job guarantee

How Progressives Can Win Big: Casting out the Spirit of Defeatism, One Keystroke at a Time

Published by Anonymous (not verified) on Mon, 11/12/2017 - 12:44pm in

By Steve Grumbine

 

Progressives Trigger warning: Compassion required. When is the last time you heard Greens, Berniecrats or Indie voters not acknowledge the distinct and pressing need for election reform, campaign finance reform, voting reform? More to the point, when haven’t they mentioned unleashing 3rd parties from the fringe of irrelevancy and up onto the debate stage?

That is mostly what is talked about, simply because it is low hanging fruit.

It has long been known that our electoral system and methods of voting are corrupt, untrustworthy, and easily manipulated by less than savvy politicians, state actors, and hackers alike. The answers to many of these issues is the same answer that we would need to push for any progressive reforms to take place in America: namely, we need enlightened, fiery, peaceful, and committed activists to propel a movement and ensure that the people rise, face their oppressors, and unify to demand that their needs be met.

What is not as well-known, however, is how a movement, the government, and taxes work together to bring about massive changes in programs, new spending, and the always scary “National Debt” (should be “National Assets”, but I will speak to that later). In fact, this subject is so poorly understood by many well-meaning people on all sides of the aisle that these issues are the most important we face as a nation. Until we understand them and have the confidence and precision necessary to destroy the myths and legends we have substituted in the absence of truth and knowledge, it must remain front and center to the movement.

Progressives, like most Americans, are almost religiously attached to the terms “the taxpayer dollar,” and the idea that their “hard earned tax dollars” are being misappropriated. Often, the most difficult pill for people to swallow is the concept that our Federal Government is self-funding and creates the very money it “spends”. It isn’t spending your tax dollars at all. To demonstrate this, consider this simplified flow chart:

These truths bring on even more hand wringing, because to the average voter they raise the issue of where taxes, tax revenue, government borrowing, and the misleading idea of the “National Debt” (which is nothing more than the sum of every single not yet taxed federal high-powered dollar in existence) fit into the federal spending picture. The answer is that they really don’t.

A terrible deception has been perpetrated on the American people. We have been led to believe that the US borrows its own currency from foreign nations, that the money gathered from borrowing and collected from taxing funds federal spending. We have also been led to believe that gold is somehow the only real currency, that somehow our nation is broke because we don’t own much gold compared to the money we create, and that we are on the precipice of some massive collapse, etc. because of that shortage of gold.

The American people have been taught single entry accounting instead of Generally Accepted Accounting Practices, or GAAP-approved double entry accounting, where every single asset has a corresponding liability; which means that every single dollar has a corresponding legal commitment. Every single dollar by accounting identity is nothing more than a tax credit waiting to be extinguished.  Sadly, many only see the government, the actual dollar creator, as having debt; that it has liabilities, not that we the people have assets; assets that we need more and more of as time goes on, to achieve any semblance of personal freedom and relative security from harm.

In other words, at the Federal level it is neither your tax dollars nor the dollars collected from sales of Treasury debt instruments that are spent. Every single dollar the Federal Government spends is new money.

Every dollar is keystroked into existence. Every single one of them. Which brings up the next question: “Where do our hard-earned tax dollars and borrowed dollars go if, in fact, they do not pay for spending on roads, schools, bombs and propaganda?” We already know the answer. They are destroyed by the Federal Reserve when they mark down the Treasury’s accounts.

In Professor Stephanie Kelton’s article in the LA Times “Congress can give every American a pony (if it breeds enough ponies)” (which you can find here ) She states quite plainly:

“Whoa, cowboy! Are you telling me that the government can just make money appear out of nowhere, like magic? Absolutely. Congress has special powers: It’s the patent-holder on the U.S. dollar. No one else is legally allowed to create it. This means that Congress can always afford the pony because it can always create the money to pay for it.”

That alone should raise eyebrows and cause you to reconsider a great many things you may have once thought. It will possibly cause you to fall back to old, neoclassical text book understandings as well, which she deftly anticipates and answers with:

“Now, that doesn’t mean the government can buy absolutely anything it wants in absolutely any quantity at absolutely any speed. (Say, a pony for each of the 320 million men, women and children in the United States, by tomorrow.) That’s because our economy has internal limits. If the government tries to buy too much of something, it will drive up prices as the economy struggles to keep up with the demand. Inflation can spiral out of control. There are plenty of ways for the government to get a handle on inflation, though. For example, it can take money out of the economy through taxation.”

And there it is. The limitation everyone is wondering about. Where is the spending limit?

When we run out of real resources. Not pieces of paper or keystrokes. Real resources.

To compound your bewilderment, would it stretch your credulity too much to say that the birth of a dollar is congressional spending and the death of a dollar is when it is received as a tax payment, or in return for a Treasury debt instrument, and deleted? Would that make your head explode? Let the explosions begin, because that is exactly what happens.

Money is a temporary thing. Even in the old days we heard so many wax poetically about how they took wheelbarrows of government — and bank – printed IOUs to the burn pile, and set the dollar funeral pyre ablaze.  

In the same LA Times piece, Professor Kelton goes on to say:

“Since none of us learned any differently, most of us accept the idea that taxes and borrowing precede spending – TABS. And because the government has to “find the money” before it can spend in this sequence, everyone wants to know who’s picking up the tab.

There’s just one catch. The big secret in Washington is that the federal government abandoned TABS back when it dropped the gold standard. Here’s how things really work:

  1. Congress approves the spending and the money gets spent (S)
  2. Government collects some of that money in the form of taxes (T)
  3. If 1 > 2, Treasury allows the difference to be swapped for government bonds (B)

In other words, the government spends money and then collects some money back as people pay their taxes and buy bonds. Spending precedes taxing and borrowing – STAB. It takes votes and vocal interest groups, not tax revenue, to start the ball rolling.”

Let’s be clear, we are not talking about the Hobbit or Lord of the Rings. We are not talking about Gandalf the Grey or Bilbo Baggins. We are not referencing “my precious!”. It’s not gold, or some other commodity people like to hold, taste and smell. It is simply a tally. Yet somehow, we have convinced ourselves that there is a scarcity of dollars, when it is the resources that are scarce. We have created what Attorney Steven Larchuk calls a “Dollar Famine”.

To quote Warren Mosler in his must-read book “The 7 Deadly Innocent Frauds of Economic Policy” (you can download a free copy right here) he states:

“Next question: “So how does government spend when they never actually have anything to spend?”

Good question! Let’s now take a look at the process of how government spends.

Imagine you are expecting your $1,000 social security payment to hit your bank account which already has $500 in it, and you are watching your account on your computer screen. You are about to see how government spends without having anything to spend.

Presto! Suddenly your account statement that read $500 now reads $1,500. What did the government do to give you that money? It simply changed the number in your bank account from 500 to 1,500. It added a ‘1’ and a comma. That’s all.”

Keystrokes. Is it becoming clearer? Let’s go further for good measure. Mosler continues:

“It didn’t take a gold coin and hammer it into its computer. All it did was change a number in your bank account. It does this by making entries into its own spread sheet which is connected to the banking systems spreadsheets.

Government spending is all done by data entry on its own spread sheet we can call ‘The US dollar monetary system’.

There is no such thing as having to ‘get’ taxes or borrow to make a spreadsheet entry that we call ‘spending’. Computer data doesn’t come from anywhere. Everyone knows that!”

So why do we allow people to tell us otherwise? Maybe it is too abstract. And on cue, Mosler explains this phenomenon via a sports analogy for those who are not comfortable with the straight economic narrative:

“Where else do we see this happen? Your team kicks a field goal and on the scoreboard the score changes from, say, 7 point to 10 points. Does anyone wonder where the stadium got those three points? Of course not! Or you knock down 5 pins at the bowling alley and your score goes from 10 to 15. Do you worry about where the bowling alley got those points? Do you think all bowling alleys and football stadiums should have a ‘reserve of points’ in a ‘lock box’ to make sure you can get the points you have scored? Of course not! And if the bowling alley discovers you ‘foot faulted’ and takes your score back down by 5 points does the bowling alley now have more score to give out? Of course not!

We all know how ‘data entry’ works, but somehow this has gotten all turned around backwards by our politicians, media, and most all of the prominent mainstream economists.”

Ouch! Mosler pointed out the obvious, the propaganda machine has polluted our understanding. So how is this done in economic language? Let’s let Warren finish the thought:

“When the federal government spends the funds don’t ‘come from’ anywhere any more than the points ‘come from’ somewhere at the football stadium or the bowling alley.

Nor does collecting taxes (or borrowing) somehow increase the government’s ‘hoard of funds’ available for spending.

In fact, the people at the US Treasury who actually spend the money (by changing numbers on bank accounts up) don’t even have the phone numbers of the people at the IRS who collect taxes (they change the numbers on bank accounts down), or the other people at the US Treasury who do the ‘borrowing’ (issue the Treasury securities). If it mattered at all how much was taxed or borrowed to be able to spend, you’d think they’d at least know each other’s phone numbers! Clearly, it doesn’t matter for their purposes.”

So why do progressives allow the narrative that the nation has run out of points deter us from demanding we leverage our resources to gain points, to win the game of life, and have a robust New Deal: Green Energy, Infrastructure, free college, student debt eradication, healthcare as a right, a federal job guarantee for those who want work and expanded social security for those who do not want to or cannot work?

How has a movement so full of “revolutionaries” proved to be so “full of it” believing that we must take points away from the 99% to achieve that which the federal government creates readily, when people do something worth compensating? Why does the narrative that the nation is “broke” resonate with progressives? Why do they allow this narrative to sideline the entire movement?

I believe it is because progressives are beaten down. Many have forgotten what prosperity for all looks like or sounds like. Many are so financially broke and spiritually broken that the idea of hope seems like gas lighting. It feels like abuse. It crosses the realm of incredulity and forces people into that safe space of defeatism.

If they firmly reject hope, then they can at least predict failure, be correct and feel victorious in self-defeating apathy. If the system is rigged; if the politicians are all bought off; if the voting machines are hacked; if the deep state controls everything; then we think we are too weak to unite and stand up and demand economic justice, equality, a clean environment, a guaranteed job, healthcare and security and then we have a bad guy to blame.

