Merry Christmas!

Best wishes to all winterspeak readers : )

Finally!

How did I only just learn this was finally happening?

The underconsumption theory and unemployment

I strongly recommend the comment thread in this interfluidity post where Mark Sadowski does a good job clarifying the difference between wealth and income, and what the data says in terms of distribution and consumption in the context of an underconsumption theory of unemployment.

In underconsumption theory recessions and stagnation arise due to inadequate consumer demand relative to the production of new goods and services. Consequently it is precisely the income that is derived from the production of new goods and services that is connected to the matter of whether underconsumption is actually taking place. The income derived from the buying and selling of assets is completely peripheral given the very nature of underconsumption theory.

“About your IRS example, if you do not want to pay taxes all at once as a result of selling the asset outright, you can borrow to pay the lump sum tax payment and spread the payments out over time, just as you would have a time series of tax obligations by renting out the property.”

I never mentioned “taxes”. The only reason why I brought up “IRS income” is because that is the only context where capital gains are even referred to as “income”. Capital gains only relate to the buying and selling of assets and hence are not income in the conventional sense of that which is derived from the production of new goods and services. My point in making the comparison was that referring to capital gains as income will produce a measure of savings that is wildly inflated compared to the more normal measure of savings out of the income derived from the production of new goods and services, which is of course the measure of savings relevant in this context.
“Moreover, I hope that this can be internalized as a truism: no one receives NIPA income.”

Frankly, this is bordering on the ridiculous. Nearly everyone receives NIPA income, and given that the income derived from the production of new goods and services is the measure of income that is relevant to underconsumption theory, that is the measure of income that I think we obviously should try and stay focused on.

I think SRW's interpretation of inequality and growth has certain causal chains backward, but propensity to consume is an important factor to consider when thinking about what impact distribution may have on demand. If, when looking at income and not capital gains (as Mark convincingly argues), high income earners spend as much as lower income earners, then that's good empirical data to have. That said, I also think there is a budget constraint/wealth effect, but that may paradoxically have more of an impact on low wealth households. In this sense, what drives demand is not inequality per se, but the sensitivity of low wealth households to spend out of income as a function of their wealth -- including capital gains.

I'll need to read the original paper to see if this effect is there, as the comments are focused on the upper end where there turns out to be little to see.

Chris Dixon is not being Ironic

As the micro-genre of Silicon Valley bashing/critique continues to grow, Chris Dixon writes this, I assume entirely unironic, PR piece about a recent investment:

One of the interesting things about Bitcoin is the contrast between how it is portrayed in the press and how it is understood by technologists. The press tends to portray Bitcoin as either a speculative bubble or a scheme for supporting criminal activity. In Silicon Valley, by contrast, Bitcoin is generally viewed as a profound technological breakthrough.

The presupposition is that speculative bubbles, criminality enhancement, and technological breakthroughs are in some way mutually exclusive. Morozov may be tedious at times, but his talking about the Manichaeistic worldview with permeates new technology is right on.

Bitcoin is an interesting technical solution but it solves the wrong problem because it conceives of money as commodity, instead of a formal accounting system for obligations. Regardless, the distributed cryptography that it's built on is quite amazing, and perhaps someone will build a useful application on top of it instead of Bitcoin, which is primarily a bubble and a facilitator of criminal activity.

MMT and MMR

Randall Wray talks about how MMR broke away from MMT because of policy difference -- particularly around the job guarantee. Neither of them phrase it in exactly that way of course.

But Cullen  gradually realized that MMT is not just a description of "how government really spends" but also leads to a range of policy options. And he did not like what he saw. MMT quite naturally supports progressive policy...
...he tried mightily to separate MMT from the Job Guarantee. To no avail -- it is the JG buffer stock that logically provides the anchor to sovereign current so that we can run continuous full employment without setting off inflation

There certainly is something of the spurned lover in MMR's (over) reactions to MMT, but both MMR and Wray are now asserting that the JG cannot be separated from MMT as the former flows logically from the latter. Moreover, Wray asserts that MMT is inherently progressive. Let me suggest alternatives to both of these positions:

Firstly, if you accept the idea that fiat currency comes first and foremost from the Sovereignty of the issuer, that is, the money is backed by men with guns who can tax, then it is natural that a responsible Sovereign uses that power wisely and prints (and unprints) the correct quantity. The notion of a responsible sovereign is no monopoly of the Left or the Right, although one may divine a political leaning in exactly how the printing and unprinting happens.

