job guarantee

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.

The post Reimagining “right-to-work” appeared first on The Minskys.

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.

 

The post Why You’re Not Getting a Raise appeared first on The Minskys.

Polish journal Theoretical Practice devotes issue to basic income and job guarantee

Published by Anonymous (not verified) on Mon, 18/09/2017 - 4:03am in

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job guarantee

The contents of the issue are freely available online, although only in Polish.

The post Polish journal Theoretical Practice devotes issue to basic income and job guarantee appeared first on BIEN.

Event: Strategizing a New New Deal

Published by Anonymous (not verified) on Sat, 09/09/2017 - 6:54am in

If you’re in the vicinity of New York City at the end of October, Levy scholars Randall Wray and Stephanie Kelton are taking part in a public meeting organized by the National Jobs for All Coalition. The meeting is part of a series of public events focused on the legacy of New Deal.

Wray and Kelton will be participating in a panel on the job guarantee — “Political and Economic Prospects for Achieving a Federal and a New York City Job Guarantee” — alongside Philip Harvey and Darrick Hamilton (who was recently recognized by Politico for his work on the job guarantee).

The event is hosted at the New School (Oct. 27) and Columbia Law School (Oct. 28). You can download the flyer and program here. For registration and other details, see here.

Event: Strategizing a New New Deal

Published by Anonymous (not verified) on Sat, 09/09/2017 - 6:54am in

If you’re in the vicinity of New York City at the end of October, Levy scholars Randall Wray and Stephanie Kelton are taking part in a public meeting organized by the National Jobs for All Coalition. The meeting is part of a series of public events focused on the legacy of New Deal.

Wray and Kelton will be participating in a panel on the job guarantee — “Political and Economic Prospects for Achieving a Federal and a New York City Job Guarantee” — alongside Philip Harvey and Darrick Hamilton (who was recently recognized by Politico for his work on the job guarantee).

The event is hosted at the New School (Oct. 27) and Columbia Law School (Oct. 28). You can download the flyer and program here. For registration and other details, see here.

Thursday, 7 September 2017 - 6:21pm

Published by Matthew Davidson on Thu, 07/09/2017 - 6:21pm in

I've been meaning to go through the literature on every thrust and parry in the ongoing argument between proponents of a Job Guarantee and those of a Basic Income, and put together a thorough response. That's not going to happen in the next month or so, so in case I get hit by a bus, here's two paragraphs of where I stand (or don't stand) in the debate, lifted from a comment I just posted on Neil Wilson's blog:

Basic income vs. job guarantee is a false dichotomy that ill serves anybody who takes sides. There is undoubtably some overlap in that they both aim to reduce hardship and stimulate demand, but as far as I can see they’re mostly orthogonal in the range of problems they can potentially solve. Also they’re both programs that we already run, in the sense that we (in developed sovereign currency economies) already have a labour buffer stock program — unemployment — and a basic income, set at the level of zero.

I’m totally sold on (at least my understanding of) the job guarantee as a better implementation of a labour buffer stock, but I don’t think that “with a job guarantee in place, no matter what the particular circumstances may be, anywhere and forever, no level of basic income other than zero could be justifiable” is a defensible argument. And it runs counter to the general MMT stance of “these are the economic policy tools available; how you choose to use them is a political decision”.

Australian government employment plan – racist and in breach of our laws

Published by Anonymous (not verified) on Mon, 07/08/2017 - 12:22pm in

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job guarantee

Today’s discussion is about how employment policy becomes so corrupted by neo-liberal ideology (overlaid with some healthy racism) that the government causes damage rather than advances well-being. The examples I outline demonstrate the wider problem that neo-liberal inspired governments clearly understand the economy is not working yet they cannot bring themselves to introduce obvious solutions to the problems identified. Further, while they claim their policy choices are constrained by the ‘money’ they have to spend (limited according to their narrative), when they do spend ‘money’ they bias the benefits to corporate interests as a profit subsidy rather than providing sustainable income support for the most disadvantaged who just become pawns in the subsidy to capital. And then, they pretend, they are obeying ‘market’ dictates when the ‘free market (not!)’ was never in the picture anyway. The on-going hypocrisy of this neo-liberal era.

Job creation gone wrong

At the weekend, the Secretary of the Australian Council of Trade Unions made a speech at the Garma Festival, which, in the words of the organisers “has become Australia’s Indigenous equivalent of the World Economic Forum held annually at Davos”. It is held in North East Arnhem land (Northern Territory) and “attracts an exclusive gathering of 2,500 political and business leaders from across the globe”.

The aim of the Garma Festival is to educate the participants “about the economic challenges, the steps that need to be taken to ensure that there are economic opportunities for Aboriginal people” as well as strengthening Australia’s “cultural genius through the preservation and maintenance of a culture 50,000+ years old.”

