The Mosler Plan - a comment

[Sven R Larson <larson@xxxxxx>]

I've had a very productive discussion with Warren off-list, so this is
only a general statement inspired by the issue. I think that the
initiative for Palestine is admirable and a much welcome effort to bring
economic theory out in reality. I also think that the country in focus
is well chosen and I do wish Warren good luck.

Economic theory, especially institutions-oriented theory, is more needed
out in real life than most other social science theory. We're lucky for
being where we are, and we should be aware of the privilege and
responsibilities that go with our position. Looking around us we are
constantly reminded of how deeply needed our skills and knowledge are,
in particular when we look outside the stable, prosperous parts of the
industrialized world.

Because economic institutions deal with the very core of people's every
day life - satisfaction of needs by means of scarce resources - they are
the first ones we have to target when we want to build an endurable
society. Often the fall of economic institutions is what triggers social
unrest, and their stability over time is absolutely essential to a
society's accomplishment of prosperity and democracy. Just like the
institutions of liberal democracy, economic institutions cannot be taken
for granted but have to be re-conquered over and over again.

At the same time, building economic institutions in very poor, very
unstable countries is among the most difficult tasks we can take on. The
perpetual efforts by, e.g., the World Bank in Africa are evidence enough
that the wrong strategy does more harm than good to a society. Therefore
the Mosler plan simply must not fail. If it succeeds it might actually
break Palestine's economic dependence upon Israel; if it fails Palestine
may very well be resistent to foreign institutions-oriented help for a
long time. I disagree with the plan in some respects, but I am not going
to re-state these disagreements. Let me just make two general comments:

1. The micro-macro problem. In many poor countries there is, indeed, a
huge excess surplus of labor. But this does not mean that this surplus
is a surplus on the microeconomic level of the economy; the people who
are unemployed may be involved in informal economic networks, or endorse
making a virtue out of work-free income. If either of this holds, any
institutional reform of this society, especially when brought in from
abroad, that aims at making use of this labor, risks failure because the
individuals involved do not appreciate this new institution and its
requirements upon them to abandon the networks they have. In every
society where people remain unemployed for years, such networks emerge
to care for needs that cannot be satisfied by these individuals through
any official institutional channel (such as the official labor market).
These networks in themselves become recognized institutions and when the
efforts put in to them are taken away the people who benefit from them
experience losses that have to be immediately covered from elsewhere.
I'll give you an anecdotal but illustrative example: I have a bunch of
cousins who live up in northern, very rural Sweden. They all have either
seasonal jobs or low-paying blue-collar jobs they move in and out of
depending on the status of the labor market, but their standard of
living often exceeds mine. One reason is that they can make money off a
widely accepted hunting culture, where, e.g., wild-living elks are shot
off hunting season, or rein deers owned by the nomad Laps are killed
with explicit or implicit permission by the Laps (who are reimbursed by
the government for animals taken by bears and wolves). The meat is then
sold either locally or across the border in neighboring Finland. This
practice, together with other shy-of-light activities, require a
carefully established infrastructure of labor, transporation, business
relations etc. and is so well worked out today that many people in it
are reluctant to take more than "necessary" jobs on the official labor
market. A friend of mine who is working for an international development
agency, recently gave me several similar examples of problems with
networks in the countries she works in, and one can interpret local
currency rings - LETS - in a similar fashion. The work force is tied up
on the individual level but is unemployed macroeconomically.

This cultural aspect seems to be always neglected by mainstream
economists, and the failure of the industrialized world to build a
really functioning help line to the Third World is, I think, good
evidence of this. Endurable economic institutions have to be constructed
from the ground up, and one of my concerns with the Mosler plan was that
this aspect wasn't duly acknowledged. I'm less concerned now than I was
before, though.

2. The skills-currency problem. In a tax-based currency framework the
requirement that one works for the public sector to obtain "currency"
means that the public sector MUST find suitable jobs for everyone. This
is probably very easy in the beginning, when there are so many
elementary needs that must be cared for. But quite soon the practical
conditions for tax-based currencies to function become more complicated.
Just to take a simple example: to operate a kindergarten you need the
same staff to be present every day, you need to give them a reasonable
education and thereby you exclude some public works from everyone in
need to pay taxes. Gradually skills are needed in more areas, and my
doubt about the long-term aspects of this system is that it doesn't pay
sufficient attention to traditional division of labor.

I wish to point out, again, that I don't see any of these concerns of
mine as reasons why the plan would necessarily fail. The skills-currency
problem does not say the plan is bound to go wrong - although I still
think it means crossing the river to find water - but only that it needs
to be followed up by something new and that the leadership of the
Palestine territories must be supported in the next phase as well. The
micro-macro problem can be dealt with if local leaders are given as much
freedom in implementation as possible (as is the case with enforcement,
as Warren stated in reply to a previous comment I made); having read the
new mode of operation of development aid to many African countries as
governed by European and American aid agencies I've come to doubt
whether colonialism is really history. The Mosler Plan must run into the
same problems, and I am still doubtful about its merits but less so now
than before.


Cautiously Keynesian,


/srl


--
Sven R Larson
PhD; Assistant professor of economics
Department of Social Sciences, Bldg. 22.2
Roskilde University
Pb 260
DK-4000 Roskilde, Denmark
Phone: (+45) 4674 2910