Thursday, October 30, 2014

Hillary Hysteria & Job Creation

I have no idea what Hillary was talking about here, but the question of job creation is greatly misunderstood on all sides, and of much importance to us all.

It is often said that entrepreneurs and small businesses are the "job creators" in the economy. But if all an entrepreneur does is cause consumers to shift their spending from Dell to Apple, or from Panera to Chipotle, have we added new jobs to the economy? Are we also counting the lost jobs that resulted from the shift in consumer preferences?

  • Does Tesla create jobs if GM loses them? 
  • Do robotics manufacturers create jobs if factory workers lose them?
  • Can businesses really create more jobs in the whole economy by themselves? 
  • Can the government also create jobs?

Well, of course businesses create jobs in the sense that entrepreneurs and innovators and business managers are working diligently to provide a product or service that the public wants or needs, and when they are successful and grow they can hire more people. But in the aggregate (across the whole economy), businesses don't create new jobs simply by wanting to hire people or make more stuff. There has to be growing demand for their product. 

For a business, new jobs can originate from two main sources:

  1. Investors or banks inject funds for the business to hire people, build a factory, make a product, etc. in anticipation of the business selling enough in the future at profit such that they get a return on that investment. Investment funding is temporary and must be replaced by sales or it will quickly run dry. 
  2. The business has sales and based on forecast growth they add staff and expand to meet anticipated or actual demand.

Now where do these sales and this anticipated future demand come from? The consumer's ability and willingness to spend (let's ignore exports to keep this simple). So how do sales grow?

1. Consumers get into debt to spend (remember the Clinton years!)
2. Consumers spend their existing savings ('dis'-saving)
3. Consumers spend more of their income and save less (living on the edge)
4. Consumers have more income so they can spend more while still saving (healthy growth)

At the end of the day, new jobs are added and sustained in an economy not by tax cuts for corporations, but by customer demand for goods.

When the economy stagnates and real incomes keep falling and debt levels are already high, businesses won't invest and grow as they don't see the forecast for demand increasing. This is the situation we have been in since 2008. 

This is where outside injections of income into the economy (we call that a government "deficit" - a poor choice of words for a positive flow of money into the private sector) are critical. This can take the form of tax cuts (ideally aimed at spendable income, not wealthy savers), various welfare payments, direct hiring of the unemployed, and direct investment in useful areas (R&D, infrastructure).

So yes, businesses individually might create jobs and are essential to the system of innovation and capturing/shaping consumer wants and needs...

...but no, businesses themselves don't 'create' more jobs in our economy in the aggregate - that always comes from more people spending more of their incomes (or debt) which stimulates businesses into hiring. Capitalism runs on sales.

The Minimum Wage

The minimum wage seems to be a focal point of Hillary's message. She is arguing that a higher minimum wage will result in more jobs and less inequality, pointing to her husband's term as an example (never mentioning the excessive private debt build-up that fueled that economic boom, and subsequent crash). 

The usual reaction from the other side is that supply and demand 'laws' teach us that rising minimum wages will result in more unemployment as businesses can't afford the higher costs and will have to lay off low-income workers. Of course, this 'law' assumes that the "wage market" is already in perfect equilibrium, and that all prices & wages are perfectly flexible (adjusting to any sensitive movement of the other), which never occurs in the real world, but we'll ignore this for now. 

In reality, there's some truth to both sides. 

To the extent that current minimum wages are below a level considered livable, it may be that the current wage is lower than the equilibrium wage in the imaginary world of supply & demand curves - i.e. raising it might not lower demand for labor.

But more importantly, to the extent wages can be raised by shifting corporate profits to workers, and the workers have a higher propensity to spend (which they usually do), then the economy could see an increase in total demand (savings of businesses/owners fall and consumption by low-income workers increases), stimulating growth & more jobs.

On the other hand, if margins are tight, profits are slim, and a small increase in wages results in more layoffs than can be overcome by the increased wages/demand, then the higher Minimum Wage law might have a negative effect on demand and jobs.

It's not a given either way, as the politico blog hysteria would like us to believe.

A false choice?

What is always missed in this debate is that there is another, much preferred option: the job guarantee. If we simply eliminated involuntary unemployment by having the federal government cover the cost of work at a living wage (locally offered & administered), we would simultaneously eliminate the Minimum Wage debate, end unemployment, dramatically reduce welfare dependency, and make the biggest dent in poverty and its related social ills we've ever seen. 