The Speech was reported in these articles:

1. Sally McManus ratchets up campaign against ‘racist’ work-for-the-dole program (August 5, 2017).

2. Remote work-for-the dole program, ‘stark reminder racism still endures’: ACTU boss

3. Remote work-for-the-dole scheme is racist, ACTU head Sally McManus says (August 6, 2017).

The situation is this.

The Community Development Program (CDP) is a special work-for-the-dole applied (mostly) to indigenous Australians.

A large proportion of indigenous Australians live in remote areas of Australia where there are zero alternative income generating alternatives.

There is a systemic failure of these local areas to generate enough jobs. The lack of jobs is endemic and the individuals who are victims of that failure because of their geographic location (reflecting history, culture, social considerations, family etc) are dependent on federal government income support as they are on the air they breathe.

As a result of the high unemployment and inadequate income support, there is widespread poverty in these areas. The pitiful amount of income support that is begrudgingly provided by the Government ensures the recipients remain below the poverty line.

The Government also imposes so-called Income Management (IM) on these people which amounts to an autocratic intrusion into the daily lives of those that the Government forces to remain in poverty as a result of the government’s own policy.

Even the ‘passive welfare’ connotation is loaded given the pernicious activity tests that are imposed on income support recipients.

These include need to search for a certain number of jobs and attend interviews at Government offices every two weeks and satisfy other intrusions (attend interviews, participate in useless training programs etc).

So the culture of income support in these areas completely ignores the fact that not only has the Federal government undermined job creation in Australia via its fiscal austerity obsession but it also has failed to take responsibility for providing sufficient work to all Australians.

The problem is worse in remote areas. Previously, residents in these areas depended on so-called Community Development Employment Projects (CDEP), which was a Federal job creation program that provided necessary work and income where private labour markets were scant.

In effect, the CDEP provided an employment guarantee for indigenous Australians in remote areas.

The first Governor of the Reserve Bank of Australia in 1960, H.C. Coombs, who had previously been a major player in the creation of the White Paper on Full Employment in Australia, was also a major proponent of the CDEP.

Please read my blog – A national disgrace – the abandonment of full employment – for more discussion on this point.

Coombs considered:

… that rather than pay lots of Aboriginal people in remote areas unemployment benefits it would be more constructive for them to be employed … to undertake socially useful tasks.

For those who would like to see a summary of the political machinations surrounding the CDEP this – Timeline of Remote Jobs Programs – is useful.

I wrote about the Community Development Employment Projects system in this blog – So infested with neo-liberalism that they cannot add up anymore.

When the current conservative government were in office (1996-2007), it progressively cut the program that was crucial to remote communities.

In 2007, towards the end of its tenure, it defunded it.

At the time, the decision to scrap the CDEP scheme by the previous Conservative government was described by researchers as just plain dumb.

I recall a discussion I had with a senior conservative federal politician at the time it was scrapped (July 2007) – he said the Government wanted CDEP participants to be forced to move into the private labour market and not be cossetted by artificial government jobs.

He, of-course, had an ‘artificial’ (non-‘market’-created), yet highly-paid government job but that reality seemed lost on him.

But the substantive point I made is that while I rejected the real/artificial distinction between private and public employment that was at the heart of his policy framework, the reality was something more stark.

There was basically NO PRIVATE LABOUR MARKET in most of the regions where CDEP provided work.

It is one thing to believe in incentives to get workers into the ‘market’ but there has to be a operating ‘market’ to get into.

The CDEP was, for many remote indigenous communities the only employment available.

When they regained office in 2013, the current government brought the indigenous communities within the aegis of its ‘Work-for-the-Dole’ program.

On July 1, 2015, it introduced the so-called – Community Development Programme (CDP) – which it claimed “better serves people in remote Australia, leading to better job opportunities and helping community members to help themselves.”

It operates in 60 regions (1000 communities) around Australia and more than 80 per cent of the approximately 35,000 participants. 83 per cent of the participants “identify as Aboriginal and Torres Strait Islander people.”

The facts are as follows:

1. Whereas under the old CDEP, the workers received a legally-minimum wage, under the revised CDP, a person receives the unemployment benefit but must work 25 hours per week in return.

2. The legal National Minimum Wage in Australia is $694.90 per 38 hour week (before tax) or $A18.29 per hour. Casual employees also have to paid at least a 25 per cent casual loading in recognition they surrender their statutory entitlements such as holiday pay etc (note: this loading is grossly inadequate given what the casual worker forgoes).

3. No one can be lawfully paid less than that in Australia. If an employer is found to be paying workers below that legal minimum they are heavily fined (for example, $228,000 penalty for business operator who thinks minimum pay rates are “just crazy”).

4. The Adult Unemployment Benefit payment (Newstart) for a single person is currently $A535.60 per fortnight (Source).

5. So, under the Federal CDP, a worker puts in 25 forced hours in return for the unemployment benefit, which amounts to a payment of $A10.70 per hour. That is, less than 58.60 per cent of the legal minimum wage.

