall conclusion is presented as:
… there are few signs that groups with traditionally weaker bonds to the labour market are less motivated to work if they live in generous and activating welfare states. The notion that big welfare states are associated with widespread cultures of dependency, or other adverse consequences of poor short term incentives to work, receives little support. On the contrary, employment commitment was much higher in all the studied groups in bigger welfare states and social differences were mostly smaller or did not vary across welfare states. Hence, this study’s findings support the welfare resources perspective over the welfare scepticism perspective.
These are incendiary research findings and obliterate the credibility of economists who claim to have deduced otherwise. I use the word deduced deliberately because much economic reason is of this variety:
1. Make some weird assumptions about human behaviour.
2. Prod the human with a policy change.
3. Deduce from the assumptions the changes in decisions that the policy change would elicit.
The Norwegian study is based on a sound research design, uses standard and acceptable investigation techniques, and its conclusions are determined by the evidence adduced rather than a priori reasoning conditioned by a ideology that wants to believe that welfare states undermine individuals rather than provides nurture to them.
One of the hallmarks of broad social science research relative to the way economists conceive of work (a bad that you do for money) is that it recognises, according to the authors of the study:
People do not only value work for its material rewards, the so-called ‘manifest function’. People are also ‘motivated by a concern to make use of their abilities’ … and the opportunities to achieve personal goals, self-respect, time structure, etc. associated with paid work … often referred to as the ‘latent functions’ of work. Furthermore, social rewards, such as appreciation, social network and social support, can be added to the list of potential non-monetary factors that may influence employment commitment. Finally, motivation to work may be spurred by social norms regulating employment and welfare behaviour. Social norms may influence employment commitment either as an internalized duty towards society (‘work ethic’), or as avoidance from social sanctions that follow from violating the work norm.
In other words, we are humans not the shallow, rational, maximising pavlovian automatum that economists begin with.
Why might employment commitment be enhanced by the generosity of the welfare state?
The authors suggest that:
1. “Employment rates are high in generous and activating welfare states, particularly among disadvantaged groups” and that the “pursuit of employment stimulating policies … may play a crucial part in this effect, as more people are exposed to employment or work-like settings and receive valuable training that may have a favourable long-term effect on labour market attachment”.
In other words, where there is hope there is motivation. If a society creates a culture of opportunity and ensures there are sufficient jobs available, people do not become scarred by unemployment and the berating that accompanies that state.
Training programs can then be conducted within paid-work environments to give them context and relevance rather than being seen as punishments for being in receipt of income support.
2. “welfare states that provide generous benefits to the non-employed, to the sick and disabled and to families and which actively invest in increasing skills and motivation among unemployed citizens may induce reciprocal relations between individuals and the state, to which individuals feel obliged.”
One of the buzz concepts that the neo-liberals use to hassle those on income support is mutual obligation. However, there is usually nothing mutual about the interaction between state and the individual involved.
The state provides a pitiful income support payment (below the poverty line in Australia), then forces the recipient to participate in a pernicious and onerous set of activities (interviews, dole diaries, minimum applications for jobs per week, withdrawal of income support, threats, coercion, oppression etc).
A true mutuality requires the state to live up to its obligations under the Declaration of Human Rights, which includes a responsibility for providing enough work for all those who desire it.
Then if the recipient refuses to take an acceptable employment opportunity the state is entitled to withdraw income support. That is reciprocation and mutual obligation.
3. “a high level of decommodification that weakens the link between work and income emphasizes the non- monetary properties of work, i.e. that employment commitment may be enhanced by the relative disconnectedness of work from the tyranny of necessity”.
Another researcher (Esser, 2005) suggested that:
… at the macro level, countries could be argued to gravitate towards either “work-oriented” or “money-oriented” value systems …
In other words, if there is a generous income support system and unemployment does not lead to almost immediate poverty and the state ensures there are sufficient jobs, people will be motivated by the non-monetary characteristics of work (outlined in part above).
[Reference: Esser, I. (2005) ‘Why work? Comparative Studies on Welfare Regimes and Individuals’ Work Orientations’, Doctoral Dissertation Series, 64, Stockholm: Swedish Institute for Social Research, Stockholm University].
I won’t go into the details of the research design the Norwegian academics employed. In summary, they used data from the European Social Survey, with 18 European nations formed the sample (inclusion was based on the availability of related data that could be used as “contextual variables”.
