job guarantee

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Have we had enough of market-led dogma yet?

“OK…SO WHERE DOES THE FUNDING COME FROM?”

It depends on what we are talking about. If we are talking about universal health care, a Job Guarantee, infrastructure work, etc., the funding comes from the national government.

If, on the other hand, we are talking about national government spending itself, – as in, “how does the government ‘fund’ its spending?”, the answer is the national government does not “fund” its spending because it is an impossible condition.

The national government alone is the source of funding in terms of its own currency for the private sector and the foreign sector combined. That is what being the monopoly currency issuer is all about: Providing the funds.

The currency-issuing national government is not an intermediary that collects “money” from private entities in the form of taxation or borrowing to fill its empty coffers, and then redistributes those “funds”.

Treasury has no coffers to fill. Rather, treasury fills the coffers of everyone else.

Ellis Winningham

Placard with the slogan "When is enough enough, when does hte greed stop?", Wisconsin State Capitol protest 2014Photo by Joe Brusky/Flickr Creative Commons License 2.0

Have we had enough yet? This week Boris Johnson, in a Zoom meeting of the 1922 Committee, warmly saluted the vaccine rollout with these words: ‘The reason we have the vaccine success is because of capitalism, because of greed my friends’. Whilst he has tried to backpedal from these ill-advised remarks, the words reflect a widely held view by politicians, institutions and the excessively rich that the market is the only mechanism for delivering well-being, and that the State should take a step back and let the market do its job, greed and all. We have paid a heavy price for that sort of thinking, in terms of environmental destruction, poverty, inequality, human degradation and exploitation.

The cumulative effect of five decades and more of market-led dogma and a toxic ideology that has been embraced by successive governments, of either political stripe, has given monetary succour to the corporations at the expense of public purpose, which has over the past year been revealed for exactly what it is. Greed for power, greed for profit. Not a very wholesome or edifying advert for capitalism, and one which is increasingly in the public eye, as media attention focuses on who has benefited from government policies and spending decisions, and those who have lost out.

The appalling management of the Covid-19 crisis, which has led to the deaths of well in excess of 126,000 people so far, combined with those who have suffered or died as a result of cuts to government spending on vital public infrastructure and the pernicious reforms of the social security system, have revealed in all their hideous outcomes what happens when government spending is reduced to household budgeting narratives. The phoney notion that delivering public purpose is either monetarily unaffordable and/or dependent on the economic climate.

The remark reveals something rather distasteful about a Prime Minister who not long back was standing on the steps of Number 10 encouraging us to clap for key workers. Those who have been responsible for caring for the sick, elderly, and vulnerable as well as keeping the economy functioning during the crisis whether in the public or private sector.

A letter written by the authors of The Spirit Level (Kate Pickett and Richard Wilkinson) which was published in the Guardian this week took the Prime Minister to task for his comments saying:

“You report (23 March) that Boris Johnson told backbench Conservative MPs that the UK’s successful vaccine rollout was thanks to capitalism and greed. Really? Greedy academics and research scientists? Greedy World Health Organization staff and civil servants? Greedy nurses who give us our jabs? Is that also why contracts given to Tory cronies for test and trace were so startlingly successful? This is not a trivial misunderstanding: it is a fundamental failure to comprehend how modern societies work. Prof Mariana Mazzucato has shown how discovery and innovation flow from the public sector, and there are now studies showing that more equal societies are more innovative, with more patents per head than those where capitalism is rampant.”

Whilst the financial markets have produced nothing of value, focused as they are on speculation and amassing huge monetary wealth, the real wealth makers, not the monetary sort, are those on whom society depends. The past year has highlighted their contributions on every level of society. It has also highlighted the role that government can play, if it chooses, in delivering public purpose aims. Whether that is spending to keep the economy from tanking or vital public service and welfare provision, research and development and education and training; all of which make the difference between a good society and a bad one.

However, we live in a world where ‘money’ wealth trumps the real wealth we enjoy, and which is sustained and underpinned by nature which provides the many services on which we depend. Deregulation (or rather accommodation) by neoliberal governments has created a rampant market-dominated model which is threatening democracy and the future of humanity and planetary health.

