I won’t sign the letter
I received a request today from economists Heather Boushey, Larry Mishel, Alan Blinder, and Laura Tyson to sign an open letter addressed to Barack Obama and members of congress which argues we shouldn’t cut spending on “critical investments”. The authors are extremely well connected within the democratic party establishment and their views are therefore of some interest. Will I sign the letter? Not a chance! I count ten objections within just four short paragraphs. Pretty incredible considering the authors position themselves on the left of the US political spectrum. Some of the objections may seem minor but I believe they in fact raise crucial issues on where we’re heading as a society. I think the tone and substance of the letter reinforce my point from yesterday that workers have no institutional support.
Here’s the letter; I’ll follow with my objections listed in order of appearance.
Dear President Obama and Members of Congress:
As economists, we believe it is short-sighted to make budget cuts that take away necessary investments in our human capital, our infrastructure, and the next generation of scientific and technological advances. These cuts threaten our economy’s long term economic competitiveness and the strength of our current economic recovery.
Investment is the cornerstone of economic growth and the key to our long-run national prosperity. It creates jobs now and lays the foundation for long-term economic growth and a strong middle class. As the Congress begins to debate the federal budget, they must be careful to sustain critical investments in the productive capacity of the United States.
Both the private sector and the government have critical roles to play in growing our economy: business investment drives the economy, but public investments provide the foundations on which business investment depends. This winning combination paves the way for America’s economic success. Cutting necessary investments from the federal budget will only undermine the long-term competitiveness and productivity of the American economy.
We recognize that resources are scarce and that fiscal responsibility demands that federal budget policies tackle the long-run budget deficit. But responsible governance demands that we neither damage the recovery today nor forsake America’s economic future by cutting critical investments.
Signed,
Heather Boushey
Center for American Progress Action FundLarry Mishel
Economic Policy InstituteAlan Blinder
Princeton UniversityLaura Tyson
University of California, Berkeley
Objection 1: As economists, we believe it is short-sighted to make budget cuts that take away necessary investments in our human capital…
I’ve always detested the terms “human resources” and “human capital” as they emphasize the hard reality that living people are in fact nothing but commodities within our economic system. “Human capital” had its formal theoretical beginnings within the right wing Chicago School in the mid 20th century with Milton Friedman and Theodore Schultz. By using the term, the authors are advertising a neo-classical economic view of man in which education is valued to the degree it provides a return on investment in the market. I think education’s great but does it have to be so inhumanly linked to the concept of capital? And on a purely economic basis, wouldn’t the return on investment in human capital be expected to decline if more people invested? How many physicists or engineers or teachers can the economy support?
Objection 2: These cuts threaten our economy’s long term economic competitiveness…
Paul Krugman, for one, has correctly objected to the “dangerous obsession” of competitiveness.
“Competitiveness is a seductive idea, promising easy answers to complex problems. But the result of this obsession is misallocated resources, trade frictions and bad domestic economic policies.”
And to be “competitive” in today’s world can mean little more than to have competitively low wages. That the future of human society should be based on competition is a frightful prospect. It’s a horribly wrong path.
Objection 3: Investment is the cornerstone of economic growth and the key to our long-run national prosperity.
I have nothing against investment but it’s the cornerstone of economic growth only in economies with obscene levels of income inequality. It’s a fundamental Keynesian insight – those with great wealth have a lower propensity to consume and when inequality is great, the only way to get needed circulation is through massive investment spending. Keynes saw this was futile and concluded that redistribution of wealth would be a far better way to assure adequate circulation. By placing such importance on investment, the authors implicitly accept the status quo and dodge the fundamental reality of inequality.
Objection 4: It creates jobs now and lays the foundation for long-term economic growth…
Sounds like “investment” is at least partially a make work project. There should be no place for make work projects in a sane society. If we don’t need the job done, then people shouldn’t be forced into working on them simply to make a living. And as far as laying the foundation for future growth, that’s pretty dubious. What specific investments today will enable the economy to grow in the future? No one has a clue.
Objection 5: …and a strong middle class.
America was founded on the myth of a classless society yet the inherent goodness and value of a middle class is seemingly accepted without thought. Anyone who values democracy should object to the existence of a middle class for it necessarily means an upper and lower class. It implies oligarchy and poverty. Historically, the middle class consisted of professionals, managers, white collar workers, and small business owners. The interests of these groups are often aligned with those of the upper class and against those of the majority of the population. The oligarchy that rules this country has every reason to support a middle class; the majority population does not.