Various techniques were used to “adjust for non-response in the national data-sets” and “over- or under-representation of persons of certain types of addresses or household”.
The ages of the respondents varied between 25 and 59 years.
They constructed an index of employment commitment using the responses to the ESS question:
I would enjoy having a paid job even if I did not need the money.
Strongly agree or Agree were assigned a value of 1 and others 0. The “reliability of the measure is high”.
This categorical variable (1 or 0) allows sophisticated statistical analysis to be performed (in this case logistic multilevel random intercept models). All standard and well established in the research literature. I have a large project on at the moment (just starting) where we use these techniques.
The paper is motivated by the oft-repeated claim:
… that generous social benefits threaten the sustainability of the welfare state due to work norm erosion, disincentives to work and dependency cultures.
The conclusion again:
… employment commitment was much higher in all the studied groups in bigger welfare states and social differences were mostly smaller or did not vary across welfare states.
Conclusion
We will wait and see what the research community response to this study will be. In all studies, one can find limitations etc and the authors of this study acknowledge some problems.
But the limitations of this work do not, in my view, provide any basis for doubting the strength of their findings. After all, there is a mass of literature than in one way or another provides consistent evidence to support their findings.
The problem for the neo-liberals is that there is a paucity of highly questionable research literature that they point to.
In a pugilistic context, the referee would have called “No Contest” long ago. But then we are dealing with an ideological hegemony here and that is not easily broken.
Groupthink doesn’t respond to evidence or facts.
That is enough for today!
(c) Copyright 2015 William Mitchell. All Rights Reserved.
Interesting thread over on the conversation, where MMT is being accused of “been [sic] deliberately crafted to serve this agenda [to systematically accumulate power for the banking system at the expense of the sovereign state], and to disguise the true consequences of surrendering sovereign control over the giant transnational banks and corporations altogether.” Interesting, given the content of this blog!
[Bill edited out links to the spurious New Currency Theory – I will not promote via links anything that is not so flawed]
Such a good article. Marginalise people and they feel less attachment and desire to join your group. Keep them feeling attached (by not impoverishing them) and they will want to join more securely by finding a job.
I have also noticed that employer meanness reduces committment to work. I refer to issues like;
(a) impeding pay rises so that these are merely equal to or less than inflation;
(b) demanding less staff do more work (greater productivity) while implementing point (a) above;
(c) reducing rights and conditions while implementing (a) and (b) above;
(d) delaying new work agreements to delay so-called pay “rises” which are actually pay cuts in real terms;
(e) micro-managing the workforce;
(f) generally showing contempt for the workforce; and
(h) always negotiating in bad faith with the workforce.
Most organisations these days (public and private) end up treating their staff like this and most people end up hating work. Many (like me) escape as soon as they can (to early retirement in my case) and are quite happy to live on half the money and enjoy the freedom from the tyrannical and misery inducing workplaces of capitalism.
Dear Bill
A common lament among conservatives is that the poor are lazy. The funny thing is that there is actually some truth to that if you go by willingness to stop working when income without work is offered. Who is more likely to quit working when, say, 800 per month is offered without demanding work in return, a poor person who is making 1000 per month by performing truly unpleasant work or a professional who is making more than 5,000 a month? Obviously, it is the poor person, not because he is lazier but because he has different incentives. Conservatives either want to keep the minimum wage very low or to abolish it. Then they complain that the working poor may not be keen on keeping their low-paying, unpleasant jobs if they have an alternative source of income.
The oft-heard conservative argument that any job is better than none is nonsense. No normal person will be very happy if has to spend 60 hours per week in a meat-packing plant for a wage that is just high enough to enable him to buy bare necessities. “Arbeit adelt”, aber der Adel arbeitet nicht. Conservatives really want to deprive people of income without work so that they’ll be desperate enough to take any job, however appalling. A high minimum wage is the best guarantee that people will want to work. The possibility of welfare increases people’s freedom. It allows them to reject jobs which no sane person would like to have.
Let’s compare 2 situations. In situation A, 80 out of 100 adults have a job and nobody hates his job. In situation B, 90 out of those adults have a job but 30 of them really hate their job. Which situation is better? I would say that it is situation A. Conservatives would say that it is situation B. Let’s assume that in both situations the minority which does not work is reasonably satisfied.