This toxic market ideology is at the same time underpinned by incorrect ideas of how governments spend. Ideas which suggest that taxing and borrowing are at the heart of their spending capacity, and which, if not reversed, will continue to constrain government actions on the key issues of our day.

The art of the possible is not financially oriented. The art of the possible is about political choices, but those political choices hitherto have left our society in a state of crisis and will continue to do so unless we challenge the status quo.

Currently, the rules for government spending are laid out clearly. Stuff the pockets of the private sector corporations and those of your friends, whilst telling the public sector that there is no money and keeping private-sector workers on low wages and in insecure employment. The evidence is piling up daily.

This week Test and Trace is hiring a ‘Lessons Learnt Analyst’ with a salary of £45,000. You couldn’t make it up! Management consultants being paid to advise what went wrong with a programme designed by management consultants. As GIMMS’ board advisor Deborah Harrington so rightly asked ‘do you ever get the impression we have all somehow been trapped inside a never-ending episode of ‘You’ve been framed’?

Also, this week ministers have opened the public purse yet again to the private sector; shelling out almost £1 million to a private recruitment firm to find temporary staff for the new, but controversial, National Institute for Health Protection, which is to replace Public Health England, in what has been termed a ‘shifting deckchairs’ exercise. In reality an attempt to transfer the blame elsewhere than at the government’s feet.

Whilst refusing to pay nurses a decent pay rise, giving workers a scarcely generous increase in the minimum wage and at the same time suggesting that more cuts to public services may be in the offing, the claim that the government needs to restore its finances smells of purposeful deceit of the public. As GIMMS pointed out last week, the contradictions are increasingly evident, and it is for the public to challenge those false flags which serve ideology and not necessity.

In March 2019, the IMF warned that the world had ‘run out of firepower to fight the next recession’. It erroneously suggested that the ‘money printing’ programmes known as Quantitative Easing, which had supposedly pumped trillions into economies after the Global Financial Crash in 2008, had left the economies so weak in the decade since that the balance sheets of the central banks had ‘swollen to a level that leaves little room left for manoeuvre’. Its conclusion was that the large piles of debt would reduce the ‘fiscal firepower’, available to counteract recessions’.

The public has been led astray by terms such as money printing, public debt and borrowing, and if your suspicions have been aroused that something is not quite right then it’s time to get with monetary realities. Governments around the world have as necessity dictated created the funds necessary to deal with the fallout of Covid-19 at the stroke of a computer key. It may have been dressed up in the smoke and mirrors of QE and borrowing, but it has shown without doubt that, just as in 2008, the money is there at central level to deal not just with the consequences of the pandemic, but also to address the issues which have arisen from insufficient government spending by political decree. From hunger and homelessness to infrastructure decay and environmental degradation.

But government action so far seems to be one of half-hearted plans dressed up in overblown rhetoric, from promises to level up our communities, invest in infrastructure, education and training and deliver an effective green transition. Lots of hot air but little in the way of concrete proposals, or worse, failure to deliver on already proposed programmes.

If the UK government’s flagship home insulation scheme is anything to go by, then one should ask whether that public funding has been properly administered or is even delivering its green objectives. Indeed, in hot news over the weekend the government has decided to scrap the green homes grant which was administered by a US company. Promising a kickstart for a green recovery along with green jobs, it descended unsurprisingly into a dogs’ dinner that was, according to the Environmental Audit Committee of MPs, ‘rushed in conception and poorly administrated’, indeed ‘nothing short of disastrous. As a reader’s letter published this week in the Guardian suggested:

‘This government’s approach to the climate crisis […] is the same as it is to all other iniquities its ideology exacerbates such as poverty, inequality and homelessness. They announce a relatively small injection of cash and a couple of initiatives, careful not to disturb the underlying practices causing the problems. If [the government were] serious and really followed the science, they would end all subsidies to, and investment in, fossil fuel industries. They would also implement curbs to reduce energy and resource consumption, direct and indirect, by the UK population. That would be global leadership and would set a course for a just transition.

 

The government’s proposals are nothing more than a smokescreen to suggest we tried, while baking in failure for our generation and horror for those that follow.”

