Monday, August 20, 2012

**************** MEN ON A WALL ****************

By J.D. Alt

I recently saw a newspaper photo of ten or twelve men sitting on a crumbling stone wall beside a dirt road. It was somewhere in Africa, but the location doesn’t matter. What matters is that the men, as the caption made clear, were sitting on the wall because they had nothing else to do: they had no land to farm, there was no local job or employment available to them, they had no savings or credit with which to start some venture. So they sat. Presumably there was some place of charity they trudged off to at the end of each day, where they got some food and water and a place to sleep; but when they awoke, there was nothing really to do except go back and sit on the wall.
What is interesting to consider is the Conservative and Progressive positions with respect to these men. The Conservative believes the only thing that can improve their daily plight is the “free market”: Until some local or regional entrepreneur organizes a tranche of capital and starts a venture that requires the men’s labor, there is nothing to be done except let them sit.
The Progressive believes that, in absence of the free market coming along and giving the men something to do, the sovereign government ought to hire them to do something—anything really, like, for example, getting off the wall and restacking the fallen stones so the wall is tall and straight again. The Progressive argues that hiring the men to do something—even if it’s just stacking stones in an orderly fashion—puts into motion a virtuous cycle of benefits:
  1. The men receive a wage which they will then spend in the local economy.
  2. The new spending in the local economy will allow merchants to expand their businesses and hire more employees.
  3. The pressure on charity to provide for people without income will be reduced.
  4. The men will grow healthier, because they will be getting exercise and eating better, and so fewer of them will end up on the steps of the hospital begging for aid.
  5. The men will be learning a skill—even if it just the stacking of stones—and will be acquiring the daily habit of working for a living.
  6. The nation’s roads will improve—if only because the stone walls alongside them are more orderly and pleasant to look at.
  7. Because the men begin to create a viable work-force in a growing local economy, “free-market” entrepreneurs will now be attracted to come in and start ventures which can then hire the men away from their stone-stacking, and grow the economy further.
The Conservative response to this Progressive’s strategy is built completely upon a single question: How are you going to pay for it? Where is the money going to come from to pay the men to get off the wall and start stacking stones? This is the pivotal question where the partisan debate becomes suddenly clouded with confusion. Implicit in the Conservative’s question is the unspoken assumption that the financial resources of the sovereign government come from the Private Sector—either through taxes or borrowing. If the sovereign government is going to spend on something—like, say, paying men a working wage for stacking stones—then it must either tax or borrow to do so. The confusion is created because both the Conservative and the Progressive believe this to be an absolute, uncontested truth—a veritable “law of nature.” Money for public spending comes from the Private Sector. Where else could it possibly come from?
From the Conservative perspective, this incontrovertible belief means the following things with respect to the Progressive’s strategy:
  1. Working people (and, even worse, wealthy entrepreneurs) must be penalized for their efforts by being taxed in order to pay idle men to stack stones.
  2. Alternatively, the sovereign government must borrow the money for the men’s wages from the Private Sector, an act which will (a) drive up interest rates (b) reduce the capital available for private investment and entrepreneurship, and (c) saddle future generations with an enormous debt they’ll have to somehow repay.
  3. Hence the fairer and better approach of doing nothing, minimizing tax burdens (especially on the wealthy entrepreneurs who are going to be starting new ventures), and NOT sucking investment capital out of the Private Sector by borrowing money our grandchildren will have to make good on.
Given the options (taxing or borrowing from the Private Sector) accepted by all, the Progressive can only respond to these Conservative assertions with a few meek rejoinders:
  1. Paying the men to stack stones has “social” benefits that wealthy citizens ought to be willing to invest in.
  2. It is fair for people who have been blessed, and lucky enough to be successful, to be taxed in order to help those less fortunate pull themselves up.
  3. As long as the borrowing remains below a certain percentage of GDP, it is a reasonable and good “investment” that will expand the economy and pay dividends in the long run.
Together, the Conservative assertions and the Progressive rejoinders, create a self-deceiving and self-defeating dialog that has devolved into nothing more than a shouting match: The building is burning, but since we have agreed we don’t have enough water to put it out, we can only argue about whether we’ll douse a little over there or a bit over here. If I say it we ought to douse here, you scream that’s not fair—we ought to be dousing over there instead. At what point in this futile effort, I am wondering, will we stop shouting at each other and realize the fundamental, almost silly, error in our thinking? Oh, look! We actually do have all the water we need to put the fire out completely. Look! Over there! You see that great big water spigot? What have we been thinking?
In other words, what if it turns out the original, pivotal assumption the Conservative assertions and Progressive rejoinders are built upon is simply untrue? What if it turns out the sovereign government doesn’t need to collect taxes, or borrow from the Private Sector, to pay the men? What if the sovereign government, all by itself, can issue the currency required to put them to work stacking stones? What then?
I will not attempt here to outline the basics of Modern Monetary Theory. I’ll leave that to the MMT economists who can do it admirably—though, to date, their explanations seem mostly to fall on deaf ears. (This is likely because everyone else is shouting so loud.) What I’m interested in is how this new “reality”(if it were accepted by each side) would alter the Conservative and Progressive positions regarding the men on the wall.
It’s reasonable to suppose the original basic positions would be unchanged: The Conservatives will still believe—with legitimate merit—that the “free market” should come along and create jobs for the men; that until that happens the men don’t really have “jobs”, and the economy hasn’t really been expanded. The Progressives have no need to refute this; in fact, they can happily and whole-heartedly agree with it. Since they no longer have to defend the need to increase taxes or borrowing from the Private Sector, they are free to both agree with the Conservatives and to focus on the original virtuous cycle of their strategy, which is now worth repeating. If the sovereign government hires the men to get off the wall and start rebuilding it:
  1. The men receive a wage which they will then spend in the local economy.
  2. The new spending in the local economy will allow merchants to expand their businesses and hire more employees.
  3. The pressure on charity to provide for people without income will be reduced.
  4. The men will grow healthier, because they will be getting exercise and eating better, and so fewer of them will end up on the steps of the hospital begging for aid.
  5. The men will be learning a skill—even if it just the stacking of stones—and will be acquiring the daily habit of working for a living.
  6. The nation’s roads will improve—if only because the stone walls alongside them are more orderly and pleasant to look at.
  7. Because the men begin to create a viable work-force in a growing local economy, “free-market” entrepreneurs will now be attracted to come in and start ventures which can then hire the men away from their stone-stacking, and grow the economy further.
The final “target” outcome of the Progressive strategy is identical to the fundamental Conservative goal. If the Conservatives really want to achieve this basic goal, how could they now argue against the Progressive strategy? The only argument they could level is that the strategy would be inflationary. The MMT economists, I believe, have a plausible rejoinder to that. The bottom line is there is no reason we have watch the building burn down: there is no need for men to sit idly on a wall when it is possible to start a virtuous cycle that will attract “free-market” entrepreneurs who will create jobs for them. Is it possible that—except for this confusion about where sovereign public money comes from—there is really no difference at all between the Conservative and Progressive positions?

Men on a Wall

2 comments:

  1. to use an old imperative: TEAR DOWN THAT WALL!

    any system that leaves one-fifth of its citizens sitting on that wall & has another fifth working below their capacity is a failure...

    ReplyDelete
  2. Good to see you reading up on MMT-- ABYNORMAL

    ReplyDelete