Objection 6: … business investment drives the economy…
This is nothing but ideology. Business investment, within an unequal society, can drive the economy during boom times. But booms don’t last and the insufficiency of business investment inevitably causes recessions and depressions. As we speak, corporate America is sitting on two trillion dollars of idle cash – if they’re driving the economy, they’re driving us off a cliff. A central conclusion of Keynes was that private investors could not be trusted to invest sufficiently to sustain prosperity and investment therefore had to be socialized. The authors don’t seem to put much stock in Keynes.
Objection 7: …but public investments provide the foundations on which business investment depends.
This is a central neo-liberal dogma. The primary purpose of government is to provide the infrastructure so that business can be profitable. Isn’t this nothing but a transfer of wealth from society to business? The premise that government exists to provide collective welfare is all but lost.
Objection 8: Cutting necessary investments from the federal budget will only undermine the long-term competitiveness and productivity of the American economy.
See Objection 2.
Objection 9: We recognize that resources are scarce…
This makes absolutely no sense. By any reasonable measure – the number of workers, their productivity, infrastructure, technological capacity, etc. – our ability to produce is higher today than ever before. By resources, the authors can only mean money. But the dollar is not something that requires excavation and we’re not on the gold standard. If the problem is solely one of “resources”, i.e. money, then the government should simply print it.
Objection 10: … and that fiscal responsibility demands that federal budget policies tackle the long-run budget deficit.
As noted in many of my posts dealing with monetary issues, the idea that the deficit is a problem is completely and utterly false. We control the dollar and it can be created at will. We don’t need to borrow in order to spend and there’s no reason we can’t print the “resources” we need in order to maintain a just, equitable, and prosperous society.
Conclusion
This is a long post dealing with a short letter. But the letter reveals a great deal about elite consensus within the democratic party. Because it incorporates so many world views that are harmful to the majority, I think it’s worth a bit of attention.
Comments on Inequality 
Good on you. Show the Neoliberals and their New Keynesian sympathizers the door.
You are hard on them — perhaps deservedly. But they mean well.
Most people and economists cannot truly envision a situation that is much different from the current. Humans are amazingly adaptable, but most of them seem to have very little interest in change, whether it would improve their personal situation or not. People do OK when they can follow an example, but not so well otherwise — it’s hard to give the people living one economic and political system a mini-example of another to envy.
Sigh.
Andrew,
I have no doubt the authors mean well. I focus so much on economists because they’re the high priests of our system. Economics has always sought to portray itself as a neutral science that exists free of normative values and sitting somehow outside of politics. The whole proposition is absurd as there’s nothing more political than how the fruits of society are distributed.
Economists on the theoretical left, I believe, deserve much of the blame for the current state of affairs. They have totally rejected the substance of Keynes yet still wish to wear the outer garbs and present themselves as defenders of the average person. They do great damage as they provide the intellectual cover for the system to reproduce itself.
The authors of this letter mean well but they incorporate nearly all the harmful assumptions of capitalism – from the commodity nature of man to the over-riding importance of business to the limited role of government to a completely false view of money. They pose as experts yet the subject matter is purely political for which they have no “comparative advantage”. Which makes me think I could have added yet another objection, that being their opening words: “As economists, we believe…”. That intro has no more validity than openings like “As bakers,” or “As dentists,” or “As garbage men”, etc.
Appreciate your thoughts,
Jim
I’ll add some thoughts on this I’ve posted elsewhere:
In economics, there are two types of value, use value and exchange value. In philosophy, there are also two types of value, 1) absolute or intrinsic value, and 2) relative or extrinsic value. The former relates to ends and the latter to means.
On one hand, use and exchange value are extrinsic and relate to means, that is, they are consequential — good for something other than themselves. On the other hand, each person is an end in himself or herself, and persons are never to be considered as means or treated simply as means, because a person has absolute or intrinsic value as an intrinsic good. This is the foundation of liberal democracy as stated in our US foundational documents, which are based on the Enlightenment philosophy that guided the American founding fathers. More generally, it is the basis of human rights, equal justice, and the absence of privilege. It also underlies social solidarity. The imperative here is categorical rather than hypothetical.
The economy is the life-support system for the polity, and the polity is the way that a society cooperates and coordinates for the good (end) of its members (persons). The purpose of a liberal democracy is living the good life in the classical sense, that is, unfolding one’s potential as a human being and as an individual — not just living well. Every human being has an equal right to self-determination and self-expression, bounded only by the same equal rights of others. This is the core of liberalism that underlies social democracy. No one is truly free if anyone is unfree, for if one can be unfree, anyone can become unfree.