Then we can sit at our computers, toss negative comments around social media, express our uninformed and uninspired defeatism about the system, and proclaim it is truth by ensuring it is a self-fulfilling prophecy about which we can be self-congratulatory in our 20/20 foresight as we perform the “progressive give-up strategy”. Or, if we want to achieve a Green New Deal, then in a radical departure from the norm we can own our power; we can embrace macroeconomic reality through the lens of a monetarily sovereign nation with a free floating, non-convertible fiat currency and truly achieve the progressive prosperity we all deserve.

The choice is ours. It is in our hands.

 

**For more of Steve’s work check out Real Progessives on Facebook or Twitter

The post How Progressives Can Win Big: Casting out the Spirit of Defeatism, One Keystroke at a Time appeared first on The Minskys.

Unemployment is miserable and doesn’t spawn an upsurge in personal creativity

Published by Anonymous (not verified) on Tue, 21/11/2017 - 1:14pm in

Tags 

job guarantee

Here is a summary of another interesting study I read last week (published March 30, 2017) – Happiness at Work – from academic researchers Jan‐Emmanuel De Neve and George Ward. It explores the relationship between happiness and labour force status, including whether an individual is employed or not and the types of jobs they are doing. The results reinforce a long literature, which emphatically concludes that people are devastated when they lose their jobs and do not adapt to unemployment as its duration increases. The unemployed are miserable and remain so even as they become entrenched in long-term unemployment. Further, they do not seem to sense (or exploit) a freedom to release some inner sense of creativity and purpose. The overwhelming proportion continually seek work – and relate their social status and life happiness to gaining a job, rather than living without a job on income support. The overwhelming conclusion is that “work makes up such an important part of our lives” and that result is robust across different countries and cultures. Being employed leads to much higher evaluations of the quality of life relative to being unemployed. And, nothing much has changed in this regard over the last 80 or so years. These results were well-known in the 1930s, for example. They have a strong bearing on the debate between income guarantees versus employment guarantees. The UBI proponents have produced no robust literature to refute these long-held findings.

While the ‘Happiness Study’ notes that “the relationship between happiness and employment is a complex and dynamic interaction that runs in both directions” the authors are unequivocal:

The overwhelming importance of having a job for happiness is evident throughout the analysis, and holds across all of the world’s regions. When considering the world’s population as a whole, people with a job evaluate the quality of their lives much more favorably than those who are unemployed. The importance of having a job extends far beyond the salary attached to it, with non-pecuniary aspects of employment such as social status, social relations, daily structure, and goals all exerting a strong influence on people’s happiness.

And, the inverse:

The importance of employment for people’s subjective wellbeing shines a spotlight on the misery and unhappiness associated with being unemployed.

There is a burgeoning literature on ‘happiness’, which the authors aim to contribute to.

They define happiness as “subjective well-being”, which is “measured along multiple dimensions”:

… life evaluation (by way of the Cantril “ladder of life”), positive and negative affect to measure respondents’ experienced positive and negative wellbeing, as well as the more domain-specific items of job satisfaction and employee engagement. We find that these diverse measures of subjective wellbeing correlate strongly with each other …

Cantril’s ‘Ladder of Life Scale’ (or “Cantril Ladder”) is used by polling organisations to assess well-being. It was developed by social researcher Hadley Cantril (1965) and documented in his book The pattern of human concerns.

You can learn more about the use of the ‘Cantril Ladder’ HERE.

As we read, the “Cantril Self-Anchoring Scale … consists of the following”:

  • Please imagine a ladder with steps numbered from zero at the bottom to 10 at the top.
  • The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you.
  • On which step of the ladder would you say you personally feel you stand at this time? (ladder-present)
  • On which step do you think you will stand about five years from now? (ladder-future)

[Reference: Cantril, H. (1965) The pattern of human concerns, New Brunswick, Rutgers University Press.]

Christian Bjørnskov’s 2010 article – How Comparable are the Gallup World Poll Life Satisfaction Data? – also describes how it works.

[Reference: Bjørnskov, C. (2010) ‘How Comparable are the Gallup World Poll Life Satisfaction Data?’, Journal of Happiness Studies, 11 (1), 41-60.]

The Cantril scale is usually reported as values between 0 and 10.

The authors in the happiness study use poll data from 150 nations which they say “is representative of 98% of the world’s population”. This survey data is available on a mostly annual basis since 2006.

The following graph (Figure 1 from the Study) shows “the self-reported wellbeing of individuals around the world according to whether or not they are employed.”

The “bars measure the subjective wellbeing of individuals of working age” by employment status .

The results show the differences between having a job and being unemployed are “very large indeed” on the three well-being measures (life evaluation, positive and negative affective states).

People employed “evaluate the quality of their lives around 0.6 points higher on average as compared to the unemployed on a scale from 0 to 10.”

The authors also conduct more sophisticated (and searching) statistical analysis (multivariate regression) which control for a range of characteristics (gender, age, education, marital status, composition of household) as well as to “account for the many political, economic, and cultural differences between countries as well as year-to-year variation”.

The conclusion they reach is simple:

… the unemployed evaluate the overall state of their lives less highly on the Cantril ladder and experience more negative emotions in their day-to-day lives as well as fewer positive ones. These are among the most widely accepted and replicated findings in the science of happiness … Here, income is being held constant along with a number of other relevant covariates, showing that these unemployment effects go well beyond the income loss associated with losing one’s job.

These results are not surprising.

The earliest study of this sort of outcome was from the famous study published by Philip Eisenberg and Paul Lazersfeld in 1938.

[Reference: Eisenberg, P. and Lazarsfeld, P. (1938) ‘The psychological effects of unemployment’, Psychological Bulletin, 35(6), 358-390.]

They explore four dimensions of unemployment:

I. The Effects of Unemployment on Personality.

II. Socio-Political Attitudes Affected by Unemployment.

III. Differing Attitudes Produced by Unemployment and Related Factors.

IV. The Effects of Unemployment on Children and Youth.

On the first dimension, they conclude that:

1. “unemployment tends to make people more emotionally unstable than they were previous to unemployment”.

2. The unemployed experience feelings of “personal threat”; “fear”; “sense of proportion is shattered”; loss of “common sense of values”; “prestige … lost … in … own eyes … and as he imagines, in the eyes of his fellow men”; “feelings of inferiority”; loss of “self-confidence” and a general loss of “morale”.

Devastation, in other words.

They were not surprised because they note that:

… in the light of the structure of our society where the job one holds is the prime indicator of … status and prestige.

This is a crucial point that UBI advocates often ignore. There is a deeply entrenched cultural bias towards associating our work status with our general status and prestige and feelings of these standings.

That hasn’t changed since Eisenberg and Lazersfeld wrote up the findings of their study in 1938.

It might change over time but that will take a long process of re-education and cultural shift. Trying to dump a set of new cultural values that only a small minority might currently hold to onto a society that clearly still values work is only going to create major social tensions.

Eisenberg and Lazarsfeld also considered an earlier 1937 study by Cantril who explored whether “the unemployed tend to evolve more imaginative schemes than the employed”.

[Reference: Cantril, H. (1934) ‘The Social Psychology of Everyday Life’, Psychological Bulletin, 31, 297-330.]

The proposition was (is) that once unemployed, do people then explore new options that were not possible while working, which deliver them with the satisfaction that they lose when they become jobless.

The specific question asked in the research was: “Have there been any changes of interests and habits among the unemployed?”

Related studies found that the “unemployed become so apathetic that they rarely read anything”. Other activities, such as attending movies etc were seen as being motivated by the need to “kill time” – “a minimal indication of the increased desire for such attendance”.

On the third dimension, Eisenberg and Lazersfeld examine the questions – “Are there unemployed who don’t want to work? Is the relief situation likely to increase this number?”, which are still a central issue today – the bludger being subsidised by income support.

They concluded that:

… the number is few. In spite of hopeless attempts the unemployed continually look for work, often going back again and again to their last place of work. Other writers reiterate this point.

So for decades, researchers in this area, as opposed to bloggers who wax lyrical on their own opinions, have known that the importance of work in our lives goes well beyond the income we earn.

The non-pecuniary effects of not having a job are significant in terms of lost status, social alienation, abandonment of daily structure etc, and that has not changed much over history.

The happiness paper did explore “how short-lived is the misery associated with being out of work” in the current cultural settings.

The proposition examined was that:

If the pain is only fleeting and people quickly get used to being unemployed, then we might see joblessness as less of a key public policy priority in terms of happiness.

They conclude that:

… a number of studies have demonstrated that people do not adapt much, if at all, to being unemployed … there is a large initial shock to becoming unemployed, and then as people stay unemployed over time their levels of life satisfaction remain low …. several studies have shown that even once a person becomes re-employed, the prior experience of unemployment leaves a mark on his or her happiness.

So there is no sudden or even medium-term realisation that being jobless endows the individual with a new sense of freedom to become their creative selves, freed from the yoke of work. To bloom into musicians, artists, or whatever.

The reality is that there is an on-going malaise – a deeply entrenched sense of failure is overwhelming, which stifles happiness and creativity, even after the individual is able to return to work.

This negativity, borne heavily by the individual, however, also impacts on society in general.

The paper recognises that:

A further canonical finding in the literature on unemployment and subjective wellbeing is that there are so-called “spillover” effects.

High levels of unemployment “increase fear and heighten the sense of job insecurity”. Who will lose their job next type questions?

The researchers found in their data that the higher is the unemployment rate the greater the anxiety among those who remain employed.

Conclusion

The overwhelming conclusion is that “work makes up such an important part of our lives” and that result is robust across different countries and cultures.

Being employed leads to much higher evaluations of the quality of life relative to being unemployed.

The unemployed are miserable and remain so even as they become entrenched in long-term unemployment. They do not seem to sense (or exploit) a freedom to release some inner sense of creativity and purpose.

The overwhelming proportion continually seek work – and relate their social status and life happiness to gaining a job, rather than living without a job on income support.

Modern Monetary Theory (MMT) allows us to understand that it is the government that chooses the unemployment rate – it is a political choice.

For currency-issuing governments it means their deficits are too low relative to the spending and saving decisions of the non-government sector.

For Eurozone-type nations, it means that in surrendering their currencies and adopting a foreign currency, they are unable to guarantee sufficient work in the face of negative shifts in non-government spending. Again, a political choice.

