Economic Summit, etc.

["John Gelles" <jjgelles@xxxxxxxx>]

          THE  SUMMIT  AND  PKT  LIST  PAST
          PROCEEDINGS  STIR  THOUGHTS ON
    PROSPERITY, CAPITAL  ASSET  &  EXPENSE
INFLATION,  EMPLOYMENT  AND  FAIR  WAGES


    James Galbraith was there for us, and he advised the
    bureaucrats, gurus, entrepreneurs, and scholars that
    their subject was:

        "Can full employment without inflation endure?"

    Esther Dyson was there, for the curious among us,
    and asked a very big question -- that may have varied
    the above description of what the Summit was about:

        Larry Summers had asked for invention of a word
        to imply the opposite of "stagflation".  (You may
        remember that some of us believed stagflation had
        defeated Keynesian political remedies for poverty,
        "natural" unemployment and "naturally" low wages.)

        Esther said, "I think I actually have a word for
        Larry, and it's 'STOCKflation'."

        Esther continued:

        "My question is, if you [the Pres & Larry] talk about
        the privatization of debt.  We've also in some sense
        got privatization of the management of the money
        supply when people like Goldman Sachs -- thank
        you, Abby [Cohen] -- are issuing IPOs all over the
        place.  ... [these IPOs are creating] not just assets,
        somehow [-- inflated assets at that].  ... [These assets]
        are moving into the income supply.  People are being
        paid in stock.  What's the impact of that for the
        economy?"

    So it may be that the Summit was about the WEALTH
    EFFECT and full employment -- how long can they
    endure.

    The word "inflation" drops out because the wealth effect
    is the result of inflation -- NOT of avoiding it. But of the
    kind of inflation we like -- inflation in capital assets that
    substitutes for government contracts as a source of
    spending money to ward off poverty and unemployment.

    Flash back to Warren Mosler's claim that government
    sets prices by buying with money (it will tax back later) at
    prices it can control by varying tax rates and purchases.

    Underlying Warren's theory is our agreed position:  We
    want a monetary system of production, NOT a police
    state.

    But Esther sees the power of Wall Street to chase after
    capital asset growth and leave behind it some real factories
    and firms capable of doing what the Summit observed --
    improving logistics, reducing costs, building telecom infra-
    structure, readying the world for free education and good
    information. Doing a bloodless revoution even, maybe.

    Well I do not fault Warren or James Galbraith. I applaud
    Esther for asking the question -- how long will this wealth
    effect pay the bills -- and I applaud James for demanding,
    not that we "let it rip", but that we avoid putting fat feet on
    fiscal or monetary brakes.

    Nobody knows exactly how to meld the wealth effect and
    capital asset bubbles into a solid monetary system of
    production that is self-sustaining -- meaning self-financing
    with Keynesian money.  But we DO know what to do
    when wage, employment, output, and price, signals are
    received:

        We go back to Abba Lerner. If the signals are of a
    contraction, we LOWER TAXES and RAISE FEDERAL
    SPENDING.  If money begins to lose its power to motivate
    work and economic daring, we reduce federal spending.
    We may even have to gingerely raise taxes if the political
    cost does not include loss of affection for government.

        And we do MORE.  We follow James Galbraith advice
    and raise the minimum wage NOW and whenever
    productivity gains permit it.  Only via this LAW can wages
    work in a monetaey system of production that successfully
    prevents formation of a police state.  And, for the same
    reason we strengthen collective bargaining and independent
    labor unions.

    Clinton's last Summit must be deemed a success. NOT
    because Clinton, Perot, Rubin, Greenspan, Gingrich and
    a deficit hawkish Republican Congress reduced federal
    support for essential programs, but in spite of that fact.
    The Summit was alive because Wall Street (everywhere
    that venture and other capitalists thrive -- not just in
    NYC) -- carried the ball that Cold War deficits and anti-
    trust in telecom put in play.

    The New Economy was birthed by New Deal type
    cold war spending on defense and the anti-trust
    breakup of Ma Bell and IBM -- albeit it took a
    little time for these elements to come into play.

    The real lessons to be learned is to keep money
    cheap and competition alive.  And IF the rest does
    not follow, then MAKE it happen with federal R&D,
    new energy, housing, environmental repair, spending,
    and the rest. (The welfare sate does not die -- it
    hibernates from time to time. And one day it will
    learn to use savings -- see below-- in lieu of taxes.)

    There is nothing new in the New Economy. It's the
    old economy on Viagra, waiting to be shoved in high
    gear to reach worlwide full employment, rising minimum
    wages by law, rising minimum standards of living, and
    an end to taxation in favor of voluntary indexed saving,
    stronger unions by law, and smarter academic
    economists (not by law but by chance).

          John Gelles
         email    1944@xxxxxxxx
             url    http://1944.org