fiscal policy

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Gita Gopinath On Fiscal Policy

Published by Anonymous (not verified) on Thu, 26/11/2020 - 6:09am in

Gita Gopinath, the IMF’s chief economist is now arguing for a coordinated fiscal expansion, and that “coordinated spending is better than the sum of the individual parts” (CNN interviewer quoting her) and that “it is time for a global synchronised fiscal push to lift up prospects for all” (FT article referred in the CNN interview.

This is of course welcome! A lot of countries can’t do it alone and a coordinated expansion would allow them to raise output, keeping balance of payments in check.

It’s sad however, that the message was this late (although anything better than never). Also the characterisation of the problem as if we’re in a liquidity trap is dubious as they just want to say that fiscal policy will work only now, not after a recovery. But fiscal policy always works.

Sustaining and creating employment now and post Covid

Published by Anonymous (not verified) on Wed, 18/11/2020 - 6:59am in
  1. THE CHALLENGE

1.      The focus of economic policy should be on maintaining a high, sustainable level of employment. This is correct theoretically, practically, and socially. It counterbalances the capitalist market system’s tendency not to create a high level of employment; it largely pays for itself in generating revenue: it is socially right because it avoids the waste of human resources entailed by involuntary unemployment, crowding in activity that would otherwise be crowded out.  

Sustainability is a key requirement for any policy of high employment today. The workforce must be employable in work for which there is both demand, and which, by respecting nature, also secures the future of the planet.

These are general propositions for policy valid for most advanced economies, but they have a special application to our country at this particular moment in time.

2.       The consensus of forecasts is that the British economy will be more than 10% smaller this year than in 2019, with only a moderate recovery in 2021.  Unemployment is set to rise to at least 8 per cent (2.5m), with underemployment almost double this. The 16-25 age group is projected to take a disproportionate hit, shouldering up two fifths of the rise of unemployment to a million despite representing only a fifth of the workforce.

The roll out of the new vaccines and extension of the furlough scheme to March may postpone the worst effects of the predicted downturn but they offer no basis for sustained economic recovery: little or  nothing is in place to stop the gradual haemorrhaging of  businesses and their supply chains.  This means that job retention, which aims to preserve many jobs which two lockdowns have made obsolete, must urgently give way to job creation.

In conclusion the economy has to afford more employment opportunities, especially for the young. British capitalism – currently biased to short term value creation and rent extraction (rentier capitalism) – has to be repurposed to long-term, environmentally sustainable value creation. The international trade and financial framework must be as accommodative to these aims as possible. If these are the medium and long term aims, then the foundations must  be incorporated in any short term programme.  

B.            SHORT-RUN RECOVERY

  1. There are two urgent things the government should do now.

It must establish a tripartite Economic Recovery Board, incorporating a Taskforce on work. The Board’s task would be to identify those economic sectors, nationally and regionally, which could be a major source of future employment.  These are likely to be, indeed should be:

the green economy

the rural economy

the digital economy

the caring economy

the mentoring economy

The Task Force on work should be charged with identifying work and educational opportunities now available and linking them to these potentially expanding sectors. This would give short-term work and training schemes the focus and purpose which is largely lacking from emergency programmes – a bridge between the Job Retention phase of Covid-19 and the Job Creation phase which has to follow it. 

Initiatives deserving urgent consideration are:

  1. The government should build on its own Kickstart programme, the experience of the Future Jobs Fund and the model of  Roosevelt’s Civilian Conservation Corps  by ensuring  all  unemployed  18-25 year olds  are offered work and training  in urban conservation, rural regeneration and  digital skills. Kickstart is supposedly to generate 300,000 placements for the young people, largely from the private sector. No one now expects hard-pressed businesses to offer employment on anything like this scale in the coming months.  So the public sector will need to become “employer of last resort”. There should be a youth guarantee of work and/or training. The Roosevelt scheme provided  millions of jobs for young people in

“the prevention of forest fires…plant, pest and disease control, the construction, maintenance and repair of paths, trails and fire-lanes in the national parks and national forests and such other work…as the President may determine to be desirable”. 