The Job Guarantee can be used as a vehicle to not only ensure their are sufficient jobs available at all times but also to start a process of wiping out the worst jobs in the non-government sector.

That can be done by using the JG wage to ensure low-paid private employers have to restructure their workplaces and pay higher wages and achieve higher productivity in order to attract labour from the Job Guarantee pool.

The series so far

This is a further part of a series I am writing as background to my next book with Joan Muysken analysing the Future of Work. More instalments will come as the research process unfolds.

The series so far:

1. When Austrians ate dogs.

2. Employment as a human right.

3. The rise of the “private government.

4. The evolution of full employment legislation in the US.

5. Automation and full employment – back to the 1960s.

6. Countering the march of the robots narrative.

7. Unemployment is miserable and does not spawn an upsurge in personal creativity.

The blogs in these series should be considered working notes rather than self-contained topics. Ultimately, they will be edited into the final manuscript of my next book due in 2018. The book will likely be published by Edward Elgar (UK).

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.

Automation and full employment – back to the 1960s

Published by Anonymous (not verified) on Tue, 14/11/2017 - 8:13pm in

On August 19, 1964, the then US President Lyndon B. Johnson established the – National Commission on Technology, Automation, and Economic Progress. He established the Commission in response to growing concern during the deep 1960-61 recession that the unemployment had been created by the pace of technological change. Ring a bell! He wanted to an inquiry to explore this issue and come up with recommendations on how to deal with the possibility that automation was wiping out jobs and the future would be bleak. Before the Commission had reported, the Federal government had reversed its fiscal austerity and the resulting stimulus had driven the unemployment back down to relatively low levels. The Commission noted that unemployment was largely the result of inadequate total spending and that the Government had the tools at its disposal to eliminate it. They considered that there would be workers (low-skill etc) who would suffer more displacement from technology than those with more skill etc, but that ultimately even those workers would be able to get jobs if the public deficit was large enough. In this regard, they eschewed pointless training programs that did not provide immediate access to jobs. Instead, they recommended (among other things) the introduction of a Job Guarantee (Public Service Employment) financed by the Federal government but administered at all levels of government. It would pay the Federal minimum wage and be available on demand. This is the preferred Modern Monetary Theory (MMT) approach and rejects solutions that rely on the provision of a basic income guarantee to resolve the problems created by unemployment.

The following graph sets the scene and shows the official US unemployment rate from January 1948 to December 1967.

When Johnson took over as President after Kennedy’s assassination on November 22, 1963, the unemployment rate was at the elevated level of 5.7 per cent as the US economy was still struggling to shake off the major recession that began in April 1960 and lasted for 10 months (the trough being recorded in February 1961).

Interestingly, the recession was provoked by the central bank hiking interest rates in 1959, but the real damage came when the Federal government shifted from a 2.6 per cent of GDP deficit in 1959 to a 0.1 per cent of GDP surplus in 1960.

That surplus was recorded after the Government cut spending (in real terms) by 1.5 per cent cutting spending from 18.2 per cent of GDP to 17.2 per cent of GDP in on fiscal year. Any reasonable person would have known that would have created a recession and it did.

In 1962 the deficit was 0.6 per cent of GDP and rose to 1.2 per cent of GDP in 1963, which stimulated growth. By 1962, Federal expenditure was back to 18.2 per cent of GDP, and, surprise, surprise, tax revenue rose on the back of higher economic activity.

As the US Congressional Research Service (CRS) reported to the US Congress on January 10, 2002 – The Current Economic Recession: How Long, How Deep, and How Different From the Past?:

A tightening of monetary policy in 1959 and the first half of 1960 was followed by an easing of policy in the second half of 1960. There was no fiscal stimulus undertaken. In fact, fiscal policy was tightened at the time, negating the system’s automatic stabilizers and exacerbating the recession.

Once the fiscal position was reversed, the US economy entered its second longest period of growth (92 months) in its history.

During the 1960-61 recession, it was claimed – as a diversion from the obvious fiscal austerity – that the rising unemployment was the result of new technologies.

On February 24, 1961, as the unemployment rate hovered around 6.9 per cent (and would rise the peak of 7.1 per cent in May of that year), the conservative Time Magazine published an article – Business: THE AUTOMATION JOBLESS – which carried the sub-heading “Not Fired, Just Not Hired”.

It as a scaremongering exercise which suggested that “automation” was driving “the rise in unemployment”.

It said that:

… many a labor expert tends to put much of the blame on automation … automation is reaching into so many fields so fast that it has become “the nation’s second most important problem.”

The claims were twofold:

1. “The number of jobs lost to more efficient machines”.

2. “automation may prevent the economy from creating enough new jobs.”

Ring a bell (hint: ‘the robots are coming’).

This was 1961 remember.

The article made the obvious point that with productivity growth, “the trend has been to bigger production with a smaller work force”. And it listed the sectors where automation had increased output and reduced the number of workers provided.

It also claimed that service sector jobs would be eliminated by automation:

Many of the losses in factory jobs have been countered by an increase in the service industries or in office jobs. But automation is beginning to move in and eliminate office jobs too.

It hypothesised that while “In the past, new industries hired far more people than those they put out of business … this is not true of many of today’s new industries.”

It suggested that:

Other experts talk of massive Government-and industry-supported retraining programs as a cureall. But Max Horton, Michigan’s director of employment security, is skeptical of this oft-repeated panacea: “I suppose that is as good as any way for getting rid of the unemployed—just keep them in retraining … But most important, is there a job waiting for them when they have been retrained?”

Oh, how times have changed.

Here was an explicit recognition that engaging in supply-side policies was futile if the demand-side (“a job waiting for them”) was the problem.

We now churn unemployed workers, as part of the new industry of mass unemployment created under neoliberalism, through useless and soul-destroying training and compliance programs without any real hope that they will come out the other side with a job.

When they do not find work (due to a shortage of overall employment opportunities), the unemployed are further admonished and forced into further ‘programs’.

Johnson thus came to office as the recovery was underway but with the on-going automation debate influencing policy discussions (Kennedy had announced widespread re-training policies in his – Special message to Congress on urgent national needs, 25 May 1961.

Johnson determined on August 19, 1964 that:

The disturbing trend of the 1950’s has been reversed. Unemployment is no longer growing 10 percent a year as it did from 1952 to 1960. Instead, unemployment is shrinking at an average annual rate of 6.2 percent since 1961. Unemployment is below the 5 percent level because, in the last 4 years, our economy has created more than 4 million new jobs.

[Reference: Johnson, L.B. (1964) Remarks Upon Signing Bill Creating the National Commission on Technology, Automation, and Economic Progress, August 19, 1964 – Archive Link.]

Note he didn’t talk about unemployment falling because of supply-side measures such as cutting welfare and income support, forcing unemployed workers to run on training treadmill going nowhere and all the other stuff that we hear about endlessly in the current period.

This was before Monetarism took hold and, thus, before the neoliberal death grip became dominant.

Policy makers knew that if you wanted to reduce unemployment you had to create jobs and that required an increase in aggregate spending from whatever source.

What was on Johnson’s mind at the time (among other things) was that structural shifts were occuring in the US economy, which he considered may isolate some workers from the benefits of progress.

He explicitly noted, in creating the National Commission on Technology, Automation, and Economic Progress that:

Technology is creating both new opportunities and new obligations for us-opportunity for greater productivity and progress 0 obligation to be sure that no workingman, no family must pay an unjust price for progress.

Automation is not our enemy. Our enemies are ignorance, indifference, and inertia. Automation can be the ally of our prosperity if we will just look ahead, if we will understand what is to come, and if we will set our course wisely after proper planning for the future.

Note the reference to ensuring inclusion for all (gender specifics – to wit, “workingman” – being an artifact of the times).

That progress via productivity growth was on-going but the task of government was to ensure that everybody had a share in that.

Compare that to the neoliberal era.

This graph shows how stark the shift to the neoliberal has been. It shows average real hourly wages in the US (BLS series CES0600000008 deflated by CPIAUCSL) and Labour productivity (output per hour) (BLS series PRS84006093) from the March-quarter 1947 to the June-quarter 2017, with both series indexed to 100 in the March-quarter 1970.

The base year is around the time that Monetarism started to gain prominence in the US and elsewhere and also coincided with the publication of the so-called ‘new labor economics’ literature (Phelps, Lucas etc) that spearheaded the neoliberal putsch.

As you can see, it also coincided with the break in the relationship between real wages and labour productivity as legislative and other changes made it harder for workers to share in the growth of labour productivity.

Prior to the 1970s, real wages and labour productivity typically moved together. As the attacks on the capacity of workers to secure wage increases intensified, a gap between the two opened and widened.

The wage share in national income, which can be calculated from this data, was more or less constant for a long time in many countries during the Post Second World War period and this constancy was so marked that Nicholas Kaldor (the Cambridge economist) termed it one of the great “stylised” facts.

It meant that real wages grew in line with productivity growth which was the source of increasing living standards for workers and allowed them to maintain growth in consumption expenditure commensurate with the growing output of the economy.

The productivity growth also provided the ‘room’ in the distribution system for workers to enjoy a greater command over real production and thus higher living standards without threatening inflation.

To understand the relationship between real wages, productivity growth and the wage share, please read my blog – Declining wage shares undermine growth – for more discussion.

In this blog from February 16, 2009 – The origins of the economic crisis – I argued that this break, which was replicated around the world as neoliberal policies gained ascendancy, was one of the early warnings of the GFC.

LBJ was clearly operating in the period before this divergence started and knew that real wages growth would track productivity growth and that workers would thus share in the output efficiency gains made possible by new technology.

On automation, LBJ wrote that:

Automation is not our enemy. Our enemies are ignorance, indifference, and inertia. Automation can be the ally of our prosperity if we will just look ahead, if we will understand what is to come, and if we will set our course wisely after proper planning for the future …

The techniques of automation are already permitting us to do many things that we simply could not do otherwise …

If we understand it, if we plan for it, if we apply it well, automation will not be a job destroyer or a family displaced. Instead, it can remove dullness from the work of man and provide him with more than man has ever had before.

So rather than spinning the ‘robots are coming to take your jobs’ and therefore we must have a basic income policy, LBJ governed in a time when planning ahead was not a dirty word and everything was not left in the hands of the amorphous market.

The National Commission on Technology, Automation, and Economic Progress presented their final report to the President and the US Congress in February 1966 – so it met in “monthly 2-day sessions” from January 1965.

