if this post by Alex Tabarraok is to be believed, it’s to keep his pants up while he accompanies an ambulance. Interesting statistic: the number of fires in the United States has fallen by more than 40% while the number of career firefighters has increased by more than 40%.
Here in Chicago the median firefighter’s salary is around $65,000. However, the median amount of overtime paid is around $35,000 which pushes income up to around $100,000. That doesn’t include other benefits.
I think that’s well worth it for firefighting. However, it’s not nearly as worthwhile for non-firefighting duties which, as the linked post points out, are an increasing proportion of what firefighters actually do.
So, how much does a Chicago firefighter earn per year? I think the best answer is that nobody knows. I have yet to meet a firefighter who didn’t have a sideline business. Consequently, on top of the $100K that he or she earned from the job with the Chicago Fire Department there was whatever was earned from the sideline business. Are those conditions a perk of the job?
You usually say that the market clearing price or equilibrium price has been reached when the quantity supplied is precisely equal to the quantity demanded. There are thousands of people on the waiting list to become Chicago firefighters, possibly in the low five figures. I’m told that a ten year wait is not beyond the realm of possibility. What does that tell you about how much Chicago firefighters are paid?
Don’t you just love rent seeking…and for firefighters whom everybody loves.
Never mind the unsustainable budgets….and who really cares, the U.S. has a printing press and deficits don’t matter, just ask Ben. More deficits equals more savings…which is why during the 80’s and 90’s the U.S. savings rate was so high…oh wait….
Steve V, for some time I thought Ben didn’t think deficits matter either. But I finally saw a couple of comments of his in which he does admit to risks. He seems more interested in precisely defining terminology (don’t tell him the government is running out of money!), which leads to some misunderstanding of his overall beliefs, IMO.
Icepick,
Well, strictly speaking the MMTers are right in that the government, since it owns a printing press, can never really run out of money. My issue is that expanding the amount of money in the economy is not limitless. I think that the limit is related to our real economy–i.e. the value of all goods and services.
Let me ask you this Icepick, intuitively what do you think happens if the government were to engage in deficit spending, all other things constant? That is, as per the MMTers, the government goes and uses its control of our fiat money to double the money supply and spends all that new money, what happens?
The notion that government cannot run out of money is true by definition, but seems to me to contain no information.
The question becomes “what are the side effects?”.
I have a question for those trained or more experienced in the science of economics than I: what happens when the string gets taut? What happens when velocity recovers? Where is all the money that has been sloshed into the economy. Why do we not have a latent inflation?
And from a policy perspective, is there anyone who does not think that a significant component of the politicians out is to debauch the debt, by debauching the currency?
Steve V, I don’t advocate those policies. Personally I am fine with talking about a government “going broke” or “running out of money”. Strictly speaking not true, but it is a useful shorthand. Several things can happen then, all of them bad.
I don’t think the MMT guys have their hands on the “truth” but I don’t think any of the other schools of thought do either.
Icepick,
What policies? I was just pointing out a reasonable conclusion to owning a printing press/being the issuer of a currency, and asked a question. Intuitively what do you think would happen if the government were to spend money via its control of our fiat currency?
My intuitive view, is that in general, if some of that money “chases” goods or services in the economy, then it will have to result in inflation. The extent depends on how much of the money goes after these goods and services (lets just say goods to save on typing, but keep in mind it refers to both goods and services) and the slope of the supply curves. (Note this example has no central bank/Federal Reserve. It is a thought experiment, a starting point to try to understand monetary activities by the government.) The higher inflation will also lead to higher interest rates. After all, if the money I loan you is going to lose purchasing power at the current rate when you pay it back to me, I’ll ask for a higher interest rate. That is, the nominal interest rate is a function of the rate of inflation and the real interest rate.
Now, what is the Chartalist/MMT position? Would they subscribe to the above description? I don’t think so. So they either conclude inflation does not occur and interest rates stay the same, or that interest rates could even go down. How would that happen?
Of course the interesting part here, that never gets discussed, is that firefighters are largely paid by local governments and state governments. Somehow the Federalists never seem to grasp this. If you want to find real growth in the number of govt employees, and poorly run pensions, the place to look is at the state and local level.
Steve
Steve V- But why would the govt keep printing lots of money if we were at full employment?
Steve
The man in the coon-skin cap
By the big pen
Wants eleven dollar bills
You only got ten
Now you got twenty
He wants twenty-five
Where does the money go
Look out kid
It’s somethin’ you did
God knows when
But you’re doin’ it again
Steve V, sorry, read the prior post too quickly and assumed you were talking about current spending levels. (Meaning running a huge annual deficit annually.)
As for your example, it’s going to depend on how big the deficits are in relation to the economy.If the US government were to run an annual deficit of $1, they could do so in perpetuity – it isn’t a big deal. At some level the deficits are going to start having some bite. At some greater point they will become crippling.
I do agree that at some point all the additional money sloshing around must result in either broad-based inflation or bubbles – the money is going to want to go SOMEWHERE. But at what point does that start driving higher interest rates? We’ve had a huge pump the last few years, and while people are getting squeezed to an extent, I’m not noticing that interest rates have gone up. The opposite seems to have happened. Why is that? How long can this last? How much has the wealth destruction of the last five years mitigated (or been mitigated by) all the action from the Fed and the federal government?
I don’t know the answers to those questions. What worries me is that no one else seems to know either, including those with lots of fancy credentials*. My ignorance can be explained – I’m not an economist. So what’s the excuse for the economists?
* If they did know I would assume they would be positioning themselves to make a killing when things start changing rapidly again. What was the name of that guy in Texas? Andy Beal? The one that saw the crunch coming in the housing market and tripled his money (reportedly) by betting with the right financial instruments. I guess in a few years we will know who knew what was happening – or at least who got lucky with their guesses….
@Drew
You need to define inflation. The Austrians define inflation as an increase in the money supply, but I do not know which Mn they use. The Keynesians define inflation as an increase in prices, but I do not know which rate they use. I am guessing the MMTers use a similar definition as the Keynesians, but I am not sure.
The problem with the Austrians is that they do not include private debt in the money supply. I am not sure if the MMTers do include it, but the Keynesians do not. Depending upon what is included as a price will allow the “inflation rate” to be rigged. Housing was severely inflated, but it is not included. The stock market, oil, gold, other commodities, and many other goods/services are not included, but they are all up.
Private debt is several times larger than the money supply (M0, M1, … Mn), and the Fed increasing the money supply is dwarfed by the private debt. In addition, part of the money supply (M0, M1, … Mn) is being used to repay debt. These factors keep official inflation & CPI stable. The areas where prices are inflated are where financing (debt) is still being created.
@Steve Verdon
The Fed is limited in the ways it can get “dollars” into the economy. It can lend, but this is limited by demand. Presently, the money the Fed lends is lent back to the government. Rinse and repeat. Another way is to purchase various bonds/securities/etc., but it has probably purchased or traded the trash from the private debt pool. This is why @Ben Wolf says that lowering the Fed rate will not increase lending. Banks are only lending to those with “good credit”, and those folks are not borrowing. The people who want to borrow do not have “good credit”.
Most money is lent into existence. This is what is meant by lending first and fulfilling reserves/capital requirements second. The source for these reserves/capital requirements is money created by the Fed. The Fed created counterfeit-like dollars, and the banks use these to create bank notes that masquerade as dollars. Calls for a gold standard are unrealistic when private debt is added to the money supply (Mn). I do not have the numbers, but I think it is $20 – 30 trillion. The gold supply would need to be spread across all these “dollars”. (The shadow banking system increases these numbers substantially.)
Increasing the money supply + private debt is not necessarily bad, but the increase needs to match increased actual goods & productive services. Creating financial goods and services to be used to create more financial goods and services is not good. The result is the bubbles we have experienced. The problem is keeping money and GDP aligned. Everything is “sunshine and lollipops” on the way up, but on the way down …
(NOTE: My use of GDP may not be technically correct. I mean overall productive goods and services.)
When @Drew uses “bank notes masquerading as dollars” to invest in a company creating actual goods or productive services. This output will contribute to the overall GDP, and as long as this matches the increase in money supply, all is good. The problem is when they are used to create a housing, dot com, etc. bubble. Presently, many of these “dollars” are tied up in worthless debt, and until that debt is drawn down, things will drag along.
The Fed and banks are using a modified version of the short change scam. The Fed is the cash register, the cashier is the bank, and the customer is the borrower. By mixing up transactions (American version double entry bookkeeping), the cashier (bank) is able to return more cash than is in the cash drawer (money supply). The cashier (bank) obtains the cash from the cash register (Fed), but the cash in the cash register is being printed in the backroom. Since the books are not allowed to be audited, the scam is able to go undetected by most people. (The shadow banking system works in a similar manner.)
Once you begin to think like a hustler, it is really not very complicated. The “complication” is intentional. It is subterfuge to allow misdirection. While most people are arguing over the money supply, the hustlers are creating multiples of the money supply. A really good hustler is able to have the saps working to justify the hustle.
@Icepick
You once commented about the Bretton Woods Conference occurring before the end of WWII. A hustler “never lets a good crisis go to waste”. If I am not mistaken, the Pimp and Ho Ball of 1944 was in Bretton Woods, NH. This year there are two Pimp and Ho Balls. One is in Tampa, FL, and the other is in Charlotte, NC.
Tasty Bits,
I know, I’m starting with a more simplistic thought experiment to get at some basic points of understanding, not to model current reality (and what is the point of that anyways, why model something where we already have a working model?).
Icepick,
I am an economist…or at least that is what I spent years studying and still read about even today….
I think that part of the problem is that macro economics as a field is still considerably fractured in terms of schools of thought and that those schools of thought are also closely connected to political ideology. I prefer micro-economics myself and don’t think anyone has any insight as to how to solve the current malaise the economy is in. We have already expanded the monetary base as was done in 1932 and back then it resulted in tremendous growth. Now, we don’t see the growth. Do I have any ideas? Not really. I’m not sure we can have a simple fix like that. Perhaps what needs to be done is to go with a more business friendly atmosphere. Encourage new business formation, even offer incentives. I also think part of the problem has to do with investment as well. In looking at the data, investment dropped drastically and has yet to recover to its previous peak…is that important? Possibly.
But as for having a nice answer, I don’t think there is one and if somebody tells you they have one they are either a charlatan or fool, IMO.
@Steve Verdon
I was trying to eliminate any objections to the Fed & the money supply, the printing press, blah, blah, blah. But it is germane to the issue. The problem is with the amount of private debt and the way it was created. This also ties in to my contention of dollars and value. (I will keep cheeseburgers out this time.)
Real goods (houses) were created using pseudo-dollars (loans). These loans were to be repaid with real dollars. The problem was that the pseudo-dollars were inflating the price of the real goods, and more pseudo-dollars were being created than real goods. Everything was going fine until the music stopped, and someone was missing a chair. The person without a chair is still required to fulfill the debt as if they had a chair.
The Fed is trying to pump counterfeit-like dollars into the economy to create more pseudo-dollars to repay the real debt, or at least, they would like the counterfeit-like dollars to be used to repay the debt. The problem with the scheme is size. As @Ben Wolf notes, the government would need to borrow to get the money into the economy, but the reality is that the amount needed is staggering.
The private debt needs to be cleared before the economy can get moving again. It can either be done quickly or slowly, but it will be done. (NOTE: I have not addressed the trade imbalance, but it is also could be a factor.)
I do not want to offend you, but I consider Economics to be worthless. Economists never take the real world into account. How many charts, graphs, equations, or assumptions were based upon LIBOR being fixed? How many theories assume the system is rigged? How much time would economists have spent arguing that LIBOR could not or would not be fixed? How many economists believe the Fed is a scam to ensure the ultra, ultra rich have a safe place to keep their money, a safe way to make money, and a less safe way to make a lot of money?
Tasty Bits,
Not sure how you can distinguish between a real dollar and pseudo dollar as they are all dollars and we all believe they have value because we are told they have value.
@Steve Verdon
Therein lies the problem, but not all of us believe what we are told.
Tasty Bits,
Only the cranks and the loons….
Seriously, unless you think there is some sort of intrinsic value to the dollar…how do you get paid?
@Steve Verdon
Currency as a currency has no intrinsic value, but it may have a value in addition to its currency value. A $50 gold coin can be currency, collectible coin, or jewelry, and the value is dependent upon how it is being used.
I would prefer to be paid in $50 gold coins. Since presently, my pay is leaving about as fast as it arrives, and I am not concerned about losing future purchasing power. Unless something comes up, this should be changing soon, and once I can save a few dollars, I will be concerned with future purchasing power. (Hopefully, I can afford a family health insurance policy.)
My intuitive view, is that in general, if some of that money “chases†goods or services in the economy, then it will have to result in inflation. …
Theoretically, increased demand should cause some of the money being used to build new manufacturing plants to produce more goods. Also, the increased money supply should result in an increased source for lending, and this should keep interest rates from rising.
If you do not include money borrowed into existence, it is difficult to use it as a basis for the larger economy, but I may have misunderstood where you were going with your original scenario.