The problems of lack of commitment by the government are also compounded by financial institutions and businesses who, whilst greenwashing their way to profits, don’t walk the talk. This week, it was reported that the world’s biggest banks have provided $3.8tn of financing for fossil fuel companies since the Paris climate deal in 2015, despite the fact that it has been known for some time that a large proportion of oil and gas reserves must remain in the ground in order to meet the Paris targets. This is exactly the opposite of what is required to tackle the climate crisis effectively and requires urgent government action and spending on a vast scale.

Also this week, Andrea Leadsom announced a new package for parents, ‘Start for Life’, which will provide a hub network to give families access to vital support. This is the same MP who praised Labour’s Sure Start initiative and had to be reminded that government cuts had closed more than 1000 Sure Start Centres.

It seems ironic that we have a Minister who in 2012 envisaged ‘there being absolutely no regulation whatsoever… no minimum wage, no maternity or paternity rights, no unfair dismissal rights, no pension rights…’ for employees working in small businesses and who also voted to reduce the household benefit cap, to freeze the rate of many working-age benefits and for many other changes to the benefits system which have seriously impacted on the lives of those same families, now purporting to want to address the failure caused by a political decision to cut spending on benefits and other services. You couldn’t make it up.

According to reports, Leadsom still has to get the Treasury on board with her plans. Despite the fact that such funding is available at a keystroke on a computer should the government choose; it is constrained only by the availability of real resources. The question of paying for it is an irrelevant one.

Instead of worrying about costs, the government, if it really wants to level up, should have the humility to examine the consequences of its previous spending and policy decisions, and the impact they have had on families across the nation. Would it not be better to start at the roots of poverty by addressing its fundamental causes, through wage and employment policies to help families manage their lives with less financial stress and worry, and in turn create more stable home environments?

The positive knock-on effects of more government spending on public purpose which then fan out into the wider economy are indisputable and make for a healthier and more productive society. Furthermore, people with more money in their pockets are better placed to provide for themselves and will spend any extra into the economy. Simple macroeconomics. And yet the government still sees public provision as a monetary cost rather than a societal gain.

A report on ITV this week covered the appalling conditions in which many families are forced to live in council housing (although this is not confined to social housing, the private sector’s reputation is just as blemished). It was truly shocking. The Chief Executive of Shelter, the biggest housing charity, described it as ‘the worst housing conditions they have ever seen’.

If the government is determined to address poverty and inequality, then it has to put its money where its mouth is. Yes, let us invest in public service provision to support families with better and more joined-up services, but it will not help unless the government focuses as well on eliminating one of the causes of family stress. Poverty. People do not choose poverty, and unemployment, governments impose it through the ideological dogma they espouse and the policies they enact.

At the other end of the scale, Kwasi Kwarteng, the Secretary of State for Business, defending his department’s slow progress on funding for the organisation UK Research and Innovation, which has so far failed to provide any sort of certainty for the science community, blamed it on the pressure on budgets. This is not just short-sighted, as the Covid-19 pandemic has shown, society will increasingly depend on science to address key issues like climate change, but is actually nothing short of a lie in monetary terms. Furthermore, this is the role of the State. Planning for the future, not abandoning citizens to the vagaries of a market-led disaster which is sure to follow without government action.

The government is not short of a penny. It is the currency issuer. Therefore, the only constraints it faces to deliver its agenda are real resource ones. Whilst the government continues to embrace false funding models which claim monetary constraints, any plans for a just green transition that will also address poverty and inequality at the same time will fall by the wayside.

The unvarnished truth is that the phrases ‘bolstering the treasury’s coffers,’ ‘closing the tax gap’ and ‘protecting the finances’ – terms which appear regularly in the press – are illusory descriptions of how the state money system works. Vocabulary designed to make us think that the government spends in the same way households, local government and businesses do.

The illusion acts to keep us in our place, so as we do not demand too much in the way of public services or any other useful expenditure which provides social value and serves the economy.

The real questions for citizens regarding the future are about what real resources we have and how we want them to be distributed. Do we want a return to the old normal of unnecessary and wasteful private consumption, environmental destruction and the reinforcement of the vast inequalities that accompany it? Or do we want our governments to act in the public interest by commanding the resources that are available to deliver public purpose? The second option will require a shift in how we think about creating a fairer society.

