(https://twitter.com/wbmosler/status/925167980706697216)
Matthew B(e)k Bertxiotua Raf Abreu
Obvious bull flattener. Where do all of these people think positive interest rates come from?
Matthew B(e)k gehitu du,
Raf Abreu @thetailchaser
If the Fed published a note stating it would no longer set policy rates, now 100% set by the market:
Warren B. Mosler @wbmosler urr. 31
No such thing with floating fx policy.
http://moslereconomics.com/wp-content/uploads/2007/12/Exchange-Rate-Policy-and-Full-Employment.htm …
2017 urr. 30
Exchange Rate Policy and Full Employment
Exchange Rate Policy and Full Employment – Mosler Economics
December 1998
(…)
Given the goals of full employment, currency stability, and perhaps targeted economic growth, and given that this is a Bill Mitchell conference, it should come as no surprise that I hope to convince you that all this is directly achievable through a guaranteed public service job and a floating exchange rate policy. Let me add that the base public service job has nothing to do with any inalienable human right to work. (…)
Bill Mitchell’s or Randy Wray’s BSE policy is, however, qualitatively very different from traditional demand management policy. With its unique form of full employment and price stability…
The important difference is that with the BSE program, a public service job is offered at an exogenously determined wage. Simply offering the BSE job at the prescribed wage accomplishes the mission, regardless of the number of takers or the quantity of rubles spent. (…)
Floating rate fx policy
With a floating rate currency, interest rates are set exogenously and fx reserves are not at risk. Therefore full employment policy can achieve full employment with no risk of loss of fx reserves. However, the currency could depreciate, and this will now be examined.
The argument can be made that full employment policy could result in the depreciation of the fx value of the currency. However, one must look at the effect on imports and exports to determine the policy implications. If total imports remain the same, and only the distribution of imports changes, the macro effect is only the redistribution of the consumption of the imports. If imports increase, at the macro level the welfare of the population is enhanced. The only reason to trade at all is to import. So only if total unit volume of imports falls could the case be made that welfare has been diminished.
Likewise, exports are the macro cost of imports. The combination is called the terms of trade. Maximizing unit volume of imports relative to exports is how a population maximizes its terms of trade. For example, if unit volume of imports increases more than exports due to currency appreciation, the country is better off.
I have yet to see anyone make the case that full employment policy decreases the terms of trade through currency depreciation, induced by any additional national income due to increased net government expenditures.
Furthermore, without full employment, the concept of comparative advantage does not exist, and trade often simply serves to facilitate a race to the bottom. Business and production flows to areas with the most unemployment and the lowest labor costs. So to attract foreign enterprise a nation must maintain high levels of unemployment as well as offer high profit potential. Neither is good for the domestic population. This pitiful yet near universal policy is being further perpetuated by a fundamental and costly misunderstanding of how currencies operate.
Bill Mitchell’s BSE and Randy Wray’s ELR by implication reintroduce comparative advantage as the driving force behind foreign trade. They provide the structural framework that sets in motion the kinds of market forces and incentives that I suggest are much more desirable to the general population than those in place today.
(…)
National Policy and Politics
With full employment as a national goal, I think a floating rate currency is the only hope of sustaining success.
Given a floating exchange rate, traditional demand management can perhaps sustain full employment, but only through policy that maintains tight labor markets and perhaps bouts of inflation that may prove sufficiently frightening to bring an end to the full employment policy.
BSE, on the other hand, allows for discretionary macro policy that targets labor markets sufficiently loose for a desired level of price stability.
Additional points regarding BSE.
Those on bse jobs will never appear to be overpaid or a waste of $Au via ordinary market forces.
Strong labor requires strong business. In today’s competitive market business is not strong, and therefore labor has little power. In fact, a world wide race to the bottom prevails, as far as business and labor is concerned. BSE is the one vehicle that can introduce additional benefits for labor, though this time from the bottom up, rather than from the top down. All business must ultimately compete with the compensation offered the BSE employee. Therefore, a political constituency of scattered workers could be expected to develop and support politicians who introduce real benefits to the BSE pool. These could include health care, vacations, educational support, child care, etc.