Conservatives who argue that welfare corrupts its recipients never seem to say that people who inherit a lot of money are corrupted by that. Yes, some people stop working when they receive a big inheritance. For instance, I know a woman who was working as a French teacher. At the age of 45, she received a big inheritance, whereupon she immediately quit her job.
It is good when all able-bodied, non-senior adults can work. It is not desirable when a lot of them have to perform work that they really hate.
Regards. James
“Most organisations these days (public and private) end up treating their staff like this and most people end up hating work.”
Because they know there is no alternative. If there is a Job Alternative Guarantee then people start walking and suddenly your business or organisation is in trouble.
All of that culture has been caused because there are fewer jobs than people that want them. Reverse that and those firms that treat staff badly will go bust.
A Job Guarantee and a philosophy of being pro-market rather than pro-business (i.e. treating businesses and organisation as cattle, not pets) is what is required to eliminate the ‘treat people as robots’ culture.
I haven’t seen much “mutual obligation” being displayed by the oligarchy.
But of course we all know that the rentier class is the salt of the Earth and is way beyond reproach.
The Norwegian authors mention a set of concepts devised by the sociologist, Robert Merton, the concepts of manifest and latent functions. These have wide applicability beyond those employed by the authors. It is possible to find his discussion, ‘Manifest and Latent Functions’, included in his 1957 book, Social Theory and Social Structure, on the ‘net. It is worth reading in its own right. However, the most obvious location rated highest by Google may crash your browser due to embedded comments in the pdf file. I can only suggest you try to download it more than once. While it is easy to find applications of this related set of concepts by others, it is difficult to find the original itself.
To reiterate, I am a retired UK accountant who has been an employer.
The following is necessarily anecdotal and only my experience so might not agree with any surveys. However I have always been suspicious of surveys.
In the UK, out of work benefits are reasonably generous – and I know because I have been out of work and could live reasonably on it (albeit never for more than a few weeks in my working life).
I had a couple of clients who were in the recruitment business, placing temporary workers with employers. The problem was that very often workers simply didn’t turn up. One recruiter mainly placed european immigrants because he knew they would turn up. I do believe that there is a culture of benifit dependancy in the UK, especially amongst the young. That said, I have often employed school-leavers and have always found them to become valued members of the workforce, and many of whom went on to much greater things.
However, there are variations between business sectors. For example, I was the accounts administrator for a coach operator and their drivers were highly motivated and did always turn up. Even though the wages in the sector are only slightly above the minimum wage.
In the UK the minimum wage is currently below the living wage, but all the parties, including the Conservatives, are committed to raising it within the next parliament. I was against the introduction of a minimum wage as I thought it would raise all wages and therefore inflation. It did neither, so long may it continue.
This is not to say that benefits should be less generous, and they should be withdrawn only as an absolute last resort, otherwise we’ll have armies of people living on the streets. We just need to find a way to persuade people that life working is preferable to life on the dole. It should start at school, as it did in my schooldays.
“Many (like me) escape as soon as they can (to early retirement in my case) and are quite happy to live on half the money” (says Ikonoclast). Me to, and I am sure he is perfectly capable of working, as am I, but we choose not to. Mind you, I’m 72, have worked almost all my life, and I think I deserve it.
“that life working is preferable to life on the dole. It should start at school, as it did in my schooldays.”
Yep. Instead of paying people not to work, pay them to work.
http://en.m.wikipedia.org/wiki/Job_guarantee
If you put out 95 bones for 100 dogs, 5 will come back without a bone. You can offer them training and shuffle who comes without a bone.
The solution is to put out 100 bones!
Remember this increases aggregate demand as well.
Although basic income and/or job guarantee schemes are preferable.
Well there is no culture of dependency among my youth. School, bah! You don’t need to persuade them, make them go sell something in the street, or if you have to, chain ’em to a machine! They will understand motivation. I know, cause I worked my arse off and now by God they all will! Inflation is a crock. Back in my day we got the same amount, the GFC only slightly changed rents and candy bars were only a little cheaper.
Bill…my two cents worth…
President Obama/Council of Economic Advisers:
THERE IS NO MORE IMPORTANT “RIGHT” IN AMERICA, TODAY, OR MORE IN DANGER-THAN THE RIGHTS OF THE AMERICAN EMPLOYEE
The Koch brothers, and those of like mind in the plutocracy/oligarchy [hereafter P/O] prefer employees in America to be without “rights”, over profits….
