Beyond Labels

A 360° Discussion of Foreign, National and Local Policy Issues

2 May 2014 Notes

May 3, 2016
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Today’s starting point for our random topic walk was jobs. Here is Scott’s original post announcing the topic.

My favorite line from the meeting was Shovels or pitchforks” I think due to Charles.

Out of print  NBER report ” Output, Employment, and Productivity in the United States after 1800”  Lots of interesting detail in the table below. Among other factoids:  growth in the number of slaves prior to the Civil War. Decline of agriculture in percentage terms over the entire period, and ultimately in absolute terms.

Labor Force and Employment 1800 1960

FRED time series on Agricultural employment from 1970 to 2012. This is was discontinued after flat-lining at 1.5% for several years.

“Humans Need Not Apply“, YouTube video by CGP Grey (Wikipedia article with links to some resources). Highly recommended.

From the transcript:

This is an economic revolution. You may think we’ve been here before, but we haven’t.

This time is different.

Jobs and the Great Depression and whence came the recovery to fuller employment: this paper explains structural employment following the depression. How the recovery stalled (and crashed) because FDR was pushed to balance the budget; how the recovery recovered when the US no longer had to balance the budget because — war. How experienced people who were long-term unemployed were unable to get jobs until enough inexperienced people were pulled into the military and out of the workforce and deficit spending created jobs. The paper points out that  the economic dynamics led to the Work Product Administration becoming, instead of a route back to the workforce, the kiss of death.

Perception of reality changes when you have data — like from the St Louis Fed (Federal Reserve Economic Data = FRED) . Some people say: the unemployment rate is down. Yay!!!!. Others say: the labor force participation rate is at an all time low. Boo!!!

Interesting what you can find when you dig into the data. The rate for men, steadily declining since about 1955. The rate for women increasing from about that time until around 2000, where it flattens.

BLS Labor force participation rates breakdowns.

Engineering graduates in China from issues.org  (2007)

Jobs plans: sound bites from Donald Trump on jobs from “On the issues.” And Hillary Clinton, here.

Donald Trump web site positions. Hillary Clinton, web site issues.

Analysis of health care “excess spending.” Part 1 is here. Part 2, here.

Health care professional costs. Raw data, here.

Teacher pay, advocacy from the NEA.

Link to the article on “Where did the government jobs go” from NY Times, recommended by Marion.

“Guaranteed Income and Choose Your Boss.”  The author is Morgan Wrastler.  I believe that’s an alias. The post is from 2013. The idea is interesting and worth more serious thought.

 

The Federal Government and Job Creation

May 1, 2016
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Recognizing that “jobs” is the #1 issue for voters in the 2016 election, all of the candidates are talking about how they’re going to create jobs, help the middle class and reduce income inequality.

Which got me thinking–what government policies actually create jobs, which ones create an environment conducive to job creation and which ones destroy jobs or impair job creation? Can the government create jobs beyond simply paying more workers (directly or through subsidies to business)?

Here are a couple of links, one recent, one “not so,” to review for discussion tomorrow.

The Mirage of a Return to Manufacturing Greatness

The Myth of Job Creation

 

Modern Monetary Theory going mainstream (kinda)

April 26, 2016
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English: Portrait of Milton Friedman
English: Portrait of Milton Friedman (Photo credit: Wikipedia)

Article also posted online here.

Modern Monetary Theory, operating under other brand names, is starting to gain traction, interest, and legitimacy. Not just me and a couple of crazy academics who think there’s something there.

From this article in Bloomberg View, “Milton Friedman’s Helicopter Money is Looking Less Crazy.”

…the claim of Modern Money Theory that governments shouldn’t be afraid of deficit spending is gaining traction with some of the smartest people in the financial room.

What’s driving the conversation is a resurgence of interest in Milton Friedman’s idea of “Helicopter Money.” From an article “What is Helicopter Money” in World Economic Forum.

In the now famous paper “The Optimum Quantity of Money”, Friedman included the following parable:

Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.”

