On the off chance that this blog attracts readers who haven't read a lot about economics before, I thought I'd try, at least once a day, to do a post about the terms I'll be using on the blog.
Two big ones that sometimes confuse people (even those pretty well versed in economics) are the concepts of Distribution vs. Allocation.
Though I don't generally recommend that people get information about economics from wikipedia (there is a huge amount of false or misleading information on wikipedia economics pages) the wikipedia entries on Distribution(economics) and Allocation of Resources do a decent job of explaining what these concepts mean.
If you want the Short version, allocation has to do with economic inputs (production), while distribution has to do with economics outputs (consumption.)
Take yourself, for example. If you are like most people, your input into the economic system primarily takes the form of your labor (if you work full time, that's about 2000 hours of labor per year). The price system directs you (though it does not force you) towards jobs that pay more.
Meanwhile, you use the pay you get from your inputs to purchase economic outputs like food, clothes and shelter - that's the distribution side.
In this way the price system ensures that the outputs you extract from the economic system are similar to your inputs. Not exactly the same, though... but that's a discussion for a future post.
Saturday, February 5, 2011
Losing the Tevatron
Warren Mosler noted earlier in the week one of the recent casualties of US budget cutting - the Tevatron collider in Illinois is being shut down due to a lack of funding.
If the project is being shut down because it's not a good idea (the article notes that there's a superior collider operating in Geneva), then while it's sad for the physicists that work on the project it's actually a good thing in the long run - the government shouldn't fund projects that aren't a good idea, and those physicists should be working on something else.
If, as I suspect, the project is being shut because of a perceived need to "trim the fat" and stop spending so much money... that's foolish, counterproductive, and wrong. We'll pay for it in the form of less innovation, worse physics programs, and ultimately lower living standards.
All because of a quaint fear that the US government can run out of dollars. Sad.
If the project is being shut down because it's not a good idea (the article notes that there's a superior collider operating in Geneva), then while it's sad for the physicists that work on the project it's actually a good thing in the long run - the government shouldn't fund projects that aren't a good idea, and those physicists should be working on something else.
If, as I suspect, the project is being shut because of a perceived need to "trim the fat" and stop spending so much money... that's foolish, counterproductive, and wrong. We'll pay for it in the form of less innovation, worse physics programs, and ultimately lower living standards.
All because of a quaint fear that the US government can run out of dollars. Sad.
Social Security and Medicare - A Question of Distribution and Allocation
Over at Matthew Yglesias' place I've gotten into a lot of really good discussions with various commentators about economics and politics. I still read and comment there, but recently I've gotten the feeling I'd like to have a smaller pond of people so that we could get into a more involved discussion. The idea is that I'll take quotes from comments and use them to create further posts, creating a moderated front-page discussion without actually having to curtail the freedom of people to post what they want on the comment threads.
I don't know whether I'll be able to attract the folks I'm after (primarily thinking of DMonteith, studentee, Stephen Eldridge, and my MMT brethren like beowulf et al, but all are welcome) or whether this will just continue to be a sandbox for me to flesh out my ideas. But I thought I'd start with an issue that comes up a lot in both progressive and conservative circles - Social Security, Medicare, and "entitlements" generally.
The problem with Social Security and Medicare is often described as one of pure finance. We are spending X number of dollars on old people; thus we need to take X number of dollars away from young people. Sounds intuitive enough, but if you're reading this blog you probably already know that at the federal level it doesn't work that way.
In actuality the problem of Social Security is almost entirely one of distribution - that is, we have decided that it's within the authority of the federal government to set some minimum level of consumption for retired people that's (mostly) independent of their past or current production. When the population is older, we'll have to spend more resources meeting this standard, but there's no reason to believe this will create a problem. Old people don't actually consume that many resources (with an exception that we'll get to in a minute) so it would take a REALLY large population of elderly people to outstrip our ability to easily produce the consumer goods we need. The current dire-looking projections don't come anywhere close to that - the economy can easily meet the needs of a very large retired population.
The problem, as always, is not primarily with this distributive question. We can answer the question "what standard of living should old people be entitled to?" create a program to pay for it, and then we can provide the goods and services through the private market. Our system is very, very good at that - that's the reason that while communism prides itself on egalitarianism, the lot of the poor and working classes in a big, rich capitalist country is generally better than what they would get living in a big, rich communist country.