6. This scheme thus forces people to undertake work at below the legally minimum wage.

7. The CDP is a special ‘work-for-the-dole’ program because CDP participants have to work longer hours than other work-for-dole participants elsewhere in Australia.

The ABC report (October 3, 2016) – Remote work for the dole scheme ‘causing more harm than good’ – indicated that:

Under the program, participants are required to attend work for the dole for five hours per day, on five days a week, all year round.

By comparison, non-remote programs do not include any work for the dole requirements until the second year … people in remote communities were incurring financial penalties at 70 times the rate incurred in the rest of the community.

The question that has to be asked is why are these rules different?

Further, it gets worse.

We now know that indigenous Australians who are forced to work in the CDP just to receive their unemployment benefit, which should be a right of citizenship without conditions, are subjected to harsh financial penalties for minor incursions relating to their work performance.

On Friday, October 21, 2016, information released – Document – under the guise of the Federal Senate Estimates process showed at the time that:

1. There were 33,000 CDP participants working for largely private contractors under contract to the Federal government.

2. In the June-quarter 2016, of those 33,000, “12,235 job seekers received financial penalties”

3. For the year 2015-16, there were 146,654 “financial penalty events” (20,409 “unique job seekers), meaning the same persons were fined at least more than once.

4. Of those 20,409 people penalised, 18,325 were Indigenous. So disproportionately over-represented.

5. Where there is no alternative work (such as in the Northern Territory) the fining was more extensive.

The evidence is then clear. I spent nearly 2 years working on regional projects in remote NT areas (between 2012-2014) and the results on loss of income support are devastating.

People go hungry, disease increases, and children are neglected.

See this article (June 27, 2017) – NT families go hungry under the Community Development Program.

Which brings me to the speech by the ACTU Secretary at the Garma Festival.

Sally McManus said that the CDP “is a stark reminder that racism still endures”:

… workers performing work under the CDP program are not even considered workers. Unlike every other “work for the dole” program or the $4/hour internships the Turnbull Government has introduced for young unemployed people, the CDP is immediately compulsory …

We have a system for unemployed people in our country, a compulsory work-for-the-dole program, 25 hours a week, 52 weeks a year. For non-remote programs, it’s 15 hours a week, 6 months of the year. And CDP workers, in our poorest communities, are being fined at a rate 70 times higher than metropolitan work-for-the-dole programs.

Further:

The workers are being paid $10/hour – way less than the minimum wage of $18.86, with no rights, no leave, no superannuation, no workers compensation – so much less rights and protections of any other worker. How can we accept this? How can we accept some people have less rights than everyone else? …

The CDP is only in regional and remote areas. Clearly this is discriminatory. One set of laws for one group of Australians, and another for others based on where they live. But let’s not whitewash this, 85 per cent of the people affected by these laws are Indigenous.

While the government claims the scheme gets people off welfare, the reality is that it just shifts workers from income support (without pernicious work requirements) to income support (with pernicious work requirements).

These requirements include forcing them to work for below the legal minimum wage and then imposing such harsh work requirements that they are fined and lose significant proportions of their income support.

Does this enhance the viability of any private labour market? Typically no.

But then we learn more.

In fact, this scheme which pays what I would consider to be illegal wage rates, is now being used to subsidise profit-seeking operations.

Sally McManus said that:

People are working, some of them in jobs they were once paid award wages for and often for for-profit companies. The employers are getting CDP workers for free.

An example she provided concerns “a for-profit fencing company working in remote areas”.

McManus added:

That work clearly needs to be done but they’ve got workers on CDP to do it. If it wasn’t for CDP they’d have to pay people proper wages for it. It’s not like these are made up jobs. They’re jobs that have to be done.

The reality is that there are thousands of such activities being performed right across remote Australia that generate profits for the ‘providers’ and replace what would otherwise be paid employment in private sector with cheap, forced CDP labour.

Local councils are offenders in this regard as well. They use CDP labour to perform civic functions (including bus drivers, parks and gardens staffing, etc) which would otherwise be done by workers (skilled and unskilled) who would be paid the legal wage relevant to their category of employment.

In those situations, crying poor – ‘there is no money’ – is just a lie. The Federal government could hire all these workers at the correct legal wage and extend their working week to improve the incomes received by the families and then, through spending, the wider community.

The federal government should not be subsidising private profit-seeking companies by providing them with free labour (under the CDP scheme the ‘providers’ do not pay the benefit payment) paid by the government at below, legal minimum wages.

This is just a neo-liberal obscenity. Australia, further, loses any claim to decency as a result of this sort of program.

A key player in the sector (from Jobs Australia) was quoted in the ABC report (October 3, 2016) – Remote work for the dole scheme ‘causing more harm than good’ – as saying:

Wherever possible, Indigenous and other Australians should be helped into work, and for Indigenous people who suffer higher rates of unemployment, absolutely … But the reality of the labour markets in remote communities is there are not enough jobs to go around.