In a modern economy, money is a necessary for existence, freedom, and the pursuit of happiness, to which all persons have an inalienable right according to the Declaration. In addition, “we the people” create a social compact through a constitution that acknowledges that one of the chief purposes of government of, for, and by the people is “form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity” (preamble to the US Constitution).
Therefore, the economy as the life-support system for a free people is not an entity independent of people. Rather, it is based on policy determined by the people through their representatives for their mutual benefit under the law of the land. Since it is not possible to exist as a person, let alone to be free or pursue happiness, in a modern monetary economy without sufficient money, there is a responsibility to organize society so that everyone has sufficient money to exercise these inalienable rights of a person. A state that fails to do this is a failed state.
“Efficiency is doing things right, and effectiveness is doing the right thing” (attributed to Peter F. Drucker, citation unavailable). Economists are concerned with efficiency, and policy makers are concerned with effectiveness. The proper course is for policy makers to tell economists that the chief priority is full employment with price stability and let economists figure out how to achieve that. When they come back with a policy that targets inflation using unemployment as a tool, they should be sent back to the drawing boards.
THE problem is income (money), hence employment. ALL attention should be focused on this problem as an ethical matter that supersedes politics and economics. In addition, effectiveness at achieving ends has to take precedence over efficiency with respect to means, although accepting unemployment is accepting economic inefficiency when the huge waste from foregone opportunity and degradation of resources is figured in.
This is the beauty of MMT. It shows how to achieve full employment (everyone willing and able to work has a job offer) along with price stability. This is why, as a philosopher, I am for integrating MMT into society as an ethical issue even more than an economic one.
Unless we get away from thinking chiefly as economists, believing economics to be a positive science, hence amoral, we are never going to get free from a governing philosophy based on Neoliberalism or Libertarianism, which take (their view of) economics to be the criterion for both ethics and policy. Never let the opponent frame the debate. You are sure to lose. This is about basic morality and values. It should be argued on these grounds.
Tom,
This is getting a little off-topic, but…
MMT tries to explain the existing monetary system in a way that is counterintuitive to what people have been taught. And, it really doesn’t have anything to do with whether we provide paid work for those who want it and food, shelter and other basics to everyone. If one can ignore balance sheets and which came first arguments (spending or treasury issuance), you can end up with the simple fact that the government can create and distribute money at will without borrowing and can collect taxes for purposes of inflation control or redistribution of assets.
Whether the monetary system stays the same or changes (for example, eliminates what is popularly known as fractional reserve banking) is totally beside the point. The government is empowered as the money maker and can set the monetary rules in an effort achieve results that I believe you, I and Jim would like to see.
People can understand that the government makes the money. Most people can’t understand MMT for anything, and in the end, I don’t think it matters. What’s really sad is that economists and politicians don’t seem to understand either.
P.S. – Are you in Iowa, USA?
Yes, I am in Iowa City.
Regarding MMT. MMT’ers have a well-worked out plan for achieving full employment (everyone willing and able to work has a standing offer) with price stability.
If anyone else has a full employment/price stability plan competitive with MMT that is as well-worked out as MMT, please let me know. I emphasize well-worked out in terms of monetary economics.
Thanks Tom for incorporating so many essential insights into the comment.
I couldn’t agree more that it comes down to ethical values. There’s a long line of Marxist thought (Ellen Meikains Wood comes first to mind) that sees capitalism’s most effective weapon being its ability to divorce politics from economics. “Politics” becomes a mere shadow while private power rules within the de-politicized realm of “economics”. The ability to separate the two limits ethical debates to the “political” realm leaving the “economic” seemingly off limits. It all serves the interest of money and power. You say that economists are concerned with efficiency but I’d have to disagree on that. Behind all the complicated math, we find nothing much more than the intellectual backbone for a cruel system. Many of the great economists themselves said exactly that – including Veblen, Keynes, Galbraith, etc.
“The proper course is for policy makers to tell economists that the chief priority is full employment with price stability and let economists figure out how to achieve that. When they come back with a policy that targets inflation using unemployment as a tool, they should be sent back to the drawing boards.”
You’re so right and it’s more than revealing how economists never seem to lack for ideas that hurt workers. But the “proper course” will never happen as long as the “economic realm” is purely a private affair removed from politics.
We need, as you say, to get beyond economic thinking. I believe that means constantly attacking the idea of economics as a science and exposing it instead as a warped value system. We need to drag it out front and center into the domain of politics which is ultimately where competing value systems fight it out.