Since WW II they have spent hundreds of millions of dollars buying legislators, governors and legislatures to cement “at will” employment in every state [only Montana limits “at will” to probationary employees]–and on March 9, 2015, in Wisconsin, the P/O reached the half-way mark [state 25] in their calculated effort to destroy “employee rights” for workers in Wisconsin, and to destroy the union movement in America-and the stated goal of their Republican minions in Congress is to duplicate the Wisconsin law in all 50 states.
The theory of the P/O, of course, is quite simple–less money for those who work in America, means more money for us-in short, the motive is PURE GREED! And the P/O have committed a billion dollars, given the worst Decision in SCUS history–Citizens United, to buy the presidency in the 2016 election.
The over-arching result of the P/O buying politicians [not limited to the U.S.] who will cut their taxes [they prefer not paying any], and destroying the rights of employees, what Dr. William Mitchell defines as “ideological hegemony” in what appears to be a world-wide austerity mind-set-a starve our way to recovery mentality…the etiology for the austerity is because the P/O don’t want to pay any taxes…
President Obama summed up the alternative course when he said “There is no contradiction between making public investments and being a firm believer in free markets.” And the lack of balance, and not to over-dramatize, is leading to a world unfit for human habitation…..
To change course we need to change the dialogue IMHO….Unemployment is a NO ONE WINS–the jobless lose, civility loses, and the market loses, to wit:
THE LAW OF DIMINISHED INCOME TO THE MARKET FROM UNEMPLOYMENT [hereafter the D/UE LAW]
3% is the zero-sum threshold above which unemployment triggers inflation by diminishing labor training and skills, under-utilizing capital resources, reducing the rate of productivity advance, increasing unit labor costs, reducing the general supply of goods and services–and the loss in income to the Market is compounded exponentially with each percentage point of increase in unemployment, above 3%.
Ref: FULL EMPLOYMENT IS A PRO-MARKET CONCEPT, Amazon
Jim Green, Democrat opponent to Lamar Smith, Congress, 2000
Dear CA,
The thread you refer to by Joseph Huber mentions whom he thinks are the progenitors of MMT and gets it wrong. In addition, he fails to mention one of the founders of MMT, Bill. I know Bill isn’t too precious about this, so I am going to be precious for him, with apologies to him should he demur. One of the anticipators who isn’t mentioned very often, though Bill has, is Robert Malthus. He invented the term effective demand in the aggregate sense though he didn’t talk about it this way and he anticipated Marx in distinguishing between exchange in use and exchange in value, among other politicial economic innovations. So, we can view Malthus and Marx as anticipators of MMT in certain respects.
As for the current founders of the MMT paradigm as we know it, they are Bill, Randy Wray, and Warren Mosler. Not Scott Fullwiler or Stephanie Kelton, though Kelton is an MMTer and a good one. The recent hstorical influences, from my understanding, are Michal Kalecki, Keynes, Abba Lerner, Wynne Godley, and further back Mitchel-Innes and Georg Knapp. And Bill views Arthur Okun as an influence as well as Marx. Why Bill gets left out of such lists, I don’t know.
As for New Currency Theory, this appears to me to be an invention of Huber’s that he sets out in the post you reference. But in doing so he is wrong to contend that “MMT” is intended as an academic label. It is not. It is intended to function as a memorable acronym and nothing more. The theory, i.e., MMT, is intended primarily to be a social scientifically descriptive account of how our actual economic system operates, with a focus on the roles played by money in economic operations. This in itself places it in opposition to the dominant economic paradigm, neoclassical theory, which has no viable role for money. In addition, the neoclassical paradigm makes ludicrous assumptions about the economic system and the “behavior” that takes place therein that would have made Malthus laugh, and he died in 1834 at the age of 68.
Should any reader of this blog wish to become acquainted with Malthus qua original political economic thinker, there is Donald Winch’s short book, simply titled Malthus. In addition to being quite informative in just over 100 pages, it is beautifully written. When you have finished it, you will hopefully see how relevant Malthus is to our political economic concerns today and the pertinence some of his ideas have to MMT.
Thanks for the reference, CA.