A youth led National Youth Corps (NYC) should be created in the same Rooseveltian spirit ( one contemporary model is the Austrian Zivildienst) as the umbrella organisation in which volunteers, paid the minimum wage for a year and combining at least 3 months training, are able to work in a range of exciting and socially valuable projects across the country – giving them a vital role  and stake in stimulating recovery. The NYC should go beyond Kickstart to stimulate  local and central government, the private and third sectors to develop and create work-rich projects (see below), connecting volunteers to opportunities via a dedicated App, offering mentoring and crucially the chance of working away from home. With sufficient urgency such programmes could be up and running within the next six months.

  • All regional and local authorities should be asked to bring forward plans for work which needs to be done in their areas  for strengthening local economic resilience and  improving local amenities and  which now languish for lack of money. Examples would be the widening of the Manchester Ship Canal and retrofitting local properties to create thousands of new jobs as well as scaling up local training programmes.

The government should allocate a quantum of money to regional and local authorities for at least one year leaving it the authorities themselves, together with private businesses, to decide what jobs and training schemes they want to create.

  • These initiatives should be supported by measures to sustain demand, given a savings ratio approaching 30 per cent, the imposition of a second lockdown and the likelihood of a thin Brexit deal (or No Deal).  There should be an acceleration and expansion of its national infrastructure programmes, along with a 12 month temporary cut in VAT for all goods and services which in 2008 proved a very effective stimulus in response to the financial crisis.

The government advanced a £8bn infrastructure spending earlier this summer. It should be expanded. The 3 year Comprehensive Spending Review should not be deferred, but instead brought forward to be announced in March 2021 at the latest. In particular the £40bn five year infrastructure plan should be front-loaded into the next two years, with priority given to big environmental projects, social housing and NHS/social care.  In doing so it would simply be following the advice of respected organisations like the International Monetary Fund. It writes

Empirical estimates based on a cross-country data set and a sample of 400,000 firms    show that public investment can have a powerful impact on GDP growth and employment during periods of high uncertainty—which is a defining feature of the current crisis. For advanced and emerging market economies, the fiscal multiplier peaks at over 2 in two years. Increasing public investment by 1 percent of GDP in these economies would create 7 million jobs directly, and between 20 million and 33 million jobs overall when considering the indirect macroeconomic effects.

FOLLOW THROUGH – REFORM TO UNDERPIN RECOVERY

  • Launch the investment covenant. A newly created bank ( either an arm of the National Investment Bank or  specially created “ bad” or refinancing bank) will buy corporate debt of distressed companies, partially underwrite the first tranche with a credit guarantee and package up the loans into single tradeable “ reconstruction” or “build-back-better” bonds. Banks and Insurance Companies will be required to hold these bonds as up to 10 per cent of their balance sheet assets. Companies accepting this debt relief will be contractually required to bring forward a proportional increase in investment spending – and accept reciprocal obligations (see below).
  • Roll over and extend all existing loan schemes but with reciprocal obligations (executive pay, commitment to train, participation in Kickstart and NYC, union recognition, adherence to Social Value Act, sign up to Corporate Governance Code, Sustainable development goals). These obligations should also be incurred by all companies being relieved of debt.
  • Transform the British Business Bank into a National Investment Bank, properly capitalised and with power to lend.
  • Banks to publish term structure of lending as part of drive for more long termism. A comply or explain regime to be created to explain why lending remains short term.
  • Corporate Governance Code to be toughened and adherence made mandatory
  • Pilot a perpetual bond

        INTERNATIONAL

  • Follow through any EU trade deal with negotiations on service sector access, improved access for goods and mutual recognition. Either leading to  eventual full membership of single market and customs union or a unique European Economic Area plus 

C.    THE MEDIUM AND LONG TERM

British capitalism and financial system must be restructured around the pursuit of social purpose. Only thus can it take full advantage of digitalisation and protect natural resources and habitats in such a way as satisfies the demand for social fairness and equity between human demands and the logic of nature. Without such an economic and social settlement, the risk is ongoing degeneracy ultimately provoking civil unrest.