Oh, and it would also happen to create jobs through restoring growth in the private sector economy!

So before you argue against a Minimum Wage increase on economic grounds, consider that it's not so black & white as many claim. Rather than believing we're helping people by fiddling with this policy, we should instead all turn our attention from such endless debates and really solve the underlying problem of unemployment and living wages. 

Ask your elected officials if they support and job guarantee, and if not, vote for those that do!

Sunday, October 26, 2014

Time for Teachers

Time: The War on Teacher Tenure
Time magazine's recent piece has caused quite a stir among educators and the public.  

Blogger, Brian Anderson, responded with a series of comments on Twitter that I thought are worth repeating. He takes particular aim at the Venture Capital (VC) approach to turn education into a mass market for hi-tech products.

Once again, it is a mistaken belief in how a sovereign monetary system functions that gives strength to the arguments of those opposing appropriate investment in universal education for the next generation. And so we turn to alternatives, thinking we can't afford to do what needs to be done.

What would a 50% increase in teacher salaries and a maximum of 15 students per class do to our quality of education? Oh wait, we don't even consider such alternatives because we think we'd have to raise taxes to pay for it. 

Thanks to Brian for permission to re-post his comments (a few minor edits were made to fix "Twitter" abbreviations). Emphasis added.  

"Let's make a list of teacher-bashing VC's, and boycott them! Why would you want to let someone make money off of your start-up who is going to use it to attack your friends, your family and your kids. I can deal with libertarians, I can do business with libertarians. Everyone is a libertarian or some kind of 'fiscal conservative'. But when you attack teachers and the public education system you make it personal. Remember that. Teacher bashers let bad logic about money and gov’t turn them into bad people. Don't be a teacher basher.

We need to move to a 100% federally funded education system, with haste.

Just because you are born in a poor place doesn't mean you should get a substandard education.

Educating your own kids is like being your own lawyer, only it’s more like being your kid’s lawyer.

It must be possible for someone to graduate high school, finance a college education, and then pay off any loans by working as a school teacher.

Libertarians would have you think that is a mathematical impossibility. But they shouldn't have a say in education OR finance.

If you have to be from a privileged background in order to follow that type of career path, we must be doing it wrong.

Libertarians and their neoliberal enablers see Ponzi schemes everywhere they look. That's because they don't know squat about finance. Education is not a Ponzi scheme. Not in kindergarten and not in grad school. Education is like everything else. The money to pay for it comes from gov’t spending.

VCs seem especially interested in education these days, and I see two reasons for the trend. The first reason VCs are interested in education is because they are libertarians and neoliberals. As such, they believe that all public spending is essentially a Ponzi scheme. They believe the deficits required to provide universal free education are unsustainable and erode the purchasing power of THEIR money. They view public school teachers as takers who are getting a free ride at their expense. Because they believe taxes fund gov’t spending.

They believe these things because they learned them from economists while they were in business school. But those economists should have constructed better theories of markets, and their students (the VCs) should have been more critical. If your best explanation of middle-class consumer capitalism has a Ponzi scheme at its center, maybe you are doing it wrong? Maybe it is not the existence of the middle class that is the problem, maybe it is your understanding of asset-pricing and accounting? Of course, I could go on about why capitalism needs deficits in order to operate a unit of account that is both liquid and stable in value.

But I want to talk about the second reason why VCs are so interested in education these days. It is because VCs are investors who put their gov’t issued money into startups and want to get MORE gov’t issued money out. They have tried to compete with Wall St. to help the middle class invest for retirement. Mostly failed because Wall St. knows money better. They have tried hawking all sorts of ad tech gizmos at fortune 500's. That's ok for a while but they know they are bleeding a stone.

They cannot MAKE people spend money that they don't have. They have tried turning the unemployed into unregulated cab-drivers and inn-keepers. The point is that they are setting their sights lower and lower. It is no surprise that they see education as a promising market. After all, money comes from govt. VCs see teachers making salaries and THEY want that money.

They want to replace your kid's English teacher with a computer program that will take them through "Of Mice and Men" one page at a time. They will print out charts and graphs that tell you how many pages per minute your kid reads, and where they sit on the normal distribution. And they are going to try to convince you that this is better than having actual teachers in the schools.

