How Balanced Budgets Create Unemployment

[Mister Mister]

"Employment" is not an end, it is only a means to an end - prosperity and individual happiness.  Liberty and property are either fundamental values or not.  If they are, you can't justify violating liberty and property to combat unemployment.

[Nima]

"Employment" is not an end, it is only a means to an end - prosperity and individual happiness.  Liberty and property are either fundamental values or not.  If they are, you can't justify violating liberty and property to combat unemployment.

 

There's no justification involved in any of what I'm saying. If in a fiat money system there happens to be no other way to have full employment than through deficits, then that's a factual observation, not a moral justification of the fiat money system.

This just shows the silliness of using GDP as a figure. The government giving 20 units back the the people they took it from doesn't add to national wealth, but you did just add 20 unites to the GDP.

 

 

Hover MMT actually states the 20 units is simply destroyed, with actually leaves about 91.84% or the remaining money in private account or remaining purchases made from such accounts.  The Austrian theory then predicts a case induced decrease in prices and subsequent decrease in demand for cash holdings (by about 2%). There in fact will likely be unemployment in the adjustment as individuals come to adjust to the new conditions.

 

And supposing that extra government spending (possibly via a rebate)  adds to the private sum or production is ridiculous. Again the meaning of GDP is should be regarded with caution. To criticize the linked article ""Sectoral Balances and Private Saving": I'll quote from it here.

 

 

Not quite true, you need to adjust for capital account transactions. See 2-31. In the NIPA method, it's a double entry where net lending or borrowing (-) and capital account transfers must balance the current account.  This doesn't really tell you much, as net lending, must be to or from foreign trade, as private to public lending (FA365000905  and FA835000905  https://www.federalreserve.gov/releases/z1/current/accessible/f4.htm) balance out the only source or sink left is the foreign one.

 

Thus the demonstration is not unique to fiat systems, by any nation you analyze with the NIPA method.

 

And even if we assume net government lending is zero, and there is zero of the current account. Yes it would mean that private net lending is also zero. However all this really means that individuals in the economy are borrowing the same amount of money they are lending. So far I see nothing here that is problematic to allow individuals to gain savings, so long as some other people are spending savings (retirement, large expenses, unemployment)

 

Or net savings can be increased by reducing total expenditures or consumption. Yet this also is not a big deal as lowers the demand on higher-order goods, tending to lower the prices on all goods. However this is a negative feedback control for savings as the point of saving is to purchase particulars goods and services in the future. At some point it would balance out with people generally consuming less, but decreasing the cost of capital resource acquisition, which is the seed and driver of future wealth.

 

"This just shows the silliness of using GDP as a figure. The government giving 20 units back the the people they took it from doesn't add to national wealth, but you did just add 20 unites to the GDP." < That's why I harp on the importance of the sequence of events. In a fiat money system the government imposes a tax (aka renders people unemployed) and spends the money into existence first, which does indeed generate employment to earn these tokens that they now know they'll need in the future. (From there you can of course have private bank lending and a larger ensuing private sector as a result.) Historically it was often some war or conquest that a particular fiat system started from, see for example the Greenback (https://en.wikipedia.org/wiki/Greenback_(1860s_money)). Whether or not the activity is moral or justifiable is a different topic altogether.

 

"Yes it would mean that private net lending is also zero. However all this really means that individuals in the economy are borrowing the same amount of money they are lending. So far I see nothing here that is problematic to allow individuals to gain savings, so long as some other people are spending savings (retirement, large expenses, unemployment)" < If there is a government budget surplus and no foreign trade then there is indeed no additional net saving generated in the economy. This is not an opinion of mine, it's a mathematical identity.

 

"Or net savings can be increased by reducing total expenditures or consumption." < No! reducing expenses or consumption doesn't change anything to net saving at all. Net saving is a net claim of the private upon the public sector. (For now, we can ignore the foreign sector by assuming no foreign trade for the purposes of this particular discussion.) When I decide to spend less, all that happens is that bank reserves remain in my bank, and don't go to someone else's bank, but there is no change in the net position between private and public sector.

[theunbeholden]

If a balanced budgets is due to complete deregulation then it would increase unemployment & reduce size of the middleclass, since there is less local industry due to being unable to adapt to international competition and less low-skilled positions available that are taken by cheap migrants (who also utilize limited state resources through welfare, tax credits, emergency room treatment etc). There is also the danger of big MNC's buying up all the major grain, seeds, farmland and water supply to purposely ration it to starve the population or for the owner to purposely bankrupt the company that owns all those resources in order to produce a food crisis, one of many schemes that I can think of. States are still principle providers of physical & cultural/community security and socioeconomic prosperity. Though you could argue that states are not absolutely necessary for physical security & many argue that states can actually undermine the prosperity of citizens in many ways, routinely infringe on freedom, justice, equality, human rights and many other political goods and can turn into authoritarian autocracy, oligarchy or technocracy despotism (which privilege a few). One can argue that this has already happened in the US:

[theunbeholden]

Weird my post isn't showing up :/.. nevermind

If you own an important freshwater source you have got a monopoly. Someone buys/claims/inherits the main source(s) of fresh water in an area. Other water is harder to come by so he can multiply the price and people still (have to) buy his water. In certain cases in which his market domination is very strong and/or he is owning most of the infrastructure within an area he also can use it to blackmail and influence politics (I mean the kind of politics that are left/will emerge after you abolish the state)

[DaveR]

 

Warren Mosler has always explained this most vividly in the university lectures that I've seen him in. It goes a little something like this: He pulls out a stack of business cards and tells the audience that he's selling each for $50, which naturally nobody is interested in. Then he adds a factor to his simulation: He informs the audience that he's got a guy waiting a at the door with a 9mm who won't let anyone leave without presenting one of those business cards. He explains that now suddenly he has made everyone in the room unemployed. Everyone needs at least one business card, and nobody has one. So now Warren could find willing and able workers willing to trade labor for such a business card. But imagine he didn't follow through and didn't hire anyone, or only hired a few individuals in the room. By definition, he would have made people unemployed, without giving them a way to escape their unemployment. (Watch a clip where Warren Mosler explains this here.)

This is essentially how the fiat money system is set up: We all (or most of us) need money in order to ultimately make a tax payment by year's end. In addition to desiring money to make tax payments, the private sector also desires to save a portion of the money received. But if the agency that has imposed the tax doesn't arrange their racket in a manner where enough money is left in private sector pockets on the net, some people will inevitably remain unemployed.

 

i know people disagree on what constitutes money, currency, value, credit etc, but i think mosler is disingenuous here.

 

The amount of business cards in circulation is irrelevant. they are a unit of measurement, a representation, not value itself. MV will always equal PQ afterall. What matters is what backs that value. Printing more business cards doesnt change the value.

[Nima]

i know people disagree on what constitutes money, currency, value, credit etc, but i think mosler is disingenuous here.

 

The amount of business cards in circulation is irrelevant. they are a unit of measurement, a representation, not value itself. MV will always equal PQ afterall. What matters is what backs that value. Printing more business cards doesnt change the value.

 

You can look at it as if one business card represents $1. How much $1 ultimately buys in the economy results from ensuing private sector exchanges inside the private economy. If 10 business cards are injected and 10 are taxed away by period's end it doesn't matter how much one of these cards buys, the fact remains that 0 units of account are left in private sector pockets for net saving.