  1. Macro Policy
  • Establish a new Macroeconomic Policy Framework which integrates Fiscal and Monetary Policy in pursuit of the single objective of a non-inflationary level of high employment. This recognises that monetary policy on its own cannot shield the economy against shocks to supply or demand or restore full activity level following a shock. The Bank of should be given a dual employment/inflation mandate  like the Fed. It should aim to keep down borrowing costs for the government; with forward guidance in the form of a promise not to raise Bank Rate till unemployment has fallen below a certain percentage. We cannot afford a macro-policy just based on an inflation target and a passive fiscal policy except in emergencies.
  • Fiscal policy framework. Borrow for capital spending but balance current revenues and spending. Accept debt service limit (10 % of tax revenues?)
  • Increases in capital gains, corporation, inheritance taxes. Introduce environmental taxes.
  • Set in train the reorganisation of tax system around the Mirrlees report (proper taxation of capital and wealth, environmental taxes, reform of council tax, try to avoid high marginal rates for low earners)
  • Build in green targets for all public capital projects (Green New deal)
  • Up to 600,000 public sector jobs could be created, with more than half in the NHS and adult social care, as part of rebuilding of public capacity and reversing hollowed out civil service.
  • Stakeholder Capitalism
  • The objective is to create a capitalism that is driven by purpose, long term value creation and sustainability – balancing the needs of all stakeholders and in partnership with an agile, capable, well-resourced public sector.
  • Legislate for the multi- stakeholder company. A new Companies Act incorporating hardened up Corporate Governance and  Stewardship Codes.
  • Encouragement of varying ownership forms – co-operatives, mutuals, public benefit companies, new forms of collective ownership.
  • Towards the digital trade union. Trade unions to use IT to ballot members etc as part of digital enablement of participatory trade unionism and 21st century collective bargaining.
  • Consolidate National investment bank with scaled up regional branches
  • Organise a regional industrial strategy. Key components to include a “scale-up” ecosystem around Catapult network, creating regional growth hubs focused on key sectors – space, robotics, new pharma. AI applications etc
  • Overhaul CMA
  • Support with roll out of British style Fachhochschule ( universities of applied science)
  • Overhaul educational curriculum with wider range of skills – emotional intelligence, digital, ethics etc
  • The social settlement
  • The guiding principles must be universality of provision and fairness.
  • All forms of work – whether part time, flexible or full time – to carry the same employment rights, creating a British system of flexi-security.
  • Fully fledged National Youth Corps as part of a Work Corps for all with training arm
  • Universal basic income for children up to 18 – child benefit etc
  • Universal basic services
  • Restructure care sector into NHS as part of drive for public health resilience.
  • Properly funded universal national tutoring service 
  • Pursue Devolution Agenda ,  including  tax raising powers (eg local income tax) for regional authorities.   
  • International
  • The system needs to be more resilient and sustainable
  • Procurement policy for essential services, particularly health and food not to be dependent on global supply chains.
  • Movement of capital and labour should also be aligned with national purposes
  • Work with EU and Biden’s US to reinvigorate WTO
  • Joint action on tax havens and tax abuse by High Tech
  • Intense commitment to UN Sustainable Development and climate change goals
  • Have a referendum on re-joining the EU in 10 years time

Photo credit flickr : IFA teched

The post Sustaining and creating employment now and post Covid appeared first on The Progressive Economy Forum.

Social assistance: Do higher benefit levels lead to higher caseloads?

Published by Anonymous (not verified) on Mon, 12/10/2020 - 12:58am in

As part of my PhD thesis, I did some statistical analysis in which I asked the question: “Do higher social assistance benefit levels lead to higher caseloads?”

I have recently updated the data and had it published in a journal.

Here’s a short summary of the journal article’s main findings.

Social assistance: Do higher benefit levels lead to higher caseloads?

Published by Anonymous (not verified) on Mon, 12/10/2020 - 12:58am in

As part of my PhD thesis, I did some statistical analysis in which I asked the question: “Do higher social assistance benefit levels lead to higher caseloads?”

I have recently updated the data and had it published in a journal.

Here’s a short summary of the journal article’s main findings.