Even if every job being performed in those communities was being performed by an Indigenous person, there would still not be enough jobs to go around.

The arrangements for CDP need to take account of that, rather than pretending that by requiring people to turn up for five hours a day for five days a week, it’ll get them ready for work that actually doesn’t exist.

Pretty sound logic.

The solution is obvious.

Instead of a racist CDP and the other ‘work-for-the-dole’ program, the Federal government should announce the introduction of a Job Guarantee, where any worker, no matter where they live or the colour of their skin etc could access a minimum wage public sector job if they were unable to find work elsewhere.

None of these jobs would serve to provide ‘free’ labour to private, for-profit firms.

Another crucial aspect of making job creation schemes effective is attending to other constraints on participation, such as housing and transport.

If you read my work you will know that I advocate a strong ‘social wage’ supplement to the Job Guarantee wage, which itself would be a socially acceptable minimum wage – not an impoverished unemployment benefit below the federal minimum wage when expressed in hourly terms.

This social wage component would provide first-class and free public transport for Job Guarantee workers and provide adequate housing and skills necessary to maintain the adequacy of that housing.

In remote areas, transport and housing is shocking. Further, it is difficult to adjust from unemployment to working in these areas without additional support in these areas.

Third, first-class and free health care would be provided to all Job Guarantee workers, including assistance to escape drug and alcohol dependencies. A ‘No Show’ for these reasons would not lead to a loss of wage as long as the worker was participating in the appropriate health care program.

Fourth, mental illness is rife in remote communities, including episodic illness. A Job Guarantee would be tailored to suit the participants and ensure that supplementary clinical support was available and provided at no charge to those who relied on it.

Conclusion

There are no financial constraints on governments providing these jobs and the necessary support that would make the overall approach viable.

The only constraints are the faux neo-liberal claims that there is not enough money and the inherent racism that is still rife in Australia.

I was also going to write about the latest announcement (August 1, 2017) by the Australian federal minister for Employment – 10,000 opportunities for young Australians in hospitality – which claims the Government “is creating more pathways for young people to move off welfare and into a job”.

The plan in liaison with the employer association (Australian Hotels Association) is a wage subsidy scheme which just amounts to another way to give profit subsidies to for-profit employers, who already benefit from having access to workers being paid ‘working poor’ levels of wages.

Further, when one does the arithmetic, you find that, once again, anyone who participates on a full-time working week basis in the scheme will be paid below the legal federal minimum wage rate.

It is a disgraceful plan and shows that the Federal government disregards our laws whenever it chooses yet claims it is big on law and order.

Time prevented me going into detail today.

But then I am sure we (I) are depressed enough just documenting all this stuff.

Get angry then do something is the message.

Crowdfunding Request – Economics for a progressive agenda

Thanks to all those who have helped so far.

I received a request to promote this Crowdfunding effort. I note that I will receive a portion of the funds raised in the form of reimbursement of some travel expenses. I have waived my usual speaking fees and some other expenses to help this group out.

The Crowdfunding Site is for an – Economics for a progressive agenda.

As the site notes:

Professor Bill Mitchell, a leading proponent of Modern Monetary Theory, has agreed to be our speaker at a fringe meeting to be held during Labour Conference Week in Brighton in September 2017.

The meeting is being organised independently by a small group of Labour members whose goal is to start a conversation about reframing our understanding of economics to match a progressive political agenda. Our funds are limited and so we are seeking to raise money to cover the travel and other costs associated with the event. Your donations and support would be really appreciated.

For those interested in joining us the meeting will be held on Monday 25th September between 2 and 5pm and the venue is The Brighthelm Centre, North Road, Brighton, BN1 1YD. All are welcome and you don’t have to be a member of the Labour party to attend.

It will be great to see as many people in Brighton as possible.

Please give generously to ensure the organisers are not out of pocket.

That is enough for today!

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

What is the Minimum Wage that Will Employ Everyone?

Published by Anonymous (not verified) on Mon, 12/06/2017 - 10:46am in

It is official, the unemployment rate in the US has dropped to its lowest level in 16 years. Economists all around the country must be tapping themselves in the back and buying each other drinks in congratulations, right? Wrong. Despite the official drop in joblessness, we have a decline in labor participation, an increase in the “skill gap” in the labor force (i.e. unemployed workers’ skills do not match those needed by open jobs) and, arguably most importantly, wages that fail to rise fast enough.

For starters, the latest reports show that the year-over-year wage growth rate has been stagnating; it reached 2.5 percent since last year, which is just marginally above inflation. It is difficult to determine exactly why people drop out of the labor force, but we can speculate that some do so because of the lack of pay increases. Whatever the reason, the dropout is a significant part of the declining unemployment rate—e.g. the May report shows that 429,000 people dropped out of the labor force. A nation with a population that is actively leaving the labor force and that deals with stagnant wages is a nation facing serious socioeconomic problems.

