Thursday, 23 September 2010
Robert Reich is near to advocating Modern Monetary Theory.
Robert Reich says, quite rightly, that interest rates cannot be dropped any further.
He then points out, correctly, that “The problem is consumers, who are 70 percent of the economy. They can’t and won’t buy enough to turn the economy around.” Agreed.
Put that another way, THE FUNDAMENTAL PURPOSE OF AN ECONOMY is to produce what the consumer wants. In view of this, it might have been an idea, right at the start of the recession, to have given the consumer more of that amazing stuff which ENABLES consumers to go out of buy what they want. And that amazing stuff is called MONEY!!!!!! That would have been better than ar*sing around with interest rates, QE, stuffing the pockets of Wall Street crooks and fraudsters, etc, etc.
Incidentally, in addition to waving their credit cards in the air and demanding various products, consumers also demand (via the ballot box) various publically provided goods and services. So the provision of these also needs to be expanded (or at least not allowed to fall) in a recession – as advocated by Modern Monetary Theory (MMT).
Reich continues: “So what’s the answer? Reorganizing the economy to make sure the vast middle class has a larger share of its benefits. Remaking the basic bargain linking pay to per-capita productivity.” Certainly the middle class (in addition to the lower orders, perhaps) needs more spending power. But there does not need to be a close link between pay and productivity in an MMT scenario.
In particular, come a recession, it would be a good idea to feed more of the above mentioned “amazing stuff” into employees pockets: that is, it is desirable to have employees pay move ahead of productivity, at least for a while. Conversely, given an outburst of irrational exuberance, it would be desirable to have pay fall behind productivity.
Robert Reich: please keep thinking. You’re almost there.