Consumers Expect Modest Increase in Spending Growth and Continued Government Support

Published by Anonymous (not verified) on Tue, 29/09/2020 - 1:00am in

Tags 

fiscal policy

Gizem Koşar, Rachel Pomerantz, and Wilbert van der Klaauw

LSE_2020_sce-jr-spending-policy_vanderklaauw_460

The New York Fed’s Center for Microeconomic Data released results today from its August 2020 SCE Household Spending Survey and SCE Public Policy Survey. The former provides information on consumers' experiences and expectations regarding household spending, while the latter provides information on consumers' expectations regarding future changes for a wide range of fiscal and social policies and the potential impact of these changes on their households. These data have been collected every four months since December 2014 for the SCE Household Spending Survey and October 2015 for the SCE Public Policy Survey as part of the Survey of Consumer Expectations (SCE).

In this post, we highlight the key takeaways from today's data releases regarding the evolution of households' spending and public policy expectations.

Moderate rebound since April in spending growth and in spending growth expectations

Households report a median increase of 1.9 percent in monthly spending in August compared to twelve months earlier, considerably higher than the median April spending growth reading of 1.0 percent, but remaining below August 2019 and December 2019 readings of 2.3 percent and 2.5 percent, respectively. The increase was driven by respondents without a college degree, with spending growth for those with a college degree remaining anemic at only 0.6 percent. Together with the rebound in overall spending, we see an increase in the share of households who reported making a large purchase over the past four months from 51 percent in April to 54 percent in August, although the share remains below its 2019 average level of 61 percent. As in April, we see persistently higher shares of households reporting large purchases on furniture, home appliances, and home repairs (at 13 percent, 15 percent, and 23 percent, respectively), while the share reporting spending on trips and vacations (at 13 percent) remains only 0.1 percentage point above the series low in April 2020 (and 18 percentage points below the series high reached in August 2018).

Median expected year-ahead monthly spending growth also rebounded from 1.5 percent in April to 2.2 percent in August, but remains slightly below its December and year-ago levels of 2.4 percent and 2.5 percent, respectively. The increase was broad-based across age, education, and income groups. Next, we distinguish between spending on essential items (defined as daily living expenses related to what one absolutely needs) and non-essential items (such as hobbies, leisure, vacation, and other items that one does not absolutely need). We see increases from April to August in essential and non-essential median year-ahead spending growth expectations from 3.2 percent to 3.5 percent and 0.2 percent to 1.0 percent, respectively. This last reading of 3.5 percent expected spending growth on essential items is a new series high and may reflect an expected increase in rent and mortgage payments after the anticipated ending of various relief and forbearance programs. Looking at a shorter four-month horizon, households report higher average probabilities of making large purchases on furniture, home appliances, and home repairs, while the average likelihood of spending on trips and vacations, and of buying a vehicle, declined further to new series lows.

Households assign low chance to reductions in government support programs

While finding some modest declines in the average probability of further expansions of government assistance programs, we see persistently low average probabilities assigned to reductions in those programs. The average probability assigned to an increase in housing assistance over the next twelve months reached 37 percent in August, a new series high. Conversely, the average probability of a decrease in housing assistance was 14 percent, representing a series low for the same time frame. The increase was driven by lower-income (below $60,000) respondents without a college degree and might indicate an expectation of further extensions of mortgage forbearance and renter support programs.

Expectations regarding year-ahead changes in welfare and unemployment benefits showed some moderation, with the average likelihood of further expansions falling from 39 percent and 53 percent in April to 32 percent and 31 percent in August, respectively. Despite the decline, expectations of continued program expansion or benefit-level increases remain considerably higher than pre-COVID-19 levels. The average likelihood of a decrease in welfare benefits dropped further in August to 15 percent, a new series low. Yet, respondents report an average probability of 22 percent of a future decrease in unemployment benefits, substantially above the April level of 14 percent.