You can access Volume 1 of the Report Technology and the American EconomyHERE.

By the time the Commission delivered its Report, the US unemployment rate had fallen to 3.8 per cent on the back of the fiscal stimulus making a mockery of the ‘national emergency’ discussions that arose in relation to automation during the 1960-61 recession.

It was evident that automation was not the problem that had created the unemployment at the beginning of the decade.

The Report correctly noted that (p.xii) that:

The relatively high postwar labor productivity, much of it due to technological change, combined with the current and future high rate of labor force growth increases dramatically the number of jobs which must be created continually to achieve and maintain full employment.

This is in contradistinction with the current period where labour productivity growth does not appear to be fast enough to justify the hypothesis that there is widespread robot innovation replacing jobs.

Further, labour force growth around the world (advanced nations) is much slower than it was in the early 1960s.

Taken together, it is much easier to maintain full employment now than it was then.

The Report also noted that (p.xiii):

Technology is not a vessel people are to be poured and to which they must be molded. It is something to be adapted to the needs of man and to the furtherance of human ends, including the enrichment personality and environment.

Once again, stressing that these issues/challenges are choices that we make and there are always alternative paths to take. The best path is the one that advances the well-being of society rather than feathers the nest of the capitalist class.

This was a different time indeed.

The Report recognised that technology meant that “Human resources will be released and available for new activities beyond those that are required for mere subsistence. The great need is to discover the nature of this new kind of work, to plan it, and to do it.”

No basic income sell out envisaged here!

Chapter Two considered “Technological Change and Unemployment”.

In addressing the “possibility of persistent technological unemployment”, the Report said that (p.9):

We believe that the general level of unemployment must be distinguished from the displacement of particular workers at particular time and places, if the relation between technological change and unemployment is to be clearly understood. The persistence of a high general level of unemployment in the years following the Korean war was not the result of accelerated technological progress. Its cause was interaction between rising productivity, labor force growth, and an inadequate response of aggregate demand. This is firmly supported by the response of the economy to the expansionary fiscal policy of the last 5 years. Technological change on the other hand, has been a major factor in the displacement and temporary unemployment of particular workers. Thus technological change (along with other forms of economic change) is an important determinant of the precise places, industries, and people affected by unemployment. But the general level of demand for goods and services is by far the most important factor determining how many are affected, how long they stay unemployed, and how hard it is for new entrants to the labor market to find jobs. The basic fact is that technology eliminates jobs, not work. It is the continuous obligation of economic policy to match increases in productive potential with increases in purchasing power and demand. Otherwise the potential created by technical progress runs to waste in idle capacity, unemployment, and deprivation.

Which sums up the Modern Monetary Theory (MMT) approach to this question and to the ‘robots are coming’ ruses.

The currency-issuing government has the responsibility of maintaining aggregate spending at a level sufficient to generate sufficient jobs overall.

This level changes as the pace of labour force growth and productivity changes. But the fact remains – the government can always purchase anything that is for sale in the currency it issues, including all idle labour.

There is never a reason for persistent mass unemployment. Mass unemployment is a political choice not a financial necessity.

Please read my blog – The full employment fiscal deficit condition – for more discussion on this point.

Technological change will alter the type of jobs and the sectors and regions in which they are created by the non-government sector (in particular).

The clear relation between spending, income and job creation is emphasised.

Proponents of basic income guarantees conflate the concept of jobs with work. They claim that robots etc will eliminate work, when in fact, as the Report noted “technology eliminates jobs, not work”.

As the nature and type of jobs change, as they have done since we have been keeping records, the need for productive work remains.

That insight is important in understanding why MMTers advocate the Job Guarantee, which rewards work rather than a basic income guarantee (BIG).

The Report provided a detailed sector-by-sector analysis of the impact of technological change on productivity and employment shifts. It concluded that despite on-going technological change, “Most industries … have registered substantial increases in employment” as a result of bouyant aggregate demand conditions.

Technology shifted where the jobs were and was a “major source of occupational displacement” (p.20) but overall spending was strong enough to more than offset those effects.

Chapter 3 was entitled Creating and Environment for Adjustment to Change: Employment and Income and discussed ways in which (p.33):

… all levels of government … [could] … facilitate occupational adjustment and geographical mobility … and to … share the costs and help prevent and alleviate the adverse impact of change on displaced workers.

They emphasise that the “accompanying burdens and benefit should be distributed fairly” (p.33).

The range of recommendations included:

2. For those less able to compete in the labor market, productive employment opportunities adapted to their abilities should be publicly provided.

3. Under the best of circumstances, there will be some who cannot or should not participate in the job economy. For them, we believe there should be an adequate system of income maintenance, guaranteeing a floor of income at an acceptable level.

In other words, a Job Guarantee system for workers who are unable to find a job but are willing and able to work. And ongoing income support for those who are unable to work.

This is the MMT position expressed in 1966.

The Report said that:

… the most important condition for a successful adjustment to technological change is an adequate level of total income and employment. We recognise this is not the end of economic policy, but we are confident it is the beginning … 1964 has clearly demonstrated that Federal fiscal and monetary policy can bridge the gap between the current level of private spending and the level of total demand needed to reduce unemployment. During the life of the Commission the very groups disproportionately burdened by unemployment – the young and inexperienced, the undereducated, the unskilled, Negroes, production workers – have profited more than proportionally from the healthy growth of total employment.

And, “the toleration of unnecessary unemployment is a very costly way to police inflation”.

Again, this is the MMT position – using unemployed buffer stocks is a vastly inferior way to maintain price stability when compared to the use of employment buffer stocks.

The former method of maintaining price level stability is the current dominant orthodoxy. It has delivered massive costs and few benefits.

In addition to aggregate demand management, the Report said that the US federal government should limit:

… unemployment to the minimum amount necessary for the smooth functioning of the … labor market.

They were “not impressed with a 4-percent unemployment rate, or a 3-percent, or any other unemployment rate, as an ultimate goal of economic policy (p.35).

They wanted governments to push to the irreducible minimum unemployment rate consistent with people moving between jobs only.

In this regard they recognised (p.36):

… The anomaly of excessive unemployment in the society confronted with a huge backlog of public service needs in its parks, its streets, its slums, its countryside, its school and colleges, its libraries, its hospitals, its rest homes, its public buildings, and throughout the public and nonprofit sectors of the economy. They recognize that employing the unemployed is, in an important sense, almost costless … much of the work that needs doing calls for only limited skills and minor amounts of training …

And this was the justification for recommending “public service employment”, for which the “major resources must come from the Federal Government but the jobs need not”.

They railed against fiscal austerity saying that:

Were it not for the endemic financial stringency at those levels of government, the employment might already have been provided.

They then described in some detail how these jobs could be designed, the need to “treat the new employees as regular employees”, the need to pay the “Federal minimum wage” and the possibility of including training ladders as part of the public sector jobs.

The principle conclusions and recommendations of the Report are provided in Chapter Ten.

By way of summary, the Report notes that (109-111):

1. “The excessive unemployment following the Korean War … was the result of an economic growth rate too slow to offset the combined impact of productivity increase … and a growing labor force” – that is, deficient aggregate spending.

2. “There will be a continuing need for aggressive fiscal and monetary policies to stimulate growth.”

3. “Education … determines the employability and productivity of the individual, the adaptability of the labor force, the growth and vitality of the economy, and the quality of society. But we need not await the slow process of education to solve the problem of unemployment”.

4. “The more adequate fiscal policies of the past two years have proven their ability to lower unemployment despite continued technological change in labor force growth.”

5. “The needs of our society provide ample opportunities to fulfil the promise of the Employment Act of 1946: ‘a job for all those able, willing, and seeking to work’. We recommend a program of public service employment, providing, in effect, that government be an employer of last resort, providing work for the ‘hard-core unemployed’ in useful community enterprises” – in other words, a Job Guarantee.

6. “We recommend the now federally financed but State-administered employment services be made wholly Federal”.

They went on to discuss education strategies and other types of assistance.

But their key recommendation was that a Job Guarantee could always improve the circumstances of workers unable to get work while longer term policies that expanded skills via education and training had time to work.

Conclusion

This is a very interesting Report.

The obvious retort from those who continue to think there will not be enough jobs is that the Report was written in the 1960s and the type and pace of technological change now is vastly different.

I beg to disagree and I will write more about that another day.

And, a Job Guarantee can always provide productive jobs to the most disadvantaged worker who has been displaced.

And, finally, on automation and robots, I thought this article in The Atlantic was interesting (January 30, 2017) – The Booming Demand for Commercial Drone Pilots.

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.

Don’t Be Afraid of Robots: Technology is What We Make of It

Published by Anonymous (not verified) on Mon, 13/11/2017 - 6:00am in

Rapid technological change, if it is even happening, does not necessarily need to lead to mass unemployment or even major disruptions in people’s lives. In all cases, new technology is what society makes of it — that is, it should be used to broadly improve lives and work, not reorient the world around the technology itself or redistribute wealth upwards. Ride-hailing services like Uber and the promise of self-driving cars illustrate both sides of this point; polices like a job guarantee provide a path forward. 

Self-driving car

Illustration: Heske van Doornen

Don’t Be Afraid of Robots: Technology is What We Make of It

By Kevin Cashman

There is a lot of talk of the rapid development of technology leading to changes in the way people work as well as mass automation and thus mass unemployment. However, the data generally don’t support this story (the most recent data being a notable, but very limited, exception). Nevertheless, the story has currency among the public and politicians, in part due to the novelty and allure of technology — and the political power of its promoters. Throughout recent history, the promises of revolutionary technology have captivated imaginations but also come up far short. Instead of flying cars, there are apps for refrigerators and ordering cat food over the internet.

It is important to note that the gains from technological advancements do not necessarily need to go to the rich or lead to mass unemployment. If shared fairly, the gains could lead to social benefits, such as increased social services, and broad individual gains, such as more leisure time. And there can be concerted action to help those directly affected by technological change. While there are many policies that could be implemented, a job guarantee — where the government provides jobs to all those that need them — is the simplest and most straightforward way to deal with job loss. If people lose their jobs due to factors outside of their control, why not simply provide them with new jobs?