Dear CA,
I ought to have said that with respect to Huber’s summaries of MMT, I believe them to be erroneous. The reaonss for this will be bovious to those who read his post – he is contrasting his different theory of money to that of MMT. Readers of Bill’s blog can judge for themselves how accurate what he says about MMT really is.
This type of reasoning is fairly typical of functionalist sociology which considers society to be a relatively stable system of functions. Functionalism is one of the two main schools of European sociology and it’s the most mainstream view. The aim is to achieve the 20th century obsession of a cybernetic society using paternalistic social engineering, i.e. systems theory. Functionalism doesn’t address the way that the social relations of work form antagonistic political forces that are not stable. Functionalism does not consider how the class war of an elite could recreate the social collapse of the 1930s. Functionalism is not a crisis theory.
@Bob
Beware of basic income funded by the tax net.
This could be used to discredit the social credit philosophy .
An empirical study of the rise of unionised oligarchy using any of the current conflict theories would be a very useful contribution.
Neo Liberal thinkers seem to be in a great rush to make the workers of the world uniformly poor through their influence on fiscal policy decision makers. Workers at all levels everywhere are already in competition with automation wherever there exists a cheaper technological solution to a task, or competition from cheaper labor (easily found if you have the global workforce to choose from as exists at present). All of the capitalist activity depends on consumers able and willing to purchase goods somewhere and there are fewer and fewer things they are able to afford with diminishing incomes.
If labor prices continually drop in prosperous parts of the world to the levels of poorer areas, deflation ends up wiping out the remaining wealth of those with any significant purchasing power left.
In the near future either the relation between jobs and sales holds by way of a job guarantee, or the true capitalist perishes or morphs into something less than useful. In this respect Neo Liberals currently appear to be pro welfare, albeit as life support for the only type of person they recognize.
Ironically, some have discovered that through pure barter sharing of skills ,and the few renewable resources available to a quite small group, coupled with a willingness to accept a very different lifestyle without the latest amusement gadgets could do quite well without the larger economy, becoming quite efficient providers for their own needs; were it not for the taxes on land and the (fiat) dollar income value of the bartered items, they would have all they need.
A sovereign fiat currency cannot be flown on autopilot! It’s a system that needs to be driven hands on the wheel by those determined to deliver the best of what we can do as a society to everyone or it isn’t worth the power we confer to it by defending it.
Some
Dear Hackey,
I am afraid that you are not right that functionaist theory is inherently non-conflict oriented. Both thypes of functionalist theories exist. It is true that stable functionalism has become mainstream, but this is part of the dominance of the neoliberal thought perspective. Conflict theories that are functionalist exist, though it is true that they don’t get the press they should. Witnes the amount of press accorded heterodox economic theories. Almost none.
Nigel Hargreaves says:
Thursday, April 2, 2015 at 21:02
“We just need to find a way to persuade people that life working is preferable to life on the dole. It should start at school, as it did in my schooldays.”
This is a ridiculous statement because the reality is that there are simply not enough jobs [ insufficient demand]
Get out of your ivory tower and look at the facts rather than regurgitate the conservative myths.
larry says:
Friday, April 3, 2015 at 2:46
“you will hopefully see how relevant Malthus is to our political economic concerns today and the pertinence some of his ideas have to MMT. ”
Malthus argued that if the poor didn’t show moral constraint that they would press too hard against the means of subsistence and perish.
For this to happen it was assumed by him [and others before him] that the capital available for wages was a fixed amount [wages fund doctrine].
This is not MMT – this is conservative / neo-liberal ideology. From Malthus, all the neo-liberals have done is replace moral constraint with fiscal consolidation and replaced the wages fund doctrine with the government budget constraint.
Hence, if I was one of the founders of MMT I’d want to distance myself as far as possible from Malthus.
Malthus is the enemy.
Dear CA,
Thanks for link to The Conversation article.
The author dismisses “MMT advocates” as having no “formal economic model” and suggests …
“To all the MMT disciples and heterodox folks out there: please do yourself a big favor and read Woodford’s classic but modern treatise. http://press.princeton.edu/titles/7603.html”
I am intrigued what Bill makes of the Michael Woodford book (Interest and Prices:Foundations of a Theory of Monetary Policy) he links to?
Dear Bill,
Please ignore the question in my previous comment. I should have checked before posting, but subsequently found out your thoughts on Woodford’s work upon searching his name on your blog.