Why aren’t we looking at a Job Guarantee as a mechanism to help in addressing both inequity and climate change? Why wouldn’t governments choose a macroeconomically sound proposal, which focuses on creating economic stability in times of crisis and smoothing out the inevitable cyclical economic downturns which destroy lives?  Why not give working people useful, socially oriented employment instead of leaving them to rot on the unemployment scrap heap?

For too long, governments have acted in the interests of big business and global corporations, which in turn through the implementation of short-sighted employment and wage policies serving business, not citizens, have then impacted on their economies adversely.

Haven’t we had enough? Time for change!

 

 

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The post Have we had enough of market-led dogma yet? appeared first on The Gower Initiative for Modern Money Studies.

Some historical thinking about the Job Guarantee

Published by Anonymous (not verified) on Thu, 25/02/2021 - 5:59pm in

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job guarantee

I noted yesterday that I was appearing at a Seminar via Zoom with my MMT colleague, Pavlina Tcherneva, where we will discuss the concept of a social contract and where Modern Monetary Theory (MMT) fits into that, especially in the context of our idea of employment guarantees. The seminar – MMT and the new social contract: Lessons from Covid-19 – will be held on Saturday, February 27, 2021, from 10:00 Australian Eastern Daylight time and you can find details of how you can participate – HERE. I was thinking about what I would contribute to this workshop and rather than just rehearse the standard discussion about the Job Guarantee I have thought going back to square one would be a good place to start. This is especially a good thing to do, given that I increasingly see progressive people embrace the concept but try to do ‘too much’ with it. That is, place too much emphasis on it, especially in the context of Green Transitions. Pouring all our activist and political energy into getting a Job Guarantee up is not a sensible strategy for reasons I will explain. Second, a lot of critics, especially those who talk big on Twitter about ‘Bill Mitchell wanting people to starve’, clearly haven’t gone back to understand the roots of the concept and where it fits in. So today, I want to further clarify some significant issues that arise when both sides – pro and con – come in contact with the concept of employment buffer stocks for the first time and think they know all about.

As a matter of fact, I always applaud initiatives that propose to introduce a buffer stock of jobs and use it to replace the current unemployment buffer stock approach that devastates the lives of people and wastes human potential.

But I caution against making these initiatives out to be ‘game changers’.

A Job Guarantee is an important part of a new order but it should really be just a very small part of the policy offerings, which I think is a point that is missed by those who think of it as a job creation program rather than the way I conceived of it initially in 1978 as a price stabilisation framework with the added advantage that jobs replaced unemployment.

In this blog post, I am really building on the notions I developed in this post – Setting things straight about the Job Guarantee (July 30, 2020).

Let’s construct our thinking in a logical manner.

Capitalism is a crisis prone monetary production system.

Marx knew it. Kalecki knew it. Keynes got to know it.

The policy interventions that defined the period after World War 2 up until the Monetarist coup were built on that understanding.

We knew that unregulated capitalism would enter crises whenever pessimism increased and spending fell.

We also knew that without government intervention by way of fiscal stimulus, that the capitalist system could get stuck in an equilibrium state which would coincide with very high unemployment.

When people say they are Keynesian, above all else, they are referring to that understanding and that operational sense – for government to intervene into the private system that was stuck in crisis and restore confidence and income and employment growth.

We also formed an understanding from Marx and others that the logic of capitalism was conflictual.

The bosses want to get as much surplus value as they can out of workers while they control their work day and pay them the least they can get away with.

Conversely, the workers that are essential to creating surplus value (which is the source of monetary profits) want to be paid the most they can get and do as little possible work.

That juxtaposition spells conflict.

And that is what the whole history of supervision and control structures in capitalist workplaces is all about – ensuring that the surplus is created and maximised.

With the rise of Communism and the disruption of the Second World War, Western nations had to work out a way to rebuild their wrecked economies while ensuring that Communism did not spread.

Communism was attractive to workers because it held out a liberation from capitalist control. Of more equity and discretion about our workplaces.

That is one of the reasons, social democratic movements formed and were tolerated – because they allowed capitalism to survive by conceding some equity to workers and empowering the state