 

The problem at hand, then, is a question economists have been dealing with for ages: how can we increase earnings and employment at the same time? Common economic understanding would argue that we have to choose between higher wages and more jobs. The main argument against minimum wage hikes is that it would increase unemployment. That claim is factually untrue (just look at Seattle) and there are a number of ways to address the issue. At The Minskys we have tackled this topic several times, and shown that a decent minimum wage does not have to reduce the number of jobs out there. One way to have both is with a Job Guarantee (JG) program.

 

One of the more interesting consequences of a JG program is that it would create a de-facto minimum wage without the need of actually raising the minimum wage. The JG wage would become the minimum wage for the entire economy. Workers receiving less than the JG wage would be inclined to take a JG job, and employers would have to raise their salary offers in order to keep their workforce. Given the impact of the pay offered by the program, it is important that the JG wage rate be thoroughly discussed.

 

The JG literature has a large number of works focused on the topic of wages. Some suggest the pay to vary with skill-level. Others advocate for JG wages to be the same as they would be in the market.  But having multiple compensation packages would make the logistics and application of a JG program much more complicated.

 

To find the best wage rate for JG jobs, a few parameters should be considered. First, the JG framework is to create jobs that provide at least a minimum “subsistence” rate, so that workers can  live a decent life. As such, it is clear that the JG wage should at least be the current federal minimum wage of $7.25 an hour. Second, the goal of the JG is not, and should never be, to replace the private sector. So, the JG wage should not exceed the average wage paid in the private sector ($25.31 in 2016). This creates an upper limit.  

 

With these lower and upper limits in place we can raise the floor or lower the ceiling, ultimately arriving at the proper wage rate paid by this full employment policy. Recent polls show that Democrats, Republicans and Independents—in their majority—all support raising the minimum wage to $10.10 an hour, which suggests that there may be widespread political support to increasing the minimum wage.We can raise the lower limit further after we consider the per capita income in the US, which would put the fair minimum wage at $12.00 an hour. The lower limit of $12 an hour is appropriate since it is marginally above the poverty rate of $11.53 for a household with two children where only one of the parents is employed.

 

A good point within that range is the $15.00 hourly wage rate. Legislation regarding this wage rate has recently been approved in cities such as Seattle, Los Angeles, and the state of New York. There is also a movement by workers demanding that it becomes the floor in the fast food and retail industries. It seems appropriate, therefore, to follow these cities and movements by determining the going wage rate for a JG program to be set at $15.00 an hour. After all, a national JG cannot pay less than locally established minimum wages. On the other hand, the guarantee of a job in, for example, Seattle paying $15.00 per hour, while surrounding areas are offering lower pay could saturate one area in detriment of another.

 

As previously discussed, the JG wage would become the minimum wage to the entire economy. Consequently, workers who currently earn less than the $15.00 an hour rate would receive a raise. In total, accounting also for the ripple effects faced by workers in the $15.00 to $19.00 range, roughly 64.7 million workers would receive a wage increase, which means 43.5 percent of the labor force would see their wage income go up. To avoid inflationary pressures, allow for seamless implementation, and contain possible—albeit historically improbable—negative employment effects from the minimum wage hike, the transition to this wage through the implementation of the JG program will have to be done incrementally.

 

The Job Guarantee is an effective way to solve the three major problems currently facing the American labor market: the skill gap, the dropout of workers from the labor force, and most importantly the stagnant wages. We have empirically observed that wage increases not only do not increase unemployment, but they also serve as a catalyst for economic growth and towards social equity. The US economy has plenty of needs that can be fulfilled by giving well-paying jobs to its unemployed. The $15/hour wage is not only fair, it is a necessary measure to ensure the prosperity of this nation.

 

The post What is the Minimum Wage that Will Employ Everyone? appeared first on The Minskys.

A Basic Income Guarantee does not reduce poverty

Published by Anonymous (not verified) on Wed, 31/05/2017 - 5:55pm in

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Poverty arises for a number of reasons but a lack of income has to be a central characteristic of someone who is poor. And notwithstanding the increasing tendency for people who work full-time to be found earning wages that place them below the poverty line, the major reason for people having a lack of income is unemployment. That typically makes poverty a systemic event rather than an individual failure because mass unemployment is easy to understand – it occurs when the system fails to produce enough jobs to meet the desires for work by the available labour force. Then, to understand why the system fails in that way, we know that once the spending and saving decisions of the non-government sector are made, if there is still a spending shortfall in the economy, which generates the mass unemployment, then it has to be because the net spending position of the national government is short. That is, either the fiscal surplus is too large or (usually) the deficit is too small. In that sense, the introduction of a Job Guarantee would eliminate poverty arising from unemployment and the working poor because the Government could condition the minimum wage by where it set the Job Guarantee wage. If it truly desired to end poverty among those in employment then it would set the Job Guarantee accordingly. Others argue that a more direct way of dealing with poverty and lack of income is to just provide the income via a Basic Income Guarantee (BIG). The BIG idea has captured the progressive side of politics and many on the Right. It is another one of those sneaky neo-liberal ideas that look good on the surface but are rotten not far below. Supporters of BIG are really absolving currency-issuing governments of their responsibility to use their fiscal capacities to ensure there are sufficient jobs created – whether in the non-government or government sector. They are thus going along with the neo-liberal attack on the right to work. Moreover, closer analysis reveals that the introduction of the BIG would not, under current institutional arrangements reduce poverty at all.