For many other assistance and social insurance programs, such as Medicare, social security benefits, and federal student aid, we see stable or slightly lower average reported likelihoods of further increases or expansions in these programs, but continued declines in the average probability of a future decline or reduction, all falling below or remaining near the series’ low levels. Finally, with respect to expectations of year-ahead changes in income taxes, we see growth in the likelihood of an increase in the average income tax rate over the next year, rising from 34 percent in April to 37 percent in August, the highest level since 2016. Similarly, the average probability of an increase in the tax rate for the highest income bracket increased from 30 percent in April to 37 percent, a new series high.

For further details, check out the full set of interactive charts on spending and public policy expectations on the Center for Microeconomic Data website.

Kosar_GizemGizem Koşar is an economist in the Federal Reserve Bank of New York’s Research and Statistics Group.

Pomerantz_rachelRachel Pomerantz is a senior research analyst in the Bank’s Research and Statistics Group.

Vanderklaauw_wilbertWilbert van der Klaauw is a senior vice president in the Bank’s Research and Statistics Group.

How to cite this post:


Gizem Koşar, Rachel Pomerantz, and Wilbert van der Klaauw, “Consumers Expect Modest Increase in Spending Growth and Continued Government Support,” Federal Reserve Bank of New York Liberty Street Economics, September 28, 2020, https://libertystreeteconomics.newyorkfed.org/2020/09/consumers-expect-m....




Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Homelessness in canada could rise due to recession

Published by Anonymous (not verified) on Sat, 26/09/2020 - 2:50am in

I am currently writing a report for Employment and Social Development Canada looking at the long-term impact of the current recession on homelessness. It should be ready by early November.

In the meantime, a teaser blog post I’ve just written on the same topic is available here.

Homelessness in canada could rise due to recession

Published by Anonymous (not verified) on Sat, 26/09/2020 - 2:50am in

I am currently writing a report for Employment and Social Development Canada looking at the long-term impact of the current recession on homelessness. It should be ready by early November.

In the meantime, a teaser blog post I’ve just written on the same topic is available here.

This time, Mr Sunak has got it wrong

Published by Anonymous (not verified) on Fri, 25/09/2020 - 9:08am in

Image with acknowledgment to  The Korea Herald

Image with acknowledgment to The Korea Herald

Till now, I have supported much of what Chancellor Rishi Sunak has put in place, as measures to help the economy through the pandemic.  The furlough scheme has proved its worth.

But today’s measures are inadequate and disappointing.  The new Job Support Scheme, under which the government will pay some 22% of the wages of employees who work at least one third of their usual hours.  This compares with the 60% of wages to be paid by the government in October, the last month of the furlough scheme.

According to the Financial Times, the monthly cost of the new scheme might by around £1 billion, compared to £4 billion per month for the furlough scheme (at October levels).  For the remaining 5 months of the year, that makes less than £5 billion, compared to the £20 billion likely cost if the furlough scheme were extended.  At 2019 levels, £20 billion is a little under 1% of GDP.

The cost of the whole of the “winter economic plan” (which includes VAT reduction measures etc. also) would be around £10 billion maximum, or less than half a per cent of GDP.

The Chancellor’s argument, set out in his Statement, is that “Our economy is now likely to undergo a more permanent adjustment.”

That is very likely to be true – and many of us have long argued that a permanent “structural adjustment” of the UK economy is essential, if we are to be fit (and fitted out) for the future, able (for example) to deal with climate change, control the finance sector, and provide far greater economic and social equality.

Mr Sunak continued,

“The sources of our economic growth and the kinds of jobs we create, will adapt and evolve to the new normal. And our plan needs to adapt and evolve in response.  Above all, we need to face up to the trade-offs and hard choices Coronavirus presents… The furlough was the right policy at the time we introduced it…. It provided immediate, short-term protection for millions of jobs through a period of acute crisis.

But as the economy reopens it is fundamentally wrong to hold people in jobs that only exist inside the furlough. We need to create new opportunities and allow the economy to move forward and that means supporting people to be in viable jobs which provide genuine security.”

