Originally published February 23, 2012 on the New Economic Perspectives blog.
This week we’re looking at the public purpose. Clearly, liberals and conservatives (used in the American sense of those terms) disagree on what government ought to do. Still, most people do see a substantial role for government to play. And most democratic nations have signed on to the UN Charter on Human Rights.
At least one commentator rejected most of the rights I listed on Monday. And one presumes that many of the supporters of the most conservative Republican candidates campaigning in the US would join in bashing the UN Charter. Heck, one of the candidates seems to suggest that just knowing a foreign language makes one unfit to run for US President!
Many Americans think that anything that comes from the UN is suspect. Fortunately, most people—both conservatives and liberals—are more “aspirational” in their views. At one time many in the US thought it was perfectly fine to “own” humans as slaves (and one commentator to Blog 37 apparently would still support the “right” to sell oneself into slavery). There are now few who support slavery. We have moved on.
Like it or not, democratic majorities recognize rights to be free of discrimination, to an adequate standard of living, to security in the event of unemployment, sickness, disability, widowhood, old age, and to work with just and favorable conditions. These are just a few of the widely recognized human rights. They are aspirational. They are expanding. They are by their very nature progressive.
As discussed in the Blog, reasonable people can disagree on exactly what these rights entail and more importantly for our discussion, how best to achieve them. It isn’t simple. It is highly contentious. And in truth we do not know.
Let me repeat that. I do not know what the best way to ensure the enumerated rights is. And neither do you. Policy-making is necessarily an uncertain endeavor.
MMT helps us to narrow the options and also to sweep away some myths about the barriers we face. First, we know sovereign government does not face a “financial constraint” similar to that of households and firms. I won’t repeat what we’ve learned from the functional finance approach. If it is technically possible to provide for the enumerated rights, then finance can be made available.
Second, MMT helps us to understand what is not possible: for example, given a balanced current account, it is not possible to simultaneously run a domestic private sector surplus and a government surplus. But with MMT we understand that the budgetary outcome of sovereign government should not be a concern. We also are able to put to the side the fears of hyper-inflationary warriors, intergenerational warriors, deficit terrorists, and so on.
One further point. Many of those who argue against an expansive interpretation of “public purpose” and a “big”role for government believe that “the market” can adequately provide for most of the material and even social needs of the population. And, following Milton Friedman, they assert that this lets us put to the side most of the contentious issues: we don’t need to debate the politics since we can just let the market do everything. That is also supposed to provide for the greatest individual “freedom”, letting each of us “choose” in response to market signals. Finally, if we stay out of the way, the “market” will “efficiently allocate” as if there were an “invisible hand” guiding us. There is then usually some reference to the “father of economics”, Adam Smith who supposedly endorsed this view.
I won’t deal with all of that here since next week we will look at the Austrian view, which is closely aligned to such beliefs.
OK on to the comments, with my brief reactions.
Q: Forsey: There are other rights; and we need government to fill gaps.
A: Agreed—I focused on just a few of the Charter’s listed rights, especially on those most closely related to employment (for obvious reasons, since I’m going to push the JG/ELR soon!). And agreed that government needs to play a role in enhancing economic stability. Again, topics for later—although we have already talked some about this. For example, when the private sector wants to net save, government deficits provide the wherewithal. Otherwise, we plummet into a Great Depression.
Q: Golfer: What about Oz? Current account vs Net Exports? Government reduces food choice? What about my right to be a famous Quarterback?
A: Several people already corrected the comment at WashPost. Yes, Oz ran budget surpluses due to a combo of private deficits and current account surpluses. This was a red herring posed by someone who does not understand the Godley sectoral balances. It in no way contradicts the MMT approach, indeed, it is the MMT approach.
Yes there is a difference between a “trade surplus” (positive net exports) and current account surplus. I never confused the two, if you read carefully what I wrote. I much prefer the sectoral balances (current account) over the typical GDP equation (NX). The main difference is factor payments. The US runs a big trade deficit but we have a positive flow on factor payments. Your supposed right to be a quarterback? No, not at all. You have a right to quit your job. You have no right to force any particular employer to hire you. The Charter does not claim what you assert.
Finally, choice over food? Look as you wander the aisles of your grocery store, you face a lot of “choices”. Three comments. First, behavioral studies actually show that too much choice is a badthing—it causes extreme discomfort, making it hard to choose. More importantly, second: who chose what to offer you? The store. Corporate food producers. Corporate farms. And government subsidies. If you obtain your food from grocery stores, virtually everything you eat came from corn or soy. Why? Because of the huge Chemo-Agri-Govt-Industrial Complex. Your “free choice” is only apparent, anyway. You get to choose from among those “food-like” products the CAGI Complex provides to you.
Third: did you eat salted fish and smelly preserved vegetables this morning for breakfast? No? Why not? Much of the world does. If you live in America or Canada you most likely ate a grain-based breakfast lubricated with the secretions of bovine mammaries. Why? Because a hundred years ago a health nut named Kellogg started a campaign to improve the American diet with whole grains. So you now eat multi-colored and heavily sugared (by a corn derivative) Trix promoted by a Cwazy Wabbit that you watched on TV as a kid. Choice? Yes. Whose? Not yours.
Q: Krueger: The question is how to achieve the listed rights in a manner that is perceived to be fair.
A: Agree.
Q: Firestone: Do the MMR people recognize any public purpose?
A: No idea. Ask them. I did see that one of them explicitly rejects any public interest in full employment. He sees unemployment as a tool to maintain price stability. That is a common view among orthodox economists and policymakers, of course. It is not my view.
Q: Wilson: Smith only used the invisible hand to refer to the foreign sector.
A: Apparently Smith used the metaphor exactly four times in his life, once in the Wealth of Nations—to refer to trade (as you suggest). And once to refer to the movement of heavenly bodies. And NEVER in the manner used by modern proponents of “free trade”. I’ll discuss this next week.