Note, I prefer it if commentators did not to consider this to be my only blog on the foibles of Basic Income Guarantees. Accordingly, I request that if your commenting finger is twitching to please refrain from claiming I have missed this or that.

I have written many articles and blogs about this topic. If you want to trace through the sequence of arguments please go to the Job Guarantee Category and read the blogs in order.

Then if you think I have missed something, by all means, let me have it.

The OECD has just released a technical briefing paper (May 2017) – Basic Income as a Policy Option: Technical Background Note Illustrating Costs and Distributional Implications for Selected Countries – which, as the title suggests, explores the consequences of an “unconditional transfer paid to each individual” (BIG).

It is a supporting document to a OECD policy brief (May 2017) – Basic Income as a Policy Option: Can it add up? .

The OECD now has a research program it is calling – Future of Work. It turns out that my next book (written with Joan Muysken and to be published in 2018) will examine this topic. I will have more to say about the research we are engaged in for that project in the coming weeks.

As before, you will be able to trace the notes I produce that will form the basis of this book via my blogs as the research process unfolds.

The Technical Background paper provides “a more detailed description of … [the] … analysis, and shows more comprehensive results …”

The OECD assumes that:

1. “a BI that would replace most cash benefits for working age households”.

2. “the provision of public services, such as health, education, care, or other in-kind supports is assumed to continue unchanged”.

They note that if a government was “to take existing cash benefits paid to those of working age and to spread total expenditure on these benefits equally across all those aged below normal retirement age” the “resulting BI amount would be very much lower than the poverty line for a single individual”.

Thus a “budget-neutral BI will be very far from eradicating poverty, whereas a BI set at the poverty line would be very expensive”.

They demonstrate this using their Figure 1 (which I reproduce). So to aid interpretation, you can see that for Spain, for example, a BIG based on per-capita benefit spending would come up to around 35 per cent of the poverty line only, whereas the current social assistance benefit level is closer to 60 per cent of the poverty line (For a single-person household).

In part, this arises as a result of the universality of the BIG. A targetted BIG is typically rejected by proponents. They add moral arguments to their narrative and claiming that a guaranteed minimum income is a right that all enjoy rather than only the poor.

The OECD conclude that:

… a BI at socially and politically meaningful levels would likely require additional benefit expenditures, and thus higher tax revenues to finance them. By taxing the BI alongside other incomes, its net value would fall for those in higher tax brackets, reducing its cost and making it more targeted to lower-income groups, who pay lower tax rates.

Assuming, of course, fiscal neutrality.

My reference to “current institutional arrangements” in the Introduction relates to this point. Most proponents of BIG adopt neo-liberal macroeconomic conceptions of the fiscal capacity of the government and thus fall into believing that there are financial constraints on government spending that can only be relieved with higher taxation or increased debt issuance.

Of course, those who understand Modern Monetary Theory (MMT) know, intrinsically, that a sovereign government is never revenue constrained because it is the monopoly issuer of the currency.

In that case, it could simple increase its net spending (fiscal deficit) to facilitate the introduction of a BIG. But, in that situation, there are new problems as I will explain.

Staying within the OECD’s neo-liberal frame, it notes that benefit systems and tax-free thresholds vary across countries, which means that a simple statement of who would win and who would lose by replacing benefits with a BIG is difficult to make.

In terms of their “revenue-neutral BI, adjusted amount” model, they note that (setting the BI = existing GMI levels in the income support systems for Finland, Italy, France and the UK):

1. “In each of the four countries considered here, the largest average gains from a BI would occur among the lowest-income households … This arises as those who are not covered by social protection in existing systems for whatever reason (not having sufficient past contributions to qualify or non-take-up of benefits) and who hence have the lowest incomes would gain from the introduction of a universal BI.”

2. “The richest income group would lose overall in each country too” for various reasons pertaining to each country.

3. “in many cases those in work would see the amount they receive from the BI offset by higher income taxes as tax-free amounts were abolished. This is the case in Finland, the UK and the USA for example”.

4. “In France, those on higher incomes would actually lose between 5% and 10% of their income as the value of the zero- tax band is greater than the BI amount at these income levels, but those with lower earnings would gain.”