There is a real problem, though - old people do consume a very large share of one type of resource. That resource is medical care. As it happens, the price system does not do a good job of allocating medical resources - shortages, runaway costs, and low (even negative) marginal utility are the norm in our medical system*.
Thus our aging population will put even more strain on this system which is already under a lot of pressure. That's not good! But it's not primarily a finance problem. The problem is that our medical system doesn't work properly, and the inefficiency this failure creates is going to increase as our population gets older. You can't fix that with tax policy - you have to fix the medical system.
* You'll notice I never use the term "health care" if I can avoid it. I don't like the term as I think the concept of "health" encompasses a lot of things that don't really have much to do with the medical system. For my purposes the medical system is the system we use to deliver doctor's services to the public. It doesn't include other types of health-related consumption and production.
I don't know whether I'll be able to attract the folks I'm after (primarily thinking of DMonteith, studentee, Stephen Eldridge, and my MMT brethren like beowulf et al, but all are welcome) or whether this will just continue to be a sandbox for me to flesh out my ideas. But I thought I'd start with an issue that comes up a lot in both progressive and conservative circles - Social Security, Medicare, and "entitlements" generally.
The problem with Social Security and Medicare is often described as one of pure finance. We are spending X number of dollars on old people; thus we need to take X number of dollars away from young people. Sounds intuitive enough, but if you're reading this blog you probably already know that at the federal level it doesn't work that way.
In actuality the problem of Social Security is almost entirely one of distribution - that is, we have decided that it's within the authority of the federal government to set some minimum level of consumption for retired people that's (mostly) independent of their past or current production. When the population is older, we'll have to spend more resources meeting this standard, but there's no reason to believe this will create a problem. Old people don't actually consume that many resources (with an exception that we'll get to in a minute) so it would take a REALLY large population of elderly people to outstrip our ability to easily produce the consumer goods we need. The current dire-looking projections don't come anywhere close to that - the economy can easily meet the needs of a very large retired population.
The problem, as always, is not primarily with this distributive question. We can answer the question "what standard of living should old people be entitled to?" create a program to pay for it, and then we can provide the goods and services through the private market. Our system is very, very good at that - that's the reason that while communism prides itself on egalitarianism, the lot of the poor and working classes in a big, rich capitalist country is generally better than what they would get living in a big, rich communist country.
There is a real problem, though - old people do consume a very large share of one type of resource. That resource is medical care. As it happens, the price system does not do a good job of allocating medical resources - shortages, runaway costs, and low (even negative) marginal utility are the norm in our medical system*.
Thus our aging population will put even more strain on this system which is already under a lot of pressure. That's not good! But it's not primarily a finance problem. The problem is that our medical system doesn't work properly, and the inefficiency this failure creates is going to increase as our population gets older. You can't fix that with tax policy - you have to fix the medical system.
* You'll notice I never use the term "health care" if I can avoid it. I don't like the term as I think the concept of "health" encompasses a lot of things that don't really have much to do with the medical system. For my purposes the medical system is the system we use to deliver doctor's services to the public. It doesn't include other types of health-related consumption and production.
Sunday, August 22, 2010
This is the Title
The first thing you may be wondering is why I called this blog "The Vanishing Dollar." It almost smacks of some Austrian goldbug kind of thing, which I assure you is not what I'm driving at here.
I actually was an Austrian economics devotee, or at least what passes for one nowadays, a decade or so ago when I was in my early twenties. Like many libertarian/Austrian types I grew out of it once I started learning about how the economy actually works and developed my own ideas about the operation of financial markets and the banking system.
I started my in-depth thinking about money and its role in a modern economy several years ago at Lucky Bar in Washington, DC where I got into an argument with an Englishman in which I espoused a certain theory of monetary economics that I believed, wrongly, was the mainstream view.
The guy made a disgusted face and said "You're one of those 'chartalists.'"
I didn't know what this meant because it had never occurred to me that there was any other way of thinking about modern money than the Austrian commodity-focused approach or the chartalist approach. But when I went home to research it, I found that the world was apparently in the grips of something called "M-form" monetary theory, a nonsensical mishmash of blather which no one seems to be able to completely explain.