If the gains go to the top, it is important to point out that this is because of deliberate policy. It is not a natural outcome. The rich and their allies in politics promote this redistribution to the top as inevitable — as the “future of work,” for example — whether or not advancements in technology pan out or not. Since advancements in technology do not fundamentally necessitate a change in social relations, this is intentionally deceptive at worst and wishful thinking at best. To see this dynamic, looking at particular jobs and industries is instructive, for example, in taxis and buses and trucking.

The ability to use smartphones and the internet to mediate services is not particularly revolutionary or unique but it does provide some benefits. Uber, the ride-hailing company, brought investment and these ideas to the taxi industry and quickly took over a large part of the market, despite many issues with its service and sustainability. In Uber’s case, appealing to the political power of affluent residents in cities and the supposed innovation of its app was enough to negate its blatant disregard for regulations, questionable safety record, exploitation of drivers, and unprofitability. In this sense, Uber’s investment allowed it to provide some benefits to its relatively wealthy passengers at the expense of the disabled, regular taxi drivers, and others. Most importantly, because it subsidizes every ride (Uber loses money on every ride taken), it was able to undercut the regulated taxi industry. The government’s lack of interest in maintaining fairness in the taxi industry effectively led to Uber being handed the market.

How could this have been different? The taxi industry on a whole is not an industry with large margins or much investment. In part, this is due to underlying characteristics of the industry as well as regulation, including those aimed at limiting the number of taxis operating in a city (which is good policy). To realize the benefits of technology, taxi commissions or groups of taxi drivers in various places could have developed their own app and infrastructure to facilitate ordering of cabs on the internet. This would have required substantial organization and money, which could have been facilitated and provided, respectively, by the government. The result could have been an app that allowed taxi authorities to continue to maintain standards for safety and operation and also provide the seamless service that certain groups of consumers desire. Indeed, competitor apps are being developed this way and existed before Uber, but they must now claw market share away from Uber. This is quite difficult because Uber is still subsidizing rides and keeping prices artificially low.

Let us now assume that rapid technological advancement is inevitable: self-driving cars and buses are finally right around the corner, as has been promised for years. (Indeed society could be on the cusp of this sort of technology, although the challenges shouldn’t be understated.) There would be massive benefits if self-driving vehicles are implemented successfully: increased mobility for the elderly, many fewer accidents, lower operating costs, increased productivity when in transit, etc.

Along with these benefits, there would be significant disruptions to the labor market. Ideas around how to approach these changes were discussed in a recent report, Stick Shift: Autonomous Vehicles, Driving Jobs, and the Future of Work.1 It discusses two questions that are central to evaluation rapid disruptions to the labor market: How fast will the technology develop? How much of an impact will it have?

Regarding the first question, and assuming that these technological hurdles are overcome,2 the report notes:

If the technology is successfully developed, the rate of the adoption and popularization of autonomous vehicles will depend greatly on whether necessary infrastructure is built, and whether and how regulation responds to these advances in technology. One of the inevitable debates will be between those who wish to ensure that autonomous vehicles are safe and reliable and those who want to get them to market as soon as possible. The outcome of this debate could greatly determine how the labor market is affected. Thorough vetting of the technology, along with phased rollouts, would allow time for workers to adjust to incoming shocks, and would dampen those shocks as well.

If the government were to assume the costs of building infrastructure for self-driving vehicles instead of the companies that are selling them, it would be fair for the government to also take a pro-active approach and develop a process to adequately assess the safety of those vehicles. This would somewhat mitigate the effects on the taxi industry and on bus drivers, especially in the early years of their use.

Proponents of self-driving vehicles also often forget to mention that technology will replace individual activities of workers but not necessarily all of the activities that encompass their jobs. Truckers, for instance, perform many other activities besides simply driving:

…in the trucking industry, there are many tasks that are difficult to imagine autonomous-vehicle technology being able to manage, which may limit their adoption or consign them or the driver to a secondary role. This includes many things that truck drivers are required to know, such as how to inspect the vehicle and cargo, perform maintenance and fix emergency problems, put on tire chains and deal with unpredictable weather, refuel the vehicle safely, and carry dangerous materials safely, to name a few.

If self-driving trucks took over the trucking industry, this suggests there would be many more support jobs in the trucking industry.

The other question is more pertinent considering our assumptions. How much of an impact technology will have on society is entirely up to society. The question is then not how much of an impact will self-driving cars have on society but where does society need self-driving cars and how do self-driving cars fit with social goals? There is a convincing argument that cars — self-driving or not — should have much less of a role in cities in the future. While taxis could have a role to play in the future, for example, public transportation and good urban design should be the focus, thus eliminating much of the need for taxis. In this vein, employment in the taxi industry could decline, but in addition to more social benefits from less vehicle use, employment would increase in association with an increase in investment in public transportation.

The social aspects of occupations are also important to consider when asking whether it might be desirable to transition to self-driving vehicles:

There is also the question of more socially oriented driving jobs. Bus drivers are one example. City bus drivers preserve order and safety on buses, provide information, ensure payment, and are generally considered community members and authority figures. School bus drivers have specific responsibilities related to the safety of the children they supervise. For these reasons, it may not be desirable or necessary to replace bus drivers, completely at least, even if the buses were fully autonomous.

In this sense, the elimination of these jobs would be akin to cuts in public services, and they would also eliminate some social benefits. Social aspects of jobs are rarely considered — but they are very important.

Here, a jobs guarantee would be useful, since it is a policy that prioritizes the social aspects of jobs and since social benefits are not prioritized in the private job market. Returning to the example of bus drivers, buses could be self-driving in the future but the “driver” need not be replaced. Rather, the position could be reoriented in a purely social role.

 

Whether technology will bring small changes, as in the case of Uber, or large changes, as in the case of self-driving vehicles, who benefits is entirely up to society. Gains from technology can be shared broadly with the right policies — just a few of which were described here — so there is no need to inherently fear the robots. A jobs guarantee is one of those policies, and it is perhaps the most important. (And it’s gaining traction in the mainstream.)  A broad coalition, focused on the appropriate use of technology and promoting a job guarantee, could keep the actual threat — those wanting to harness the benefits of technology for themselves — at bay. Whether or not robots and mass automation are around the corner, it’s good policy, too.

The post Don’t Be Afraid of Robots: Technology is What We Make of It appeared first on The Minskys.

Watch Live: A New New Deal and the Job Guarantee

Published by Anonymous (not verified) on Sat, 28/10/2017 - 3:22am in

Today at the New School, L. Randall Wray and Stephanie Kelton take part in a public workshop organized by the National Jobs for All Coalition that is focused on developing a “A New ‘New Deal’ for NYC and the USA.”

Wray and Kelton will be sharing initial findings from an upcoming Levy Institute project that proposes a universal job guarantee for the United States. The program would create nearly 20 million jobs that pay $15 per hour plus benefits, raising national output by over $500 billion annually, stimulating the private sector to create more than 3 million additional jobs. Using standard simulation models, the study finds that impacts on inflation would be negligible, while state and local government budgets would improve by $60 billion annually and as many as 14 million children would be pulled out of poverty.

The entire event begins at 5pm today. You can follow it live here:

The schedule for the two-day event can be found here.

Watch Live: A New New Deal and the Job Guarantee

Published by Anonymous (not verified) on Sat, 28/10/2017 - 3:22am in

Today at the New School, L. Randall Wray and Stephanie Kelton take part in a public workshop organized by the National Jobs for All Coalition that is focused on developing a “A New ‘New Deal’ for NYC and the USA.”

Wray and Kelton will be sharing initial findings from an upcoming Levy Institute project that proposes a universal job guarantee for the United States. The program would create nearly 20 million jobs that pay $15 per hour plus benefits, raising national output by over $500 billion annually, stimulating the private sector to create more than 3 million additional jobs. Using standard simulation models, the study finds that impacts on inflation would be negligible, while state and local government budgets would improve by $60 billion annually and as many as 14 million children would be pulled out of poverty.

The entire event begins at 5pm today. You can follow it live here:

The schedule for the two-day event can be found here.

Three recent interviews – transcripts and video

Published by Anonymous (not verified) on Tue, 17/10/2017 - 2:43pm in

Today, I have translated two interviews I did while I was in Europe recently. The original interviews were in Spanish. The first interview was with Andrés Villena Oliver for CTXT and was published in the Spanish newspaper Público. It was conducted at Ecooo in Madrid on September 28, 2017. The the second interview was with journalist Marta Luengo Garcés from the progressive newspaper El Salto Diaro. It was conducted at the Principe Pio Hotel in Madrid on September 29, 2017. You can get a feel for the concerns of the progressive journalists in Spain by the type of questions they asked me. I have also included the video of an interview I did yesterday (October 16, 2017) with Steve Grumbine of the Real Progressives. That should keep readers more than busy until tomorrow.

Interview with Público – published in Spanish on October 11, 2017

This interview was recorded in Madrid (September 2017) with the Spanish newspaper – Público – which is a national left-wing publication. The journalist was Andrés Villena Oliver. It was published on October 11, 2017.

For the original Spanish version go to – En cuanto Bruselas fuerce de nuevo la austeridad, España volverá a la situación de 2010.

The title of the article introducing the Interview was quoting me: “One Brussels reimposes austerity, Spain will return to the situation of 2010”.

The introduction to the Interview read:

Rowing against the current is exhausting, but sometimes it is inevitable. At a time when most of the elites and public opinion have surrendered to the idea that the permanence in the euro zone must be accepted with all its requirements, a group of intellectuals argues that monetary sovereignty is not only possible, but is necessary to guarantee collective well-being. Among these experts is the Australian professor Bill Mitchell, who has just published with the Italian journalist Thomas Fazi a new book ‘Reclaiming the State’, which calls for the recovery of state economic policies as a basis for democratizing a society that continues the involutive process driven by neoliberal globalization. Mitchell is one of the founders of Modern Monetary Theory.

The Q is the question from the journalist and is in bold and my response follows. The response may not be exactly what I said in English given I have translated it back from the Spanish translation of the English. So some noise in the dual translation process is possible.

I have just ensured the translation is as close to what I said – and the way I speak (idioms etc) – as possible

Q: The future of Spain remains bleak. How does the recent election results in Germany impact on Spain?

Spain has enjoyed growth in recent years because its public deficit has been allowed to remain above the limit established by the Stability and Growth Pact. The Troika turned a blind eye to this violation of the rules to avoid punishing the electoral chances of the Popular Party in the last elections because it knew that once reelected the PP would once again apply austerity. But the fact is that the higher than allowed public deficits are the only reason that Spain has grown lately.