There is however a huge weakness in his argument.  We have not had time to see how the virus will affect us for the longer term, and numerous industrial sectors – of which the arts, entertainment and recreation are the prime example – remain closed or highly restricted because of measures put in place by government (with good cause, for the greater part).  If they have to remain closed for long periods, then it may be unreasonable to expect their employees to remain as such, at government expense.  But if – for example – a vaccine is available in 6 months’ time, then these industries can re-emerge, perhaps reshaped, but not destroyed – provided that there are still businesses and still a workforce in place.  In short, for at least some industries, and probably for all, an extension of the furlough scheme till the end of March would be a far better option. And that indeed is why the Chancellor has delayed his budget - because he needs more time to see how the crisis evolves (see FT article here).

Although the level of vacancies has risen from its April low, it is still below the low levels reached in the Global Financial Crisis, as per this recent ONS chart:

vacancies.png

This means that it is highly unlikely that there will be jobs sufficient to provide work, or decent work, for many of those “released” by the process of not-very-creative job destruction that is still likely to follow the end of furlough. This means, further, that there will be reduced spending power in the economy, as the number of unemployed rises.

And although retention of the furlough scheme would add around one per cent of government spending (or around half a per cent more than the new Job Support Scheme) to the end of this financial year, £20 billion is quite small set against the total coronavirus spending so far.  And today, let us note, the government borrowed  £3,000 million of 0⅛% Treasury Gilt 2026 with a marginally negative yield…

And insofar as Mr Sunak is right, and there is a process of “more permanent adjustment”, what is required is not the untrammelled, unseen working of the free market, which will seek to revert to old patterns of exploitation, but a process through which the government helps to shape, through its climate and industrial policy leadership, the direction and evolution of that adjustment.  With the UK chairing the UN Climate Change Convention ‘COP 26’ conference in Glasgow in November 2021, we should take COVID 19 as the wake-up call for a truly permanent ‘adjustment’. 

But mindlessly destroying the creative arts and sports sectors along the way would be an act of senseless vandalism, not of ‘adjustment’.  ‘Creative destruction’ must not mean the ‘destruction of creativity’.

“Whatever great meaningful and impactful work we are doing now is only the beginning, let’s keep moving forward for a better tomorrow.” – George Stamatis

Woed Cloud economy unemplyment job debt money taxPhoto by PublicDomainPictures

According to the Office for Budget Responsibility, whose fiscal sustainability report was published last month, the news is bad. In its Executive Summary, it noted that the UK was on track to record the largest decline in annual GDP for 300 years. It has forecast that this winter, unemployment will soar to levels last seen in the 1980s under Margaret Thatcher. It recognised the government’s focus on managing the pandemic and reviving the economy through its fiscal spending programme, but went on to point out that the structural fiscal damage would likely lead to the need to increase tax revenues and/or reduce spending to put the public finances on a sustainable path.

Instead of examining the real human consequences of government policies over the last decade, or the huge fiscal response to the pandemic, the health of the economy more has often than not been reduced to the fiscal framework of household budgets. Over the last few weeks, GIMMS has been pointing out in the MMT Lens that the Debt Sirens are now working overtime to revive in the public consciousness the idea that there will be a heavy price to pay for the huge sums spent by this government.

In this week’s news, Rishi Sunak suggested that Britain cannot sustain the current level of ‘borrowing’ and Andrew Bailey, the Governor of the Bank of England, backed up the Chancellor when he said that there was no question of a wholesale extension of the Job Retention Scheme. The clear implication is that it’s not affordable! One wonders on this premise whether Rishi Sunak, like Labour’s Liam Byrne, might be obliged to leave a note in the Treasury when he finally leaves saying ‘There is no money left’. The Tories spent it all!

You might be forgiven too for thinking when TV journalists like Krishnan Guru Murthy then reinforce the false household budget narrative with statements like ‘The Government is running out of Money’ or when The Times publishes a provocative headline, as they did this week, designed to send pensioners into a spin ‘State pension fund ‘raided’ to pay for pandemic unemployment payments’ that they are pointing out the obvious. It is not possible to continue ‘spending like a drunken sailor’ without consequences. Surely the public might say? Notwithstanding that government spending is the only thing keeping the economy from tanking further.