As for the Conversation author – one Prof. Richard Holden – I came across the risible ABC “Drowning in debt” programme in which he was a participant. Nuff said, but good to see the comments made below are pro-MMT…
http://www.abc.net.au/radionational/programs/rearvision/drowing-in-debt/6308362#transcript
slight correction its Thomas Malthus
Bill, off topic sorry, but you come in for a bit of stick on a comment at Naked Capitalism:
‘While I appreciate your bird-dogging of the Greek crisis, Yves, I think your rather dour take often misses some marks. For one thing, the Greeks must operate under a very tight series of constraints. Thus citing Billy Mitchell’s wild MMT fantasies is irrelevant. The fact of the matter is that Greece has a huge external debt and can’t possible run a current account deficit. Given that, they must run a government primary surplus, insofar as the other two domestic sectors can’t be net saving under current conditions.’
http://www.nakedcapitalism.com/2015/04/greece-throws-away-one-eurogroup-memo-wins-submits-reforms-reaching-3-9-fiscal-surplus.html#comment-2425840
Dear Alun Dunn,
I did not say that all of Malthus’s ideas were relevant, only that some of them were. The enemy is Ricardo, not Malthus. Malthus was much more liberal in our sense than Ricardo was. But to be fair to Ricardo, it isn’t clear whether he actually believed the doctrine that has been attributed to him, Ricardian equivalence. He seems sometimes to equivocate.
You have taken Malthus’ principle out of context. Malthus was concerned about the tension between agriculture and industrialism in conjunction of the pressure of population and felt that adequate nutrition of the population as a whole would suffer as a consequence of the pressure of industrialization on agriculture.
The issue of moral restraint has to do with his early views on the population problem that was the talk of the country at the time concerning the ability of the country to feed its people. He altered these views over time. Though he did think that restraint of some kind was essential for the country to stably deal with the problems it faced, mostly from agressive industrialization, and he felt government action might be essential to reduce poverty, which could help stabilize the situation. Many people are having a similar discussion about what they consider to be rampant consumerism – Malthus would definitely have been concerned about this.
He realized that industrialization was going to win and if that were so and land that was set aside for crop growing were unable to be utilized, he worried about how the population would be able to feed itself – it was importing more grain than it grew itself at the time and prices were not exactly stable. He wasn’t alone in worrying about this. The Chinese have worried about this quite recently. Malthus would not have agreed with the Chinese solution but would have wanted people to exercise restraint and to be rewarded for doing so and for the government to assist in this, but not heavy handedly.
He was not an advocate for punishment. But he did think bad things would happen if popluation increase went unchecked, or if industrialization became untrammeled and absorbed so much agricultural labor that there were not sufficient people growing the food needed, which in fact it did after his time for a number of reasons, one of them having to do with the Lewis Turning Point (cf. W. Arthur Lewis, Economic Development with Unlimited Supplies of Labour, Manchester School, May 1954).
He didn’t foresee a number of subsequent developments that mitigated some of his concerns and we certainly would conceive of some of his problems somewhat differently than he did. However, your blanket condemnation of him is not justified by the facts. His views have been distorted by others over the years for their own purposes.
He did have a number of modern views, in particular, about slavery. Wilberforce was scheduled to give a speech about slavery and he wondered whether he should support it or not – it seems he was undecided and wanted to know what Malthus thought. Malthus came to know of this and went to his house to tell him in no uncertain terms that he must denounce slavery unreservedly. Which W then did.
Dear Norm de plume (at 2015/04/03 at 9:45)
Thanks. I think I will survive.
Better get back to my fantasies (Melbourne winning the AFL 2015 season opener tomorrow, for one!)
best wishes
bill
yet again the mainstream narrative just does not describe the real world
if life on the dole is so comfortable and people are rational pursuers of
self interest why are there not millions of workers packing in their demanding
low paid jobs for the rewards of shirking?
“Beware of basic income funded by the tax net.
This could be used to discredit the social credit philosophy .”
It is “funded” if you will by Land Value Taxation.
Hi bill, thankyou as always for a great blog post.
Im trying to spread posts like this as far and wide as possible starting with my right wing friends.
I yearn for the day where the masses could collectively be educated on MMT and the almost superstitious belief in neo-liberalism that abounds in western culture.
All I can do is try one day at a time like you do. I’m halt to see more commenting and involvement and I hope it. Can help change humanity as it is today.