Unfortunately I must report that we remain in the grips of this mass hysteria even today. The men who run the economy, even now that we kicked the old bums out, believe in a form of financial voodoo which is expressed in no coherent form, anywhere, because it makes absolutely no sense.
I aim to change that by blogging to no one. Should be quite a ride.
Oh, but the title! Yes, the title. Well, when you get right down to asking the economic question of "What is a dollar" the answer winds up being really unsatisfying. Defined most simply, a dollar is a voucher that entitles the bearer to cancel any liability valued at one dollar.
That doesn't tell us a whole lot, in economic terms. In fact, it's wandering out of economics altogether, and into politics. Because the dollar, foundation though it is of all modern economies (really!) has no economic basis whatsoever. Economically, a dollar is worthless.
A dollar is a political entity. It is "backed," in the impoverished parlance of the gold-standard days, not by "faith" or even "credit" but by the power of the US government to take your shit away from you if you don't pay your taxes.
To many people, this sounds like the foundation for anti-tax hysteria. But in fact it's perfectly normal and correct, and lays the foundation for all the marvels of the modern economy in all developed countries and most undeveloped ones as well.
How can the dollar be almighty and yet not exist in any real sense at all? Can both of those things really be true at once? That, ladies and gentlemen, is the question I aim to explore on this blog.
I actually was an Austrian economics devotee, or at least what passes for one nowadays, a decade or so ago when I was in my early twenties. Like many libertarian/Austrian types I grew out of it once I started learning about how the economy actually works and developed my own ideas about the operation of financial markets and the banking system.
I started my in-depth thinking about money and its role in a modern economy several years ago at Lucky Bar in Washington, DC where I got into an argument with an Englishman in which I espoused a certain theory of monetary economics that I believed, wrongly, was the mainstream view.
The guy made a disgusted face and said "You're one of those 'chartalists.'"
I didn't know what this meant because it had never occurred to me that there was any other way of thinking about modern money than the Austrian commodity-focused approach or the chartalist approach. But when I went home to research it, I found that the world was apparently in the grips of something called "M-form" monetary theory, a nonsensical mishmash of blather which no one seems to be able to completely explain.
Unfortunately I must report that we remain in the grips of this mass hysteria even today. The men who run the economy, even now that we kicked the old bums out, believe in a form of financial voodoo which is expressed in no coherent form, anywhere, because it makes absolutely no sense.
I aim to change that by blogging to no one. Should be quite a ride.
Oh, but the title! Yes, the title. Well, when you get right down to asking the economic question of "What is a dollar" the answer winds up being really unsatisfying. Defined most simply, a dollar is a voucher that entitles the bearer to cancel any liability valued at one dollar.
That doesn't tell us a whole lot, in economic terms. In fact, it's wandering out of economics altogether, and into politics. Because the dollar, foundation though it is of all modern economies (really!) has no economic basis whatsoever. Economically, a dollar is worthless.
A dollar is a political entity. It is "backed," in the impoverished parlance of the gold-standard days, not by "faith" or even "credit" but by the power of the US government to take your shit away from you if you don't pay your taxes.
To many people, this sounds like the foundation for anti-tax hysteria. But in fact it's perfectly normal and correct, and lays the foundation for all the marvels of the modern economy in all developed countries and most undeveloped ones as well.
How can the dollar be almighty and yet not exist in any real sense at all? Can both of those things really be true at once? That, ladies and gentlemen, is the question I aim to explore on this blog.
The Vanishing Dollar
For quite some time I've been a fan of Warren Mosler's excellent blog/archive http://moslereconomics.com and I've commented there a few times.
Recently, though, I've wanted a place to go on at more length and flesh out my ideas about the monetary system. I figure this is a safe place since, you know, no one reads this blog.
Over at Warren's place, they call their constellation of theories and models "MMT" for Modern Monetary Theory which I think is kind of lame, so I'll be referring to it as chartalism even though I'll probably touch on plenty of ideas that aren't a part of chartalism rigidly defined.
Recently, though, I've wanted a place to go on at more length and flesh out my ideas about the monetary system. I figure this is a safe place since, you know, no one reads this blog.
Over at Warren's place, they call their constellation of theories and models "MMT" for Modern Monetary Theory which I think is kind of lame, so I'll be referring to it as chartalism even though I'll probably touch on plenty of ideas that aren't a part of chartalism rigidly defined.
Subscribe to:
Posts (Atom)