Even the National Institute of Economic and Social Research, whilst opposing at the end of last month the Chancellor’s planned closure of the furlough scheme saying it was too early to do so without the probability of a surge in unemployment, then goes on to focus on the problem of higher public sector borrowing in its words ‘financed by higher private sector saving’. The money has to come from somewhere. Doesn’t’ it? Whether that’s borrowing or higher taxes.

And so, the public continues none the wiser and starts to prepare itself for hard times ahead. Such uncertainty will, in turn, lead to yet more economic distress as people fear the worst and retrench yet more. Those who can, will continue to save and indeed the figures show that during the pandemic savings have risen. At the other end of the scale, the choices for many are cutting their budgets or getting into debt. Either way, it is the worst economic recipe of all. Savings don’t always mean people are going to spend in an uncertain climate and for those lower down the wage scale, the choices don’t even exist. It becomes a vicious cycle of decline.

It’s time to break this cycle of lies.

To put it clearly, a sovereign currency-issuing government doesn’t have to borrow from the private sector in order to spend, nor raid the State Pension Fund to pay for the pandemic unemployment payments. And it most certainly can’t run out of money! After the big spend, a narrative is being constructed to justify more cuts to publicly provided services, just as happened in 2010 when the Tories came to office. While we clapped for our public services and key workers recognising their vital contribution to keeping the economy functioning during the pandemic, the Establishment has been planning its next coup which will focus on how to pour yet more public money, that apparently ‘we don’t have’ to invest in the public purpose, into private profit instead. As mentioned last week – the creation of UK plc.

While Rishi Sunak promotes, with great fanfare, his ‘Eat out to help out’ scheme (when many people are simply struggling to eat and for whom such a discount might represent a whole week’s food) and Boris Johnson unveils his £10m half-hearted plan to cut obesity (with those contradictions ringing loud and clear) the numerous elephants in the room remain seemingly invisible to policymakers:

  • The last 10 years of austerity which has left the economy in bad shape and the public and social infrastructure in a state of decay and unable to respond effectively. A social safety net which has been decimated and left many people hungry and homeless.
  • The precarious nature of employment with long hours, insecure working practices, and poor pay.
  • And now the prospect of mass unemployment adding to the already structural faults in the employment landscape.

The growth in self-employment with around 5 million people or 15% of the workforce, a growing number of which are women, has replaced well-paid and secure work. Presented as offering choice and flexibility it has, in fact, left many people in dire economic straits trying to make a decent living even before the pandemic and the rules on receipt of benefits over the last few months have further disadvantaged these people and left them without.

Currently, many people are now chasing too few jobs with employers receiving hundreds of applications for just one position. It seems that the message to people of working age is that you are on your own. You can either sink or swim! Then, in the event that your job is no longer viable in the longer term, the message from Rishi Sunak this week is to get on your bike and get retrained and, without a doubt, then if you still fail to find a job then you can be sure that the blame will be shifted onto you.  As Bill Mitchell said in a blog in 2009 during the Great Financial Crash ‘Training does not equal jobsthis will be yet again a government shifting responsibility elsewhere and abdicating its own for the economy and the welfare of its citizens.

The government’s continuing fixation on ‘debt’ and the unsustainability of ‘borrowing’, which is the driver for its October deadline for bring the furlough scheme to a close, combined with private sector redundancies or cutting workers’ pay (both of which are already happening) is a recipe for economic disaster and lies in flawed thinking. Indeed, if pursued, will do an immense amount of harm to an already ailing economy. In simple economic terms, the government’s deficit is the private sector’s surplus. In personal terms that we can identify with, that’s the money circulating in the economy. Who in their right minds would want to remove it at this critical time by abandoning the furlough scheme or even consider higher taxes? But still, the household budget drums beat! And still the shifting of public assets into ever fewer hands carries on.