And they are going to replace public school teachers’ salaries with license fees that go directly into the bank accounts of firms they OWN. Whether they can explain it or not, VCs know that money comes from govt. That's why they are lined up at the trough. That's why they are trying to muscle the middle class out the way. To take a bigger share of the gov’t created income.

It’s also a thriving marketplace for them. If you think test scores show a problem, you can sell all kinds of products. The marketplace for (mostly worthless) school interventions on the market is denominated in the $multi-billions. Not just VCs, Conservatives, libertarians & politicians, all know money comes from government but can't/won't explain it!

The fact that gov’t spending creates the money that we earn, spend and save has a lot of consequences. When public spending dollars are allocated to individuals like teachers, those teachers are then able to spend, save and invest. That spending is what makes the rest of our investments profitable. It sends information about consumer preferences to entrepreneurs. But when (say) education spending is allocated directly to some Silicon Valley software company, it does nothing for the community.

What it amounts to is a gov’t which directly allocates capital to a group of producers selected by bureaucrats. IOW, central planning.

I want to help you visualize the difference. Imagine a map of the US with a little dot at the home of every public school teacher. Now imagine a second map where there are three big dots centered in Silicon Valley, such that the area of the three dots is equal to the combined area of all the little dots in our first map. The first map is how public education spending is distributed in our traditional system, which libertarians think is a socialist system. And the second map is how education spending would be distributed if these people get their way. So the way that gov’t spends has consequences that go far beyond the resulting change in our national debt (equity). It determines the geographical distribution of income and spending, it determines which communities are buyers and which are sellers. That's why we should reject VCs bearing better, faster, cheaper forms of education. They are the ones that need to be reeducated."

TINA, you're breaking my heart!

TINA, you're breaking my heart,
You're shaking my confidence daily.
Oh TINA, I'm all out of work,
I'm begging for job guarantees.

TINA, you're breaking my heart,
You're shaking my confidence daily.
Oh TINA, there's no place to work,
I'm begging for deficits, please.
Job guarantees.

Unemployed in the afternoon with TINA
Upload resume,
I get up to find some cheer,
When I refresh the page,
Jobs are no longer there.

TINA, you're breaking my heart,
You're shaking my confidence daily.
Oh TINA, I'm down on my knees,
I'm begging for job guarantees.

She loves me again,
I fall on the floor of the dole.

She loves me again,
I fall on the floor of food stamps.

There is always an alternative! 

A Job Guarantee is arguably the most "just" policy mechanism related to unemployment for a monetized economy, and is certainly a compelling policy for a host of other social and economic reasons.

Friday, October 24, 2014

National high speed rail network coming to USA!

Bill Gates, Elon Musk, and Warren Buffet team up to invest their billions in a new high speed electric rail system linking all major US cities. The project will transform US public transportation, dramatically reducing air travel while cutting carbon emissions and helping transition the nation to a more sustainable energy future. The project will be built in phases and is expected to be completed by 2030. 

Exciting, isn't it? Could these three storied entrepreneurs and investors pull it off? 

Okay, the story is totally fabricated, but we have something so much better than three billionaires at our disposal. We have a sovereign currency and a nation of incredible resources, engineers, and skilled labor - all ready to be deployed if we'd simply direct them to do it. Why would we get so excited about entrepreneurs tackling a project like this and then be disappointed that it would take our government resources to pull it off? In fact, a project of this scale can probably only be accomplished with federal backing, and can be made affordable to all by injecting the funds to build and operate it into the economy. Why would we want to burden our states and cities with this bill when they have to tax and borrow to fund it. These are exactly the kinds of initiatives for which we created our sovereign currency!

Why have we forgotten that we don't have to wait for Silicon Valley or the Oracle of Omaha to take bold steps forward that are in our collective interests? We used to think this way as a nation. We built a national highway infrastructure that powered an economy that was the envy of the world. We put men on the moon and invented groundbreaking new technologies that transformed society. We placed satellites into orbit and provided weather data, cosmological discoveries, and GPS services that now resides in the pockets of consumers worldwide. We did this not by waiting for private funds to be saved up in order to afford these investments. Rather, we took the initiative knowing that as a sovereign nation with vast real resources, we had the ability to issue our currency to marshal resources to tackle big problems and build big dreams.

It's time we began to dream again. We have the money. We have the resources. We have the people. We just need the vision, the hope, and the belief in ourselves that we can do good together.

