DIVISIONS PERSIST

Dear Colleague,
 
This is a response to Randall Wray's communications of 18 February and 20 February, in response to my earlier comment (plus attached model) on the financing issue.
 
I think I have already dealt with the point RW repeats in his of 18/02: "so long as the govt offers HMP ... and finds willing sellers, Tony's assumptions about portfolio preferences simply are irrelevant. Can we imagine a situation in which $ are offered, but there are no sellers? Can we imagine a situation in which $ are offered, but output does not increase (only prices rise ...".
 
The immediate or short-run elasticity of output with respect to a monetary injection easily can be imagined less than unity (quantity stickiness, in the upwards direction). So that it is more than possible that in the process, involving lags, inflationary pressures can emerge -- particularly if sellers perceive that there is operating in the product or labour market a purchaser (government) with very deep (or infinitely deep, RW might like say) pockets.
 
But the more general point (just repeating my earlier argument in ROPE) is that whether private sector agents are willing to receive outside money in exchange for goods and services is not the end of the matter. If I stand outside the Post Office and offer people $100 to shake hands with me, I think many people will trade. But the fact that they are willing to ACCEPT outside money in exchange for this service does not mean that they wish to HOLD outside money -- in their pockets or portfolios. The same applies to providers of other labour services under an ELR/JG policy. If there are excess money balances in the aggregate, in the private sector, as a result of the financial mechanism of an ELR/JG policy, how will attempts by agents to relieve themselves of these excess balances be resolved? And will the consequences of that resolution be benign and/or desirable?
 
In his 20 February communication RW considers a situation in which government spending is via the creation of bank deposits rather than issuance of outside money. This doesn't change any of my above reasoning -- except that one must now substitute "excess bank deposits" for "excess outside money balances" in my earlier arguments. RW's subsequent commentary continues to ignore the need to show that the sum of the growth outside money and government bonds supplied to the private sector is reconciled with the private sector's desired holdings (including the private banks, if one wishes to treat them explicitly).
 
RW's argument at the end of his 20 February commentary, concerning how endogenous mechanisms make public deficits "self-limiting" seems to ignore the need to treat the stocks of financial assets resulting from the flow balances (so it's essentially the same problem as stated in my last paragraph). So whatever he means by self-correction in this context, it cannot be about sustainable stocks over time. He concludes that "it is all very simple and clear enough that one supposes maths would be superfluous".
 
Well, it's not clear to this simpleton. And it is not "maths" that I have asked for. I've asked that a substantive issue be addressed in some formal manner that might give more transparency to the issues. Anyway, if others are sufficiently convinced by the character of the arguments presented via this site, so be it. I only add, as a final contribution, an extension of the somewhat muted conclusion to my ROPE piece.
 
If moving from the sort of unemployment regimes we are now used to in contemporary societies, to a vigorous full employment policy, must be consistent with definite budgetary constraints (deficit to GDP, debt to GDP ratios), this shift will probably require higher taxes. The policy question then becomes a political issue -- with repect to which we, as economists, are more or less by-standers. A political consensus around such a regime shift requires "constituency building" around institutionalized forces and movements -- of which there are far too few, and too weak, at the moment. [I am thinking of left and centre-left political parties with some backbone, trade unions with non-opportunistic leaderships, church elements with more "spirit" than our quasi-Head-of-State "Dr" Hollingworth(less), and so on. (Conservatives have long enjoyed pointing to the alleged evil, that the Labor Party is run by the unions. But the real evil is that the unions are run by the Labor Party.)]
 
There might be an acceptable "model" for an activist-academic, pertinent to pursuing this political problem, but that is a matter for individual choice. I must say though, that even if one were attracted as an academic or intellectual (not the same thing) to this model, it requires that the political constituencies exist: even under this model, academics have only ever been pissing in the wind, when NOT attached to such social forces. [Such a model of an intellectual life of course is not only available on the left.] The role of intellectuals then is to provide such constituencies with the policy means to sensibly pursue decent objectives (in the economic dimension, Keynes's goals at the beginning of the last ch. of the GT, quoted in my earlier attachment).
 
Regards,
 
Tony Aspromourgos
Received on Wed Mar 5 10:54:18 2003