We are, it seems, being presented with a choice. A stark choice. Follow the household budget narratives which ultimately will demand tough decisions on spending (notwithstanding that there will always plenty for the next war, or to fill the boots of big corporations) and accept there will be no alternative to more public infrastructure decay and worse more deaths of innocent people. Or we break free from the nonsense which asks, ‘but where will the money come from?’ The bottom line is that our public fixation with high levels of debt and the rising deficit is harming people, indeed killing people, and pulling the rug from under the feet of those same people threatened with the loss of their job, cuts to their wages or government-imposed public sector wage restraint. Indeed, thousands of NHS nurses and healthcare staff marched in towns and cities this weekend to protest about being excluded from the public sector pay rise announced by the government in recent weeks. Just how Rishi Sunak thinks he can stimulate an ailing economy by cutting the lifelines of working people is a mystery.

We need now to restore the diminished power of working people and resist the potential for driving down conditions and pay which most likely will be the result of mass unemployment as the power shifts remorselessly towards ever fewer people. We haven’t got one, but we need a government not only prepared to legislate to protect working people from the economic ravages of the pandemic, but also one that is committed to the principle of full employment through the implementation of a Job Guarantee. Instead of worrying about the size of the deficit, we should be looking at its size in relation to what it represents in real terms to the well-being of citizens and whether or not it corresponds to full employment.

So, why a job guarantee, why is it important and what would it entail? In simple terms, the job guarantee acts as a superior macroeconomic stabiliser providing a sustainable solution to the perennial problems of inflation and unemployment. Its aim is to create full employment and price stability through the government hiring unemployed workers as an employer of last resort.

Professor Bill Mitchell usefully clarified in his blog this week what it would entail:

  1. A guaranteed job for anyone who wants to work and cannot currently find a job.
  2. They would receive a socially inclusive minimum wage.
  3. They would receive holiday and sick pay entitlements, superannuation contributions from the employer, and other special leave entitlements that are common in the permanent workforce.
  4. They would be entitled to undergo training (on-the-job or in outside environments, including going back to school, college or university).
  5. They would receive social wage benefits – what some might call guaranteed levels of services – such as health care insurance, free child-care, transport allowances, access to legal aid supplements, etc.
  6. Family Income Supplements: The Job Guarantee is not based on family units. The Job Guarantee wage (available to anyone over working age) would be supplemented with benefits reflecting family structure. In contrast to workfare, there would no pressure on single parents to seek employment.
  7. They could choose whatever hours they desired to work – effectively eliminating time-based underemployment.
  8. IMPORTANTLY, a worker would be given a grace period on accessing the Job Guarantee. Their wage would start immediately but they could have 3-4 weeks before having to start work where they could sort out their affairs, ‘take a breather’, engage in job search if they wanted, etc. During this period, they would be paid the standard wage rate.
  9. The job would be permanent if they chose.
  10. The job design can be flexible to help workers with special difficulties enjoy a productive working life (for example, the provision of clinical support within the workplace to help people burdened with episodic illnesses).

To this, we would add a superior benefit system which would protect those who cannot work for any reason including illness and disability or carrying out caring roles along with Universal Basic Services.

The question must be answered. And we must answer as a collective. What sort of society do we want to live in? A dystopian Mad Max one where economic slavery and gross inequality dictates the terms by which we live our lives. Or something better?

 

 

Event

The Post-Covid Economy

We were privileged to be able to host GIMMS Associate Philip Armstrong speaking about how the economy works and what a Post-Covid Economy could look like.

Christian Reilly kindly recorded the event for us and shared it on The MMT Podcast here.

Slides available at https://gimms.org.uk/wp-content/uploads/2020/08/Phil-Armstrong-MMT-and-Post-Covid-Economics.pdf

 

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The post “Whatever great meaningful and impactful work we are doing now is only the beginning, let’s keep moving forward for a better tomorrow.” – George Stamatis appeared first on The Gower Initiative for Modern Money Studies.

Covid-19 briefing: post-lockdown macro

Published by Anonymous (not verified) on Wed, 29/07/2020 - 6:00pm in

Michael Kumhof In the wake of Covid-19 lockdown, macroeconomic policymakers have to deal not only with the immediate contraction in the economy, but also with the medium and longer term macro-consequences. Over the past four months, the macroeconomic literature on these topics has expanded rapidly. This post reviews the literature that considers the channels via … Continue reading Covid-19 briefing: post-lockdown macro →

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