It's time to do good together. 

Image source from USHSR

Check out the USHSR vision for a high speed electric rail system across the US here

Thursday, October 23, 2014

It's scary to admit something's wrong

So many of us think that if we can just free up capitalism from even more of the regulations and hindrances made by "government", the free markets will quickly liberate us from our economic woes.

Unfortunately, this is part of the fraud of "deregulated capitalism" - the more it is deregulated, the greater the wealth concentration by those who control the capital, the greater the inequality, the more frequent the crises and job losses, and the lower the real wages for everyone else.

Not to mention the continued destruction of our environment and the geopolitical instability and oppression that results.

This reality is incredibly threatening to so many since faith in free markets is all we have known. To admit its faults is scary - we fear a slippery slope to government take-over of everything, and so we blindly and dutifully defend the status quo.

There's a marvelous alternative if we'll just take the time to set aside our ideology and seek it out. Imagine what it could look like.

Monday, October 6, 2014

The Market gods are angry

When did The Market become a god? And when did free people decide to bow to this golden calf of their own design? 

The high priests declare from above:

"The markets are saying..." 
"The market won't support..." 
"The market requires..."

And we timidly accept their decrees, gratefully taking what economic morsels they grant while watching as millions are turned aside with little or nothing.

When did we give The Market control of our children's education? Our nation's infrastructure? Our health services? Our political process? Our employment? Our sovereign currency?

Have we not become like a primitive culture, sacrificing our children at the whim of a medicine man in the hopes that the gods will no longer be angry and will give us some more jobs and incomes? Are we so helpless? Is there really no alternative, as the priests keep assuring us? Have we forgotten that we are a sovereign nation and a free people? 

We have forgotten what a sovereign currency is, why it matters, and what it should be used for.

We are a rich and abundant nation yet we have come to believe that we must be paupers to appease The Market gods. 

  • We have an incredible educated workforce
  • We have an army of professional educators and professors
  • We have abundant land, food and natural resources
  • We have boundless sources of renewable energy
  • We have the world's finest doctors and health care professionals, and the means to train many more
  • We have engineers and architects and construction workers and all manner of human capital, with an eager new generation hoping to learn and contribute more than ourselves
  • We have a political process designed by and for the people
  • We have a nation of entrepreneurs, innovators, pioneers, and just plain hard working, tough people who are willing to do what's needed

So who told us that we can't afford to educate our children and train the next generation of doctors and engineers? 
Who told us that we must leave millions of our people unemployed as a buffer against inflation? 
Who told us that is it too costly to have affordably-sustainable energy and clean air and water? 
Who told us that our cities can't afford to have world-class sewer systems, water treatment facilities, roads, bridges, libraries, museums, parks, hospitals, and other common infrastructure? 
Who told us that corporations are people and can outspend the people to control the political process? 
Who told us that millions must have no access to good medical care otherwise we'll all have to suffer shortages of doctors? 
Who told us that welfare is the only option to help the unemployed?
Who told us that caring for our elderly is unattainable and that our funding mechanism is going broke?

The Market gods are angry. 

They have not allowed us to recover this time around. Millions have stopped trying to find work after years of searching. The priests are telling us we need to sacrifice more: to give up our care for the needy; to stop helping the unemployed and unemployable; to sell off our public assets; to reduce spending on government services everywhere; to cut and slash and bleed until the sick patient recovers.

Oh the folly of serving the gods! 
How disastrous is the idolatry of bowing to golden calves!

A free people and sovereign nation is never constrained by any market gods for determining what they wish if it is readily available in their currency. Affordability is NEVER a constraint for a currency-issuing nation. Yes, there are questions as to where to spend and what to tax that should all be debated on their merits. These are political questions, not financial limits. The starting point for these discussions is that we have a sovereign currency that affords us the policy space to do what is right.

We can afford to lower taxes on businesses and incomes. We can afford employment for all who seek work. We can afford education for our children. We can afford to provide access to health care for all. We can afford state-of-the-art infrastructure and transportation. We can afford freedom of opportunity. 

There is no freedom in serving The Market gods. Yes, markets and capitalism play an important role but they do not rule us. A truly free people can choose life and prosperity and equal opportunity for its citizens, without yielding to the tyranny of overbearing governments or deistic markets.

Some gods shouldn't be appeased. They should be demoted and learn to serve the people.