5. “In many other countries, however, a single person without children would see (often quite substantial) gains at all income levels … In these countries, gains generally increase with earnings for lower earnings ranges: the BI would not be means tested away, and peak at the point where entitlement to existing means-tested support expires.”

6. “Gains remain substantial in Japan and the Netherlands, however, as the BI amount still exceed additional tax payments made even at relatively high earnings levels.”

7. In Italy, “introducing a BI would involve very large percentage changes in incomes at low earnings levels, but … changes are small for those with higher income levels.”

8. “In Finland, France and Italy, large losses would occur among those who receive unemployment insurance benefits or early retirement pensions … The pattern in the UK is different: as the revenue-neutral BI amount is lower than the value of GMI benefits, lower-income groups often lose.”

8. “The extent of gains … suggests that replacing existing social protection systems with a BI along the lines described here would not be budget-neutral.”

They provided Figure 4 to show the distributional consequences of a BIG (winners and losers by decile). The explanation for the patterns is complex and arises from the differences in the structure of tax and welfare systems in each country.

I will leave it to you to examine each nation’s results if you are interested in more detail.

The other approach they analysed was a “revenue-neutral BI, adjusted tax rates” – in other words, a higher BIG matched with revenue from varying taxes (up or down – depending on the current situation).

They note that setting the BI = existing GMI levels in the income support systems:

1. “In Finland and France, this is little different from the previous variant” given the nature of the existing support structures.

2. “In Italy, this variant involves a big reduction in income taxes, which significantly benefits richer households but does little to increase the incomes of many poorer households”.

3. “The opposite is the case in the UK.” The poor and the middle income groups see no change but the highest income groups “would lose significantly”.

The OECD Figure 7 (reproduced next) shows the winners and losers in detail across the income distribution.

The columns show the shifts (up and down) from BIG, tax rises and benefit losses. The diamonds show the net result in absolute terms.

The loss of benefits and increased tax burdens typically offset (or nearly) the benefits of the BIG for many cohorts.

In both models, the OECD provide more detailed results of the winners and losers by family size and structure and age breakdowns.

But the aim of the exercise was to establish the impact of the BIG on poverty?

The OECD conclude that:

1. “Although there would be more winners than losers among low-income groups under a BI … it would not prove to be an effective tool for reducing poverty”.

2. “In Finland and France, relatively good benefit coverage among poorer households means that poverty would be higher under both BI variants considered here as, despite benefit spending being much higher with a BI, it would be much less well targeted.”

3. “Even in Italy, where existing benefit spending is not well targeted on poorer households, poverty would be roughly the same in the case where existing spending was used to give everyone a BI rather than targeted on specific groups.”

4. “In the UK, the revenue-neutral BI amount is significantly below the level of existing GMI benefits, so it is perhaps unsurprising that this leads to much higher levels of poverty. However, even in the case where taxes are raised significantly to pay for a BI at the level of GMI benefits, the BI does not significantly reduce poverty.”

5. “Rather than reducing the overall headcount of those in poverty, a BI would change the composition of the income-poor population … In all countries, a reduction in poverty among those currently not covered by social protection systems would be offset by some of those who are covered by existing social protection systems and who lose out from the introduction of a BI moving into poverty.”

So there you have it. A BIG as is typically proposed is not a magic cure for poverty.

Under fiscal neutrality, the maximum sustainable BIG would be modest. Aggregate demand and employment impacts would be small, and even with some redistribution of working hours; high levels of labour underutilisation would persist.

Overall this strategy does not enhance the rights of the most disadvantaged, nor does it provide work for those who desire it.

It is obvious that persistent unemployment could easily be avoided by the introduction of the BIG if it was accompanied by a net government stimulus (deficit).

This recognises that at all times, given the spending and saving decisions of the non-government sector, the existing unemployment level is the choice of the currency-issuing government – in other words, mass unemployment means that the deficit is too small relative to non-government saving desires.

Without an appropriate fiscal stimulus, the basic income proposal would achieve full employment by persuading the unemployed to drop out of the labour force upon receipt of an income guarantee.

The economy would move towards full employment by stealth – pushing workers out of the labour force rather than providing work for them.

But the value of the currency would then fall given that nothing is provided in return for the government spending.

The resulting inflationary bias would invoke interest rate adjustments (given the current inflation-first approach adopted by central banks) that would constrain the economy from achieving sufficient growth to offer real employment options to all aspiring workers.

But then a further quandary emerges. The more generous BIG, would probably stimulate total spending such that there would be a shortage of labour at ‘full employment’, resulting from the artificial reduction of the full employment level of employment, which then compounds the inflationary pressure.

The alternative is that the excess demand for goods would be increasingly met via imports with consequential effects for the exchange rate and the domestic price level, which would accentuate the inflationary pressure.