The idea that the primary function of the Sovereign is to print or unprint the correct amount of fiat money, and having management and oversight across horizontal money creation via the banking system, is not clearly a Left wing position either as strong central authority combined with robust oversight of semi-private entities has plenty of Right wing examples as well.

And finally, asserting a job guarantee flows "logically" from MMT is an academic assertion colored by politics. It may seem like a good idea from certain theoretical perspectives but practical realities around how it would work in real life -- cultural norms, political realities, institutional structures, etc. -- means that while it may be perfectly benign in intent, it may be harmful in reality. Good thing there are many other policies inspired by MMT insights which flow just as logically, such as tax holidays, that we can practically implement anyway.

I have no beef with MMT or MMR. I would note that given how marginal both ideas are right now they would do better to work together than to be at odds.

But Cullen gradually realized that MMT is not just a description of “how government really spends”, but also leads to a range of policy options. And he did not like what he saw. MMT quite naturally supports progressive policy. Freed of “budget constraints” and the myths of “Uncle Sam is running out of money”, we can get on with using government to serve the public purpose.
Cullen hated that conclusion. Above all, he hates the idea of full employment, once remarking that unemployment works for him (presumably he meant that unemployment of others works for him). Hence, he tried mightily to separate MMT from the Job Guarantee. To no avail—it is the JG buffer stock that logically provides the anchor to sovereign currency so that we can run continuous full employment without setting off inflation.
- See more at: http://www.economonitor.com/lrwray/2013/12/11/mmt-often-imitated-never-duplicated/#sthash.NzgHFsDU.dpuf

But Cullen gradually realized that MMT is not just a description of “how government really spends”, but also leads to a range of policy options. And he did not like what he saw. MMT quite naturally supports progressive policy. Freed of “budget constraints” and the myths of “Uncle Sam is running out of money”, we can get on with using government to serve the public purpose.
Cullen hated that conclusion. Above all, he hates the idea of full employment, once remarking that unemployment works for him (presumably he meant that unemployment of others works for him). Hence, he tried mightily to separate MMT from the Job Guarantee. To no avail—it is the JG buffer stock that logically provides the anchor to sovereign currency so that we can run continuous full employment without setting off inflation.
- See more at: http://www.economonitor.com/lrwray/2013/12/11/mmt-often-imitated-never-duplicated/#sthash.NzgHFsDU.dpuf

But Cullen gradually realized that MMT is not just a description of “how government really spends”, but also leads to a range of policy options. And he did not like what he saw. MMT quite naturally supports progressive policy. Freed of “budget constraints” and the myths of “Uncle Sam is running out of money”, we can get on with using government to serve the public purpose.
Cullen hated that conclusion. Above all, he hates the idea of full employment, once remarking that unemployment works for him (presumably he meant that unemployment of others works for him). Hence, he tried mightily to separate MMT from the Job Guarantee. To no avail—it is the JG buffer stock that logically provides the anchor to sovereign currency so that we can run continuous full employment without setting off inflation.
- See more at: http://www.economonitor.com/lrwray/2013/12/11/mmt-often-imitated-never-duplicated/#sthash.NzgHFsDU.dpuf

currency issuer must remain monetarily autonomous.