Unfortunately I foresee another world war as bring the only stupid human solution to inequality and the way society is currently structured. I really really hope I’m wrong but see no other way for the collective stupidity of so called smart humans.
Again thanks for all you do Bill.
P.s. @jim green thanks for spreading the word in the USA. The world really needs it.
P.p.s. To all other commenters I thank you for your collective wisdom and input to these blog posts and along with Bill’s amazing posts your comments and insights add so much to the debate and thoughts that come along with it all.
With regard to Huber and other critics, it’s worth remembering that MMT is not a theory. To call it a theory is not accurate, although one can theorise from it. I prefer the first description of it that I saw, Modern Monetary Mechanics.
That is the title of a publication by the Federal reserve Bank Of Chicago from 1963. It’s outdated now because it spends a lot of space on Fractional Reserve Banking, now superceded by the Credit Creation Theory, endorsed by the Bank of England [from Richard A. Werner]
Dear John Doyle (at 2015/04/04 at 16:03)
I am sorry but MMT is very much a theoretical framework. It is built on a series of behavioral assumptions about various aspects of social and economic behaviour and adds consistent stock-flow accounting to those assumptions to form an explanatory framework of the way the system works and its responses to shifts in behaviour and parameters (for example, policy).
It is a misconception to think of it as only an accounting structure.
best wishes
bill
“I am afraid that you are not right that functionaist theory is inherently non-conflict oriented. Both thypes of functionalist theories exist.”
larry
Some names would be useful if any spring to mind.
Melbourne Demons 13.13.115 beat Gold Coast Suns 13.11.89 in the opening round of the AFL.
Plenty of excitement for the Mitchell household no doubt.
Dear Alan Dunn (at 2015/04/05 at 8:30)
Well at least one member of the household. I attended the game. Magic. First time they have won in round 1 since 2005. We are a long suffering supporter base.
best wishes
bill
Larry,
Are you saying that the classical theory of wages is not based upon the wages fund doctrine and the Malthusian population doctrine ?
Good luck with that.
@Bob
No need to “fund” anything if you challenge the monopoly of credit.
Social creditors are not big into land seizure by the credit monopolists working behind the state apparatus.
Ps
Look into organisations such as basic income ireland, they are openly jacobin!!!!!
You can clearly see their idea is merely to reduce costs ( no more welfare officers etc) while not doing anything that would be considered challenging the current monopoly of credit.
These are quite clearly evil organisations designed to entrap people into false class conflict.
Alun, the population theory of Malthus was distorted by others and altered and qualified by himself a number of times. So, you have to be careful with this. The standard classical trail goes from Smith to Ricardo to John Stuart Mill, bypassing Malthus. He was seen as a radical and insufficiently classical – he was also an inveterate empiricist, not for him the practice of deducing from first principles in what was supposed to be an empirical “science”.
Smith himself expressed quite complex and sometimes not entirely consistent doctrines. As with Malthus, people took from him what they wanted. In Smith’s case, the most egregious instance of this selectivity has been to concentrate on the Wealth of Nations and ignore the Theory of Moral Sentiments. If you combine them, you don’t get the standard neoclassical view of Smith, which is oversimplified.
Alun, Having said the above, it appears that the problem of adequate water supplies for the world’s population, according to an editorial from this past Sunday’s Observer, may come back to bite us in the ass, though not quite expessed in this way. This is analogous to Malthis’ concern with the problem of the adequacy of the food supply and how to ration it. California has taken a first step that is unpopular – tax it. Some of the residents have decided to alter their gardens to be more compatible with desert conditions, which require less watering. As if that wasn’t enough, contemporary beer production uses an amazing amount of water. Should water shortages become severe enough, this would seem to inevitabley have a knock-on effect on beer production, to use an example that has been raised before.
The editorial appears to assume that desalination is a solution. but there is another. Extracting fresh water, which comes out naturally, from deep volvanic vents. The primary problem with them is that they are located in inconvenient regions of the ocean bed, at least from a corporate perspective. Another issue is whether such a vent is located within a conventional national 12 mile limit. The nearest such vent to the UK may lie within Icelandic waters off the Icelandic coast. Saudi Arabia doesn’t face this problem. Still, building a golf course in a desert under limitations of presently utilized technology is a bit of an absurdity.