Thus the introduction of a BIG policy is likely to be highly problematic with respect its capacity to deliver both sustained full employment and price stability.

A sound policy also has to be viable if the extremes of that policy are encountered. It is obvious that the basic income proposal does not satisfy that requirement.

As more an more individuals opted for the basic income without work, output would drop dramatically and material prosperity would be violated. Leisure and consumption are closely related.

Further, given the logic employed by the basic income proponents that the government providing the basic income is financially constrained, the logic means that as increasing numbers of workers ‘liberated’ themselves by taking the basic income, the capacity of the government to sustain it would diminish.

In other words, on its own grounds, the basic income proposal is limited in scope.

What about an MMT-style BIG? That is, one that recognises that the government would have no need to increase taxes to facilitate the introduction of the BIG.

If there is mass unemployment, then the solution is for the government to expand its net fiscal impact (spending over taxation) and allow the deficit to rise.

So shifting from a state of mass unemployment to the introduction of a basic income guarantee would require a net government stimulus (that is, an increasing fiscal deficit).

In this regard, the basic income guarantee (funded by an increasing fiscal deficit) constitutes an indiscriminate Keynesian expansion and as it lacks any inbuilt price stabilisation mechanisms, inflationary pressures would result.

Workers who draw income from the production cycle have also added output (via their labour) to that cycle. For a given level of productivity (output per unit of input), the more people that have access to income, spend that income at market prices, but do not add to output (that is, are supported in real terms by the production of others), the greater the inflation risk.

Further, the greater the share of income generated in any period that is received by people who offer nothing in return, the higher the inflation risk.

Under these circumstances, the more people pursue the ‘freedom’ on non-work under the basic income guarantee, the worse the situation becomes because for given productivity, this would mean the supply side of the economy keeps shrinking, while the demand side remains stable (depending on the level of the stipend).

So we come back to the point that to minimise the inflation risk, the basic income stipend has to be small, which then, in turn, means the scheme hardly addresses the dignity of an independent existence. People have income security but are in poverty.

We can explore this vulnerability further.

If the government increases net spending (its deficit) to fund a generous basic income stipend then the demand for labour rises in response to the higher aggregate spending in the economy. Clearly, labour demand would higher than under a fiscally-neutral introduction of a basic income guarantee.

The real issue is what happens to labour supply.

If the stimulus was wrought via the payment of a generous basic income stipend, then it is reasonable to surmise that total labour supply would decrease.

In other words, the level of employment that coincides with ‘full employment’ where everybody who wants a job can find one is artificially reduced in the presence of the basic income guarantee (if sufficiently generous).

The real resource space available for the stimulus is thus reduced. The more people who took the stipend and withdrew from the labour force, the less real capacity there would be in the economy to respond to nominal spending growth.

With less productive workers available, the stimulus would cause what economists call ‘demand-pull’ inflation. The inflation rate is pulled up by an incompatibility of nominal spending relative to productive capacity.

Firms would compete for increasingly fewer workers and drive up wages, which would have the consequence of making the basic income stipend less attractive at the margin.

Some ‘Malibu surfers’ might decide to resume work again. The government might respond by raising taxes and/or reducing government expenditure, which would tend to raise unemployment.

The central bank, under the current regime that governs monetary policy, would also respond by raising interest rates.

The combination of these policy responses would reduce the demand pressure, but to the extent that the inflationary process had assumed a cost-push form (distributional struggle over available real income), wage and price inflation may only decline slowly.

It is thus possible that an unsustainable dynamic could be generated in which there are periodic phases of demand-pull inflation and induced cost-push inflation at low rates of unemployment, followed by contractionary policy and high rates of unemployment.

These economic outcomes are consistent with indiscriminate (generalised) Keynesian policy expansions of the past.

Our conclusion is that the introduction of a basic income guarantee which is designed to also sustain full employment (that is, to give all those who want to work the opportunity) is likely to be highly problematic given the likely inflationary consequences.

Conclusion

The guaranteed path to poverty reduction is to just make a job available to anyone who wanted to work but who could not currently find work at a wage that was socially inclusive and above the poverty line.

Then, if a person was fit to work and chose not to take the job under the Job Guarantee, they either had alternative income or would be poor by choice.

Poverty by choice is not a problem in my world.

British Tories looking to the future …

I thought these captures were excellent.

Its either a bitter future under the Tories or …

You are required to submit to torture.

Sydney event – August 24, 2017

For Sydney readers, here is some advance notice of an event I will be speaking at on behalf of the Unemployment Workers’ Union and the NSW Trades Hall Council.

It will be a debate between myself (proposing the superiority of employment guarantees) and Eva Cox (a long-time supporter of BIG).

It will be a free event and open to all. It will run from 14:00 to 16:00 at the Auditorium, Trades Hall, Sussex Street, Sydney.

Style Note

I increased the font size on the main pages of my blog today by 1px. It seems to read better.

That is enough for today!

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

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