Yep, pretty good. Cullen got it right: gove

- See more at: http://www.economonitor.com/lrwray/2013/12/11/mmt-often-imitated-never-duplicated/#sthash.NzgHFsDU.dpuf

But Cullen gradually realized that MMT is not just a description of “how government really spends”, but also leads to a range of policy options. And he did not like what he saw. MMT quite naturally supports progressive policy. Freed of “budget constraints” and the myths of “Uncle Sam is running out of money”, we can get on with using government to serve the public purpose.
Cullen hated that conclusion. Above all, he hates the idea of full employment, once remarking that unemployment works for him (presumably he meant that unemployment of others works for him). Hence, he tried mightily to separate MMT from the Job Guarantee. To no avail—it is the JG buffer stock that logically provides the anchor to sovereign currency so that we can run continuous full employment without setting off inflation.
- See more at: http://www.economonitor.com/lrwray/2013/12/11/mmt-often-imitated-never-duplicated/#sthash.NzgHFsDU.dpuf

But Cullen gradually realized that MMT is not just a description of “how government really spends”, but also leads to a range of policy options. And he did not like what he saw. MMT quite naturally supports progressive policy. Freed of “budget constraints” and the myths of “Uncle Sam is running out of money”, we can get on with using government to serve the public purpose.
Cullen hated that conclusion. Above all, he hates the idea of full employment, once remarking that unemployment works for him (presumably he meant that unemployment of others works for him). Hence, he tried mightily to separate MMT from the Job Guarantee. To no avail—it is the JG buffer stock that logically provides the anchor to sovereign currency so that we can run continuous full employment without setting off inflation.
- See more at: http://www.economonitor.com/lrwray/2013/12/11/mmt-often-imitated-never-duplicated/#sthash.NzgHFsDU.dpuf

Who is the 1%?

Glad to see the Economist focus on the actual makeup of the 1% in America by wealth and income and find that it's the financial sector. While CEOs are often targetted in the press, the game has moved on:

Steve Kaplan of the University of Chicago thinks finance explains much of the rise in inequality. Updating a series developed by Thomas Piketty and Emmanuel Saez, Mr Kaplan notes that the share of income going to the 1% reached an 80-year high of 23.5% in 2007, only to sink to 17.6% in 2009 as the financial markets deflated (see chart). The trend is even more pronounced for the top 0.1%, whose share of total income rose to 12.3% in 2007 but sank to a still disproportionate 8.1% in 2009.

Mr Kaplan and Joshua Rauh of Northwestern University note that investment bankers, corporate lawyers, hedge-fund and private-equity managers have displaced corporate executives at the top of the income ladder. In 2009 the richest 25 hedge-fund investors earned more than $25 billion, roughly six times as much as all the chief executives of companies in the S&P 500 stock index combined.

Within the 1% then are three groups -- well paid professionals (doctors, lawyers), business people, and finance folks (including a subset of Wall Street oriented lawyers). The top end of the 1% is very skewed towards finance.

Patent Reform

WaPo tries to tell you what you need to know about the patent reform bill it just passed. As a friend of mine pointed out, what you really need to know is: how many patent lawyers lost their jobs?

What is bitcoin? Part 2

I wrote about bitcoin a little earlier. My thoughts on it have not changed much, but I think it is interesting looking at the technical details a little more closely.

I thought this was a good overview of how it works and helps reveal why people think it is a good idea. Some good notes:

Bitcoin is strange, really strange. For one thing, there is no such thing as a bitcoin. There are only transactions recorded in a ledger, with debits and credits to wallets. That’s it!

This is ironic because "regular" money is only transaction recorded in a ledger, with folding cash being a small exception. And prior to "regular money", individuals in a community did not barter for real goods, they did favors for each other and kept mental ledgers of what they owed and were owed and from whom. So, the "money only exists in a ledger" is not weird, it only seems weird as we think of money primarily in terms of folding currency.

Beyond that, the article talks in detail about how the ledgers are cryptographically protected and has a brilliant peer-to-peer distributed reconciliation process to prevent tampering. The article ends with a triumphant "Imagine there are no Bankers…you can do it if you try…"

While I would love imaging a world without bankers, and have done this on occasion, I'm not sure that bitcoin as he's defined it actually impacts the function materially. The primary purpose of a bank is not to keep money safe in a vault, which is mostly what bitcoin seems focused on, it's to have the private sector make credit decisions. I would love to see how bitcoin can be used to extend a loan as a loan per-se, not an equity investment. How does a bitcoin based entity expand it's balance sheet the way a bank does when writing a loan?