One final thought is on MMT and ideas about a guaranteed job that are offered by L. Randall Wray and others. I need to give more thought to it but on the surface I feel its a bit too economic in thinking. I believe it leaves the issue of ownership unaddressed and so seems to continue and further institutionalize the commodity nature of labor. Also, I think technology is getting to such a level that the very need for work itself is declining and we should therefore start moving away from the idea that income is tied to work. But I’m sure these are thoughts for a future post!
PS: Tom, you mentioned you’re a philosopher – I see a philosophy of science book under your name – same?
JIm, that is a different Tom Hickey.
“You say that economists are concerned with efficiency”
I should have said, “current mainstream economists shaping the debate.”
I agree that MMT is not the end of the story. It is a fix.
I agree that we need to revamp the social, political, and economic system, If Ravi Batra and Strauss & Howe (The Fourth Turning) are anywhere near correct, that is underway. What is needed now is a new global vision.
The emerging nations are already suspicious of neoliberalism and the Washington Consensus, but it is not dead, the Seoul Consensus notwithstanding. The overarching thinking is still neoliberal because there no alternative on the table that is being considered seriously.
“I think technology is getting to such a level that the very need for work itself is declining and we should therefore start moving away from the idea that income is tied to work.”
Agreed. Bucky Fuller noticed this fifty years ago in Nine Chains to the Moon IIRC. Robert Theobald was working on an economics of abundance in the Sixties. We need to catch up with the time. Instead, we’ve been losing ground.
Appreciate the references – I’m not familiar with them but will be sure to look them up.
Andrew,
Our comments crossed so I didn’t see yours before I posted. I tend to agree with you that MMT as I see it written in various places makes things more complicated than they have to be. That’s why I like to quote Abba Lerner who clearly communicated what is in fact something quite simple and obvious – we can print money. I also think the Chartalism idea is somewhat beside the point and needlessly confuses the simple insight. As noted in my above comment, I also have issues with the guaranteed job idea that, while not really part of MMT, is often linked with it.
According to the MMT economists, the guys who publish on it, the JG is integral. In fact, the JG is an MMT contribution. The JG wage serves are a price anchor of real value, unlike a commodity like gold that has no real value. It’s rather ingenious when you get into it. A lot of people reject considering it because it seem politically impractical.
Otherwise, MMT builds of Marx, Kalecki, Kaldor, Keynes, Lerner, Godley, and Minsky. While they don’t feature them, Veblen, Schumpeter, and Galbraith are also influences.
The job guarantee that’s promoted by the MMT economists is without a doubt a huge advance over what we have today and what we could ever hope to achieve in the next few decades. But in my opinion it degrades human beings by reducing them to a commodity. The job guaranteed wage is a commodity no less than gold.
I think it’s an intellectual accomplishment to show that a wage can be a commodity and work just as well as gold within the logic of a capitalist system. And it’s got huge advantages over gold in that it guarantees a minimum wage to all. But isn’t there a huge moral issue with any system that reduces man to a commodity?
That capitalism reduces man to a commodity was probably Marx’s biggest objection so I don’t think the JG idea can trace itself back to him. I think JG is compatible with Kalecki, Kaldor, Keynes, Lerner, Godley, and Minski. These individuals were economists who seemed generally ok with labor as a commodity – they sought mainly to assure the commodity was fully employed. Schumpeter fits there as well, although he was a bigger fan of free markets and I don’t think he cared overly much whether the labor commodity was always put to full use.
I don’t think Veblen or Galbraith would feel comfortable with JG, except possibly as a morally problematic interim solution. Veblen seems more comfortable with a socialism managed by engineers and JK Galbraith, especially in his Affluent Society, argued that we needed to move beyond the tie between income and work.
So, in summary, I think the JG is a regressive idea that only sounds good in a very regressive social system. I think we should put our energy into some form of democratic socialism and bury into the ground all vestiges of commodity labor. Can you really see JG as being a worthy goal for humanity?
Jim
I basically agree with that. I would say that MMT is making the best of a bad lot. It is working within an obsolete system that needs to be completely reconfigured institutionally and culturally.
We can view history as a series of evolutionary steps, not physically but metaphysically in Bucky Fuller’s sense of knowledge and its use as humankind’s infinite resource. Presently, we are being held back by the inertia of tradition reinforced by culture, convention, established institutions, and vested interests. Often it requires a shock to shift the momentum in a fresh direction.
We are in the midst of a series of shocks that are in the process of doing this. The negative shocks are obvious. One of the positive shocks is the onset of the digital revolution.
People over thirty cannot get how big a shift this is bringing in the way younger people function, making a lot of things older folks take for granted obsolescent if not already obsolete. While FB, Twitter, and cell phones did not cause the revolt in the Maghreb, would it have happened in the way it did without these tools?
We need to be creating a new global vision and a grand strategy for implementing it, including an economic model for a life-support system. In the process, just say no to the fuddy-duddies.
At the same time, we have to deal with the reality that exists, and right now with a lot of people suffering that means using the present system to as good advantage as possible. I’m not for crashing the system to save it.
Well said. I think we’re in very interesting times. The only agenda being offered by the establishment is austerity. The question is whether the population will accept it. The growing number of protesters throughout the world is encouraging but many low income workers aren’t living in the same place as indicated in this depressing NYT article today: http://www.nytimes.com/2011/02/25/us/25columbus.html?hp
The article notes that many working class people are opposed to the union protests and quotes a surprisingly perceptive Harvard economist:
“Richard Freeman, an economist at Harvard, said he saw the hostility toward unions as a sign of decay in society. Some working-class people see so few possibilities for their lives that it is eroding the aspirational nature that has long been typical of Americans.
“It shows a hopelessness,” he said. “It used to be, ‘You have something I don’t have; I’ll go to my employer to get it, too. Now I don’t see any chance of getting it. I don’t want to be the lowest one on the totem pole, so I don’t want you to have it either.’ ”
Wow! You don’t often get such clear thinking in the NYT.
Capitalism will sustain itself as long as society continues to decay. I have no doubt life will eventually triumph over decay but the question is how long will it take? The Roman Empire, Feudalism, slavery – it took many centuries. We could be entering a new positive era or we could be entering an extended dark age. Or we could be doing neither and we’ll just continue as we have been. It sure seems like we’re moving toward something new though.
As I said above, If Ravi Batra and Strauss & Howe (The Fourth Turning) are anywhere close to being on target, we are in a phase transition from one era to another. Some spiritual leaders have been saying the same thing for some time. See, for instance, Meher Baba, Discourses, “The New Humanity.”
Schumpeter saw something like this coming in Capitalism, Socialism, and Democracy, too. Of course, that was some time ago, and what the outcome will be is anyone’s guess, but Sweden’s social democracy is a possible model for the West. Interestingly, a recent poll showed that most Americans believe that US income and wealth distribution is close to Sweden’s rather than the actual numbers here. Staying the present course or accelerating it is going to put many more people behind the eight ball in the US and the rest of the West. That could change things in people’s mind toward a more realistic appraisal of the facts.
However, this is a century when globalization will dominate, and the emerging countries are not tied culturally or intellectually to Western models. They dominate population-wise, and so their input will be increasingly great. That is going to change the picture in ways the West cannot imagine, or is imagining and is fearful of. This is not only going to modify the global system, it is going to result in tensions between diverse ideologies and cultures.
In addition, humanity faces the huge challenge of climate change, which is going to reshape the map in this century. Large-scale adaptation to new conditions will be required. Danger ahead!
On the other hand, Moreover, reading Ray Kurzweil‘s theory of exponential technological innovation (Law of Accelerating Returns), we are on the brink of AI, infinitely available cheap energy, and incredible advances in health and well-being. This is coming within decades and will transform life as we know it. If Kurzweil is only half correct, big changes are in the works already. These are projects either on the drawing boards or in the experimental stage.
The task at hand is getting through the phase transition to a new state without blowing ourselves up. That probably won’t be easy, given the challenges and widespread level of ignorance and self-interest. Humanity now has the power to destroy itself and most nations are at the level of adolescents cognitively and affectively. The present level of the crazy is not encouraging.
A confirming bit of anecdotal evidence about Sweden — my daughter has a friend in college whose family moved from Sweden to the US. My daughter’s understanding is that they moved principally so that they could keep more of their money than they could in Sweden.
Taking Kurzweil most of the way (I’m not ready to contemplate the singularity yet), I’m not sure that I agree that such changes will transform most lives. You would think that any of the previous technical revolutions would have changed the world, and they have, but they have also left billions behind. It’s not just about the technical capability to create better lives, it’s about the the will to do so.
Andrew, I have a friend that was married to Norwegian and lives in Norway. She spent a half hour telling us all about how great it was there socially and economically compared to her, and then at the end she said she was thinking of returning to US because taxes are so high in Norway. 🙂
About Kurzweil, I agree with you that it is a distributional problem. But in an age of abundance, that can be overcome. In an age of scarcity, not so much.
Still, the fact is that even with all the downside, people in general are better off over the years in terms of many indicators. But still a long way to go. Neoliberalism is a bad model.