Friedman’s goes on to explain how doing such a seemingly insane thing  would not necessarily lead to hyperinflation; that it might have beneficial effects on an economy. But the silly name guarantees it won’t be implemented. Friedman was no marketing guy. Or maybe he was an antimarketing guy.

MMT’s mechanics are different than HM. MMT does not suggest dropping money from helicopters, notably. But in most practical respects, helicopter money seems entirely consistent with MMT. The differences are  mainly semantic, but there is a practical difference as well: Friedman defined helicopter money as a one-time event. MMT defines its equivalent as one of the ongoing tools of fiscal and monetary policy, and has a well developed theory (along with historical examples of use) to go along with it.

The nutty idea of “helicopter drops” was brought back into the mainstream by Ben Bernanke, who spoke about it in 2002. It was further legitimized in 2014, by a paper, “The Simple Analytics of Helicopter Money: Why It Works — Always” 
by Willem Buiter, chief economist for Citibank. Buiter’s paper argues that when applied “properly” it will increase demand and production and GDP and not lead to hyperinflation. The conditions for proper use are spelled out in his paper.

A 2014 article, “Send In The Helicopters,” in the Economist, also discusses it as a legitimate option.

Bernanke has recently published an article at Brookings on the subject. “What Tools Does the Fed Have Left? Part III Helicopter Money.” and that seems to have  prompted the latest spike in in interest in “helicopter money” as shown here in Google Trends.

HelicopterMoney

Bernanke gives it a new, less stupid name: “Money-financed fiscal actions” or MFFAs and distinguishes between “money financed fiscal policy” policy as distinct from “debt financed fiscal policy.”

Whatever.

He’s pretty much accepting one of the wacko policy prescriptions of MMT. People are taking this seriously because  a) it’s originally Milton Friedman’s idea, and Milton’s not a wacko and b) Ben Bernanke is behind it, and he’s not a wacko, and c) the other tools of fiscal and monetary policy have failed just as MMT had predicted, and in the way that MMT had predicted. So maybe?

It seems that the time is nigh to start the discussion that leads to this as a real option as the suffering of “fiscally responsible austerity” is becoming unbearable for many.

Greg Ip in the Wall Street Journal writes “A Time and a Place for Helicopter Money”

Helicopter money merges QE and fiscal policy while, in theory, getting around limitations on both. The government issues bonds to the central bank, which pays for them with newly created money. The government uses that money to invest, hire, send people checks or cut taxes, virtually guaranteeing that total spending will go up. Because the Fed, not the public, is buying the bonds, private investment isn’t crowded out.

Unlike with QE, the Fed promises never to sell the bonds or withdraw from circulation the money it created. It returns the interest earned on the bonds to the government. That means households won’t expect their taxes to go up to repay the bonds. It also means they should expect prices eventually to rise. As spending and prices rise, nominal GDP goes up, so the debt-to-GDP ratio can remain stable.

Technically, the government is not running the printing presses, a criticism of MMT. Instead, a Treasury issues bonds to its Central which then gives the Treasury money to spend. The bonds would bear interest which the government would have to pay to the Central Bank, but the Central Bank returns the interest to the government, so the net cost of the money ends up zero.

And the notion that this is not a guaranteed disaster is gaining credibility. The article continues:

In his book “Between Debt and the Devil,” which advocates helicopter money, the British economist Adair Turner cites Pennsylvania in the early 1700s, the U.S. Union government in the 1860s and Japan in the early 1930s as examples of governments that used monetary finance without triggering hyperinflation.

An even better example is World War II. The federal government had to borrow heavily to finance the war effort and the Fed helped by buying bonds to keep their yields from rising above 2.5%. Between 1940 and 1945, the Fed’s holdings of debt rose from $2.5 billion to $22 billion, an increase roughly equal to 9% of annual GDP. Though this only financed a fraction of the war, it was still debt monetization: most of those purchases proved to be permanent.

Discussion continues.

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