But Brussels can no longer allow the Spanish government to skip the rules.

The result of the German elections represents another chapter in the world wide sequence, which consists of a huge rejection of traditional parties and an increase in political polarization, mainly to the right. The danger for Europe will come when, as is likely, Jens Weidmann replaces Mario Draghi as President of the European Central Bank (ECB). Draghi represents pragmatism; under his leadership, the ECB has acted primarily as a fiscal agent, keeping the Eurozone boat afloat. But Weidmann is far more ideological and could end Quantitative Easing (QE). In fact, if we analyze the major risk factors, we could conclude that this is undoubtedly the largest of them.

Q: The end of the QE for a country like Spain would be lethal, just remember the period 2010-2012 …

As soon as Brussels gets tough on Spain and forces the government to reimpose austerity, Spain will be history and will return to that downward spiral in which Greece is now locked.

All the countries that have survived have done so thanks to the QE policies of the ECB which have been financing the fiscal deficits through the back door. If Brussels becomes demanding again, Spain will return to the situation of 2010 – another cycle of crisis from a much more weakened position that it faced at that time, given that it has not yet recovered from the previous crisis.

Q: Authors like you advocate an exit of the euro. In Spain there is a lot of fear in this sense: the seventies and eighties are remembered, with very high rates of inflation and it is also argued that the Franco dictatorship plunged us into a huge backwardness. No one wants to go back to the fifties …

History and culture are extremely important, it’s true. Think of Greece, which was a military dictatorship and for which the past also generates much fear. But the inflation of the 1970s, which was global, had nothing to do with it, neither with the dictatorial past history of Spain, nor with an excess of fiscal deficits. It was driven by the unprecedented increase of OPEC oil prices; which was the first major global supply shock since the end of World War 2.

Look at all the currency-issuing countries that currently have significant deficits: do you see any of them having dramatic levels of inflation? Each country has an internalised sense of its past and people hope that any past trauma is not repeated. But the idea of restoring ​​monetary sovereignty is not related to these past events.

Q: But giving politicians the ability to create money could be dangerous in economic terms …

This is a frequently expressed position: “You can not trust your politicians.” But you did trust in them to implement austerity policies! And you have already seen the results … I think that the quality of politicians is a reflection of the level of involvement of citizens in politics.

Citizens must force their politicians to comply with the law. And Spain can do it: it is a country with relatively high levels of education. It is nothing like the poor country it was in the fifties, sixties and seventies. Can we really imagine a military dictatorship right now in Spain?

Q: Could we say that there is a clear relationship between monetary sovereignty and the level of democratization of a country?

Absolutely. In fact, the problem of the neoliberal era has been depoliticization, a process whereby elected leaders transfer decision-making responsibilities to those who have not been democratically elected. This is the case for Central Banks, which are not accountable, as well as certain international organizations such as the IMF and the European Commission. They are separate from the political and electoral processes. The return to monetary sovereignty means that the elected politicians once again become responsible and accountable for their actions to the voters.

Q: You have affirmed that one of the main problems of the Left is that it is trapped in neoliberalism. What do you think of the growing advocacy within the Left in favor of a Universal Basic Income and the claim that the objective of full employment is obsolete?

A government that issues its own currency can always provide employment for those who need it, since it is able to buy all the resources that are for sale in its own currency, including all idle labour. So the idea that full employment is obsolete is one of those errant claims that the Left has fallen into to justify the lack of political will by governments to create sufficient work.

First, the true position of the Left should be to demand decent work for all who want to work. At present, I know of no societies where work is still not a crucial aspect – not only as a source of income but also for its social aspects, as a way we achieve self-esteem and a sense of self confidence. Society has not changed enough yet to consider it reasonable that a person who can work should be able to receive public support not to work when there are productive activities that such a person can perform. The Left should always fight for the achievement of good jobs for all, something that also serves to militate against the power of the capitalists.

There is a second point in which it is important to repeat in this regard. A currency-issuing government can always create employment for those who need it, since it is able to buy any resources that are for sale in its own currency. When you understand this basic principle of the monetary system, it follows immediately that it is the government that chooses the unemployment rate. Whatever the private sector does, the final responsibility for employment creation rests with the government. The government can always ensure full employment with a combination of conventional public sector employment supported by a Job Guarantee (an unconditional, fixed wage job offer to anyone who desires to work).

Given those insights, the advocacy of the Left for a Basic Income Guarantee amounts to surrendering to the neoliberal myth that the government should not use its spending capacities to provide jobs to the unemployed. The moment you claim full employment is obsolete, you are already advancing neoliberal ideas.

Moreover, by advocating that the state transfer a minimum amount to keep people alive rather than taking responsibility for providing work, you are constructing people as meagre consumption units and ignoring all the essential social and human aspects of work that I noted earlier.

Q: Then the private sector is rescued …

Yes. All you achieve is that people can continue to spend their frugal Basic Income – government just ends up saying to the unemployed – ‘here are a few euros, go away and shut up’. It is a vision that undermines human potential. There are numerous scientific research studies that show that when people are deprived of work, their social network begins to shrink because people lose contact with their former work colleagues, their acquaintances etc. It is clear that people who are systematically deprived of work experience guilt, not to mention the lack of income. The lack of income impacts on their motivation and opportunities – their social circle shrinks, they are invited to less social events and cannot afford to attend events. The isolation is intensified.

There is another point, moreover, that is more difficult to explain to people, but is no less important to understand. Advocates of a Basic Income Guarantee generally fail to understand the inflationary implications – once the government spends without requiring anything in return. Basic Income proposals do not include an inflation anchor – a mechanism to control the inflationary impact of government spending – and as a result there is a bias towards inflation inherent in the proposal.

In contradistinction with the Job Guarantee, which sees government spending not competing with the private market, the spending embodied in the Basic Income directly competes with private spending. Further when the economy overheats, the only inflation control mechanism under a Basic Income is increased unemployment, which is no improvement on the current system.

Interview with El Salto Diaro – published in Spanish on October 15, 2017

This interview appeared in Spanish – El salmón contracorriente Bill Mitchell: “Si fuera español exigiría que nos sacaran del euro” on October 15, 2017 but was conducted at the Principe Pio Hotel in Madrid on September 29, 2017.

The journalist was Marta Luengo Garcés.

The English translation of the title is: “A fish swimming against the stream – Bill Mitchell: “If I were Spanish I would demand we get out of the euro”.

The introduction to the article was:

William Mitchell is an Australian heterodox economist and a principal proponent of Modern Monetary Theory. He is a professor at the University of Newcastle and director of the Centre of Full Employment and Equity, a non-profit research organisation whose focus is on policies that can restore full employment and achieve an economy that delivers equitable outcomes for everybody.

In his 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – he presented “a critical history and an analysis from the perspective of modern monetary theory of the European economic crisis that began in 2009.”

He is currently traveling through several European cities to present his latest book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017).

Q: In 2015 you published Eurozone Dystopia, where you analyzed the historical and theoretical origins of the single currency. How did that process become a dystopia?

In the 1970s, Monetarism and the erroneous ideas of Milton Friedman came to Europe and found their way into the French Ministry of Finance. The Socialist Jaques Delors, who drove the process that led to the Eurozone, has become infested with Monetarism, which ultimately led to Mitterand’s austerity turn in 1983.

The 1989 Delors report which finally led to the implementation of EMU reflected this shift in ideology. Delors had previously established the complete liberalization of capital movements in 1987, following the neo-liberal mantra of the IMF. The capital controls that had been in place were among the major reasons for currency stability within Europe during this period.

The Delors Report was a real disaster because the ideas of previous reports such as Werner [1970] and MacDougall [1977] were abandoned. These previous reports had underscored the importance of the creation of a federal fiscal capacity linked to an elected parliament to give the policy capacity democratic legitimacy. Delors ignored those earlier studies.

Then, in 2003, the recessions in Germany and France caused them to be the first nations to violate the Stability and Growth Pact rules that they themselves had insisted be introduced as the pillar of the euro.

Then the supposed subsequent period of stability which preceded the GFC saw the ECB set interest rates to suit the recessed German economy but which fuelled real estate bubbles in Ireland and Spain. Further, Germany embarked on a severe internal wage deflation strategy to ensure its external competitiveness improved relative to its Eurozone partners.

It was only a matter of time before the dysfunctional structure and these early developments would manifest as a crisis.

Once the crisis emerged, the ECB assumed the role of fiscal authority by indirectly funding Member State deficits but at the same time participated in the imposition of oppressive austerity regimes that have severely punished countries such as Greece, Portugal and Spain. There was no democratic legitimacy in these policy impositions.

Given the system was not designed to withstand the stress that came with the GFC, the design flaws were revealed and the only reason the Eurozone has survived until today is because the ECB has failed to comply with its Treaty obligations.

Although the ECB has tried to assure everyone that it is only managing liquidity what they are in fact doing is financing deficits. It has thus assumed the role of, on the one hand, fiscal authority without democratic legitimacy and, on the other hand, part of the oppressive regime that has severely punished countries like Greece, Portugal and Spain.

The reason for not adopting the Werner Report in 1970 and creating a true federal system is the same one that explains the current crisis: the EU is composed of countries unwilling to fully cooperate together.

Q: Now it seems that the euro area is more or less quiet. In fact, in Spain economic indicators suggest some recovery, what do you think about that?

The EU has tolerated Spain presenting a deficit that violated 3% fiscal rules due to the recent national electoral period when the threat of a socialist government (or worse, with Podemos) arose.

As a result, Brussels conveniently ‘forgot’ the deficit rules and stopped demanding austerity. Therefore, the reason why Spain resumed growth is down to the Eurozone violating its own rules and as soon as they re-impose austerity and implement the mechanisms of the Stability and Growth Pact, the growth will disappear, as before.

The Spanish case does not tell us anything about the viability of the Eurozone, in fact, it tells us just the opposite, that the Eurozone is dysfunctional and that it only keeps going because it ignores its own rules.

None of the problems have been solved: the banking union is a farce, as is the Juncker plan of infrastructures.

The fundamental contradictions are still unresolved and when the next economic cycle comes through the system will collapse again.

The question is how long can one violate one’s rules without exhausting all the credibility of the project?

Q: In 2015 you proposed that the best thing would be an agreed dissolution of the euro. Do you still think that it is the best option?

Yes. The best thing would be a European convention to negotiate issues such as debt moratoria. A multilateral dissolution is better than a unilateral departure, all the more because the latter option would imply winners and losers, which would impact poorly on the weakest countries.

On the other hand, with a multilateral dissolution, a more civilized process would help protect the weakest countries. However, as this is very unlikely to happen, the second best option is the unilateral exit.

Q: Unilateral exit and return to the peseta?

Of course, if I were Spanish, I would be demanding from the Congress that we get out of the euro.

Q: You are in Spain presenting your new book in collaboration with Thomas Fazi, Reclaiming the State, in which you mount a case for citizens to reclaim national sovereignty. What about the idea that in a globalised world nation-states are no longer relevant?

In the book, Thomas and I propose the thesis that from the 1970s the Left had come to assume the erroneous thesis that globalisation had usurped the power of the nation states.

We could say that while the Right worked hard to convince the Left that the state was irrelevant, they knew all along that the State was still powerful, and, in fact, they had to co-opt the state and use it to advance their own interests.

In fact, all the key aspects of the neoliberal transition have come from the state and through the state: deregulation of the labour market, liberalization of capital markets, abolition of exchange controls, privatisation, free trade agreements, etc.

The neoliberal agenda works by privatising profits and socialising losses.

When things get difficult for capital, it is States that use their legislative and fiscal powers to pay the bill and force the losses onto the citizens (via austerity etc).

But if all these changes can be done to advance the interests of the rich, we can also use the state for an inverse process: by using the currency sovereignty to create full employment; withdraw from free trade agreements that contain investor dispute resolution mechanisms; nationalising essential services that have previously been privatised, and so on.

Ironically, the only politicians who do not seem to understand this are those on the Left.

Q: What measures would a left-wing government take? Could you tell us about your proposals?

For the countries that are in the euro I would propose they first of all abandon it – make the announcement on a Sunday night [Laughter].

But for all countries in general, the first thing to do is to reorient the purpose of the State. In the words of Jeremy Corbyn, this must be put to the service of ‘the many and not the few.’

The relevant question is not how policy makes those with wealth richer but how it makes the poor richer. The harmful effects of this era of neoliberalism have been felt in the form of mass unemployment, underemployment, increased precariousness of work, the attack on wages growth and working conditions.

But we must reconfigure the State to ensure the dignity of wor and income security. In this sense, I propose a guaranteed employment program offering an unconditional and socially inclusive minimum wage.

It is also necessary to reform the financial system to eliminate all financial products that do not directly provide benefits for productive activity.

Only about 2% of global financial transactions actually benefit the real economy, the rest are just casino bets that do nothing to advance the well-being of society. We have to force the banks to be banks rather than gaming rooms.

We must also contemplate the nationalisation of banking, which as a first step might require the creation of a strong public banking sector. Equally, pension funds would have to be nationalised. There should also be growth in the availability of high quality public housing with affordable prices and rents.

The public sector must once again have an active industrial policy. In particular, by further developing the renewable energy sector.

Also, essential services such as water or electricity have to be nationalized.

In our book there is a detailed explanation of all these and more proposals.

Q: A question that you will find controversial but that, in the context of the rise of the ultra-right, it is necessary to clarify: Does your appeal to national sovereignty have anything to do with nationalism? Also, isn’t there a contradiction for the Left between the defense of national sovereignty and internationalism?

Nation states are fundamental to internationalism: that is, a group of States group together for a greater good. Otherwise, what we have is “supranationalism”, which is what we have in Europe, where decisions are taken at a higher level, but without any democratic control from below.

There is a cold war mentality where “internationalism” is praised without question about what it means in practical terms. If we want an optimal monetary area, who decides which currency we are going to issue? Which central bank will oversee the system? How will a federal treasury function be established? If nobody decides, then we are facing a dysfunctional monetary area, which is precisely what we observe in Europe.

One of the reasons the Left has clung to internationalism is because it rightly and strongly rejects xenophobia, fascism and nationalism. We also reject those concepts or behaviours. Reclaiming the nation state has nothing to do with nationalism, xenophobia or fascism.

There is a legitimate popular longing for greater national sovereignty, to force the state to use its capacities to advance the well-being of us all rather than a few. But so far the forces that have been able to give voice to that anxiety and longing have been reactionary populists on the Right.

People long to regain control of their lives and enjoy stable employment and income security. The very things that neoliberalism has attacked through the takeover of the State. This anxiety has been reflected in the Brexit and Trump campaigns. It is time that progressive forces harnessed this anxiety and provided people with choices.

Q: You are one of the founders of Modern Monetary Theory (MMT), which seeks to explain the true functioning of the monetary system. What does it imply in practice?

From MMT we learn that a state that issues its own currency does not have any financial restrictions on its spending.

By issuing currency a government can buy any good or service that is for sale in that currency, including all idle workers.

The conclusion drawn from this insight is that once the private sector has taken its spending and saving decisions, any remaining unemployment is the responsibility of the State and reflects the reality that the State has declined for political reasons to eliminate the mass unemployment.

In other words, the unemployment rate is a choice of the government, not the market. A political choice. If everyone understood this, then the politicians would not be allowed to ignore their responsibility to maintain full employment. They would not be able to justify unemployment rates of 25 per cent as we saw in Greece during the crisis.

The currencies we use now have no intrinsic value and the government induces demand for those currencies by demanding they are used to relinquish tax obligations that they impose.

But we require the state to spend the currency into existence before we can pay our taxes. The state is the monopoly issuer of the currency.

Which means that taxation revenue do not finance public spending, since public spending must logically come before taxes.

We can not get hold of the currency to pay taxes unless the State spends it into existence. Further, currency-issuing governments do not need to borrow in order to spend. So the dynamics of spending and taxes is very different from what the mainstream macroeconomic theories would have us believe.

Q: What happens then with fiscal deficits?

From the point of view of national accounting, public deficits are exactly equal to the accumulation of net financial assets in the non-government sector in each period.

Conversely, public surpluses are exactly equal to the depletion of net financial assets in the non-government sector in each period.

In most countries, states have to run public deficits because the non-government sector overall run surpluses (net saving).

You can not say anything about what is the optimal level of the public deficit, sometimes a deficit of 10 per cent will be good and in other situations, a 2 per cent deficit will be bad.

Public deficits are the necessary mechanism to compensate for spending shortfalls (or excess savings) in the non-government sector. If the overall non-government saving does not return to the economy, then firms will reduce production and the economy will slide into recession.

That is the role of fiscal deficits – to fund the desire of the non-government sector to save overall and ensure that all productive resources are brought into use.

The only way to obtain continued fiscal surpluses is by reducing the wealth of the non-government sector. So a deliberate austerity policy will squeeze the non-government sector, and force it to accumulate more private debt to maintain spending patters.

That process is unsustainable.

Q: MMT advocates also propose a guaranteed employment plan as a means to achieve full employment. What role does the proposal for guaranteed employment play within MMT?

From the empirical point of view, one of the problems of Keynesianism was that of the Phillips curve. In the 1950s and 1960s, it was believed that there was an inverse relationship between unemployment and inflation and that in order to achieve a low rate of inflation it was necessary to tolerate a higher rate of unemployment or vice versa.

This relationship was highly contested and Milton Friedman embedded the notion that there was no trade-off at all and that governments that tried to reduce the unemployment rate below some fixed ‘natural’ rate would only generate accelerating inflation.

MMT breaks this theoretical impasse by showing that the State use a Job Guarantee framework to reduce unemployment to some irreducible minimum level without causing inflation was the guaranteed employment plan.

The Job Guarantee approach to full employment is also in sharp contradistinction to the usual Keynesian ‘generalised’ expansion approaches to fiscal stimulus.

Under the latter approach, if a state launches an ambitious spending program and buys the goods it needs at market prices, then government spending competes with private spending for the goods and services available in the economy, which runs the risk of generating inflation.

However, unemployment is a sign that the non-government sector has no desire to bid for the services of these workers. And, the government can always buy these services without therefore making competing bids against the non-government employers. This is the basis of the Job Guarantee.

Since there is no non-government bid for the unemployed labour, the State is not competing for these resources and is thus not generating inflationary pressures. The price at which the state buys the unemployed labor force thus becomes the minimum wage.

We are thus creating a buffer stock of employment without generating inflation, because the government is only using labour that has no bid.

This approach to inflation control is much more just and efficient than just increasing unemployment to lower inflation, which is the policy favored by orthodoxy.

Q: Why are you not a supporter of Basic Income Guarantees? Could not basic income and guaranteed employment be combined?

The problem I see with basic income is that amounts to a resignation or surrender to the neoliberal idea that the State can not achieve full employment.

It amounts to accepting the neoliberal worldview that there can be no full employment with quality jobs. I do not see why the Left would want to buy into that myth, which is part of an overall policy push that damages the prosperity of workers.

I also believe that people need to work as much as they need income. Work gives us a social identity, self-esteem, confidence in ourselves and brings us into contact with other people.

What the basic income proposal amounts to is to say to those that have been deliberately deprived of a job by poor policy: Look, here’s some money, take it and leave us alone.”

In other words, basic income conceives of humanity as consumption units lacking social ties.

A final criticism is that the basic income proposal does not include an inflation control mechanism. With a Job Guarantee, the state spending does not generate inflation.

Conversely, the state spending on the basic income scheme would compete directly at market prices and the only way the state could control inflation would be to increase unemployment. In other words, the inflation anchor within a basic income proposal becomes unemployment – which is exactly the pernicious system we have now under neoliberalism.

I grant you that the basic income policy and the Job Guarantee could be complementary but I generally prefer to concentrate on the latter.

In our societies, where the dominant culture values work and rejects the idea that people should receive handouts for nothing, the Job Guarantee proposal allows us to open a debate about what constitutes productive work. It allows us to redefine the range of works that are considered to be useful to society and beneficial to the environment. Basic income, on the other hand, does not extend any such horizon.

Q: Finally, could you suggest solutions to the serious problem of unemployment in Spain?

The first step is to recover monetary sovereignty by abandoning the euro. But, of course, it is only a first step. That alone witll not be sufficient.

There is also an ongoing struggle against neoliberalism.

The PP and the PSOE are both neoliberal in their outlook. Therefore, social movements must remain vigilant and escalate their resistance to these neoliberal ideas and policies.

Even within the Eurozone, it is clear that the 3 per cent deficit threshold allowed under the Stability and Growth Pact should be used to the fullest.

But that will not be enough to restore prosperity given the scale of the problems. Spain should never have entered the euro.

Of course, I understand that it is not easy to get out once the decision to enter was taken. I also understand that for the countries of southern Europe, which had been subjected to horrible dictatorships, the euro appeared as a symbol belonging to a democratic Europe and, therefore, a symbol of sophistication relative to the dark past.

But, on the other hand, I very much doubt that a return to the national currency would lead to a return to military dictatorships. There has been generational change and the ghosts of the past are fading.

They took this photo during the interview – flu ridden and sinking in the very comfortable chair:

Real Progressives Interview – October 16, 2017

I also did a wide-ranging interview with Steve Grumbine from Real Progressives yesterday. The video goes for just over an hour. We will work on the sound quality next time.

Note, the Real Progressives producer has not allowed (for some reason unknown to me) for this video to be embedded and played here.

So I wrote the embed code to have it show up here but when you click on the video screen you will have to go to YouTube. Steve: Fix this please?

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.

Reimagining “Right-to-Work”

Published by Anonymous (not verified) on Tue, 17/10/2017 - 4:45am in

“Everyone has the right to work, to free choice of employment, to just and favorable conditions of work and to protection against unemployment.” This is Article 23 of the Universal Declaration of Human Rights declared by the UN in 1948. It sounds like a pretty good right to me. I recently learned that in America, we have some states with “right-to-work” laws. That dumbfounded me. Why did unemployment exist in those states if they had a right to work?

It only took a few minutes of research to find out that the “right-to-work” laws some states have are nothing like the fundamental human right. What these laws actually do is defend a worker’s right not to be required to join a labor union to work at a company. This “right-to-work” doesn’t allow more choice, it allows less. Where’s the option to have a union that doesn’t allow freeriders? If you don’t want union benefits, you can work for a company without a union. You still have your choice, but this law has destroyed mine. These laws really promote the right to work for less money, the right to work at a business with a racist union, the right to destroy what unions could and should stand for.

Research from the Economic Policy Institute shows that states with “right-to-work” laws have hurt unionization rates, and hurt the power of unions that do exist. In such states 7% of workers are represented by a union contract, versus 17% in non “right-to-work” states. Wages are lower in states with these laws in place, which makes sense as unions allow collective bargaining for better wages. Nationally, unionized workers are making 27% more than non-unionized workers. “Right-to-work” has been a disaster for the labor movement, those who historically have won us better pay for shorter hours and better working conditions. Those who won us the weekend. Those who won women the right to vote. Those who won us the 8 hour work day.

To reinvent the labor movement we have a lot of ground to cover. One way to start would be with reimagining the “right-to-work” to be much more like the fundamental human right envisioned by the UN in 1948. This actual Right to Work, a Job Guarantee, would transform the labor market. It’d be up to communities to decide what jobs to guarantee as they see fit, but surely our communities could come up with something better than a new fast food joint. If you’re guaranteed a job serving your community, wages will go up across the board, as entry-level workers get real choice. Capitalists would be forced to make burger flipping more attractive than planting trees.

The real human right to work would mean you could quit working for your abusive boss and cross the street and get hired. We could make job guarantee jobs come with awesome benefit plans, that capitalists are forced to match. We could have contracts with our employers that require “just cause” to be fired, rather than the uneven “at-will” employment contracts we all toil under today. We could have unions that represent all of the workers in our businesses rather than just a small subset. It’s going to take a lot of work to get there, but coalescing around a shared demand, a good job for everyone, is a great start.

We can see the work that needs to be done. We need care workers to serve our aging population. We need police officers that actually serve our communities. We need solar panels harnessing the free energy of the sun. We need to capture the carbon capitalists have polluted the environment with. We need affordable housing so we don’t have people living on the streets. We need the right to build these things together, including everyone willing and able. We need to take care of those who aren’t able, for whatever reason. If we reimagine a true right to work, the unimaginable becomes possible.

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Why You’re Not Getting a Raise

Published by Anonymous (not verified) on Mon, 09/10/2017 - 2:26am in

Much of the developed world has experienced stubbornly low real wage growth since the financial crisis of 2007. Currently, the British people are seeing their earnings decline in real terms. Even in Germany, where unemployment keeps falling to record lows, wage growth is stagnating. This phenomenon has squeezed living standards and has been one of the main culprits behind the rise of anti-establishment movements. Faster pay rises are desperately needed for the global recovery to accelerate and for ordinary people to actually be a part of it. This piece explains why rising labor compensation has been relatively minuscule during the current economic upturn and how this phenomenon could be remedied. By Nikolaos Bourtzis.

Illustration: Heske van Doornen

A bit of history

The lack of meaningful pay rises is not a phenomenon that started with the financial crisis of 2007. It can be traced back to the 1970s and 1980s, when monetarism started sweeping into academia and politics. The stagflation of the 1970s, the simultaneous rise of inflation and unemployment, led some governments to abandon the Keynesian policies of the past because apparently these policies could not deal with the stagflation. Monetary policy became the preferred tool to control inflation, together with a revived notion that markets, if left to their own devices, would bring the best social outcomes. The Thatcher and Reagan governments are some of the most famous examples of States adopting and implementing these beliefs. The first institution targeted for deregulation was the labor market. Wages increases were frozen and employment protection was scaled back, because it was believed that demand and supply forces would restore full employment. However, unemployment in the UK exploded after Thatcher came into office in 1980, increasing  to over 10% and never returning to its post-World War II lows of between 1% and 2%.

Labor unions are one of the most important institutions regarding pay rises. In most industrial countries, they are responsible for wage and working conditions negotiations between employers and employees. Union membership in OECD countries grew until the mid-1970s but then started dropping. With the rise of neoliberal governments in the West, organized labor came under attack. Under the free-market ideology, unions disrupt economic activity with strikes and demand higher-than-optimal wages. Thus, their power needed to be kept in check. What is more important, though, is the shifting of ideas in what the goals of the State should be. In the post-War period, an expressed purpose of governments was to keep aggregate demand at full employment levels. The UK government, for example, stated full employment as its purpose after the War in its Economic Policy White Paper in 1944. That goal changed with the rise of neoliberalism.

When the commitment to keep employment levels high and stable was abandoned, and labor markets were deregulated, unemployment spiked in most countries and has never fallen at levels where it can be stated that full employment exists. Even during strong upturns unemployment levels in most countries did not dip below 4%. As a result, labor unions, and workers in general have lost their biggest bargaining chip. When there is full employment, and thus jobs are abundant, workers have more power to demand higher wages and better working conditions. With the neoliberal policies of the Reagan administration, real wages in the US got decoupled from productivity, meaning that workers stopped receiving their fair share of the output produced. The same phenomenon has been observed in many other industrialized countries, such as the UK. The policies introduced in the 1980s were pretty much sustained and expanded up until 2008.

 

The Financial Crisis: A turn for the worse

The situation became even worse after the financial crisis erupted. For example, in both the US and the UK the growth of wages slowed even more, as shown in the following figure, even as the headline unemployment returned to pre-crisis levels.

Moving towards a low headline unemployment rate, though, does not mean full employment is being achieved. In the US, the U-6 measure of the unemployment rate, which adds the underemployed to the headline rate, shows that the real unemployment rate is at 8.6%. Far from full employment! In the UK, it has been reported by the Office for National Statistics that the number of people employed in zero-hour contracts has risen by 400% since 2000 but most of the rise happened after the financial crisis. Thus, the employment situation is worse than before the crisis which leads to a further decline in wage growth.

 

Why is high wage growth important for the recovery?

It is essential to point out that one of the main reasons the current economic recovery has been weak is low wage growth. Wage income is the main propeller of consumer spending, which accounts for more than 60% of GDP in industrialized countries. Low wage growth means low consumer spending, thus low GDP growth and employment. Currently, households are borrowing to keep their living standards stable and that is what’s keeping consumer spending going. This process, though, is unsustainable and will not last long. When households cannot afford to borrow anymore another financial crisis will almost certainly occur. That’s why governments need to do everything in their power to restore wage growth.

What can be done?

The power of organized labor has been decimated since the 1980s. If workers cannot actually have a say in what happens in the workplace then they cannot fight for fair wages. This is why unions need to be strengthened and supported by governments. Employers should be forced to negotiate wages through collective bargaining and union coverage should be expanded above the current 50% OECD average. This will level the playing field between powerful employers and the currently weak labor class.

As mentioned before, productivity and real wages have been delinked since the 1980s. That’s where the minimum wage could potentially help. In the US, the real minimum wage fell after 1980 and has stayed relatively flat since then. With the liberalization “mania” sweeping the western world, governments are freezing public sector pay rises and Greece even cut the minimum wage in the name of restoring public finances and growth. That’s the exact opposite of what should be done to restore growth. Wages drive consumption and growth, cutting them can only depress the economy. Hiking the minimum wage will help sustain consumption based on wages, employment growth and, thus, wage growth.

A sure way to speed up wage growth again is fiscal stimulus. Government spending lifts aggregate demand directly and effectively. If enough spending is injected into the economy, it will create enough jobs to bring full employment. The momentum and labor scarcity created by the stimulus will force wages up and give workers and labor unions more bargaining power. A Job Guarantee Program, if ever implemented, would effectively set a wage floor in the economy, since any person working at a lower wage than the Job Guarantee offers will be given work in the public sector.

The “curse” of low wage growth is not something new and it definitely got exacerbated with the financial crisis. Even though unemployment is currently falling in many countries, it is still way above full employment levels. With workers’ rights under attack for some time now, unions do not have the power they once did to promote strong pay growth. If the current recovery is to accelerate, and for ordinary people to participate in it, wage growth has to rise substantially. The only way to do this is for labor unions to be strengthened and governments to once again commit to full employment.

About the Author
Nikos Bourtzis is from Greece and recently graduated with a Bachelor in Economics from Tilburg University in the Netherlands. He will be pursuing a Master in Economics and Economic analysis at Groningen University. Research interests are heterodox macroeconomics, anti-cyclical policies, income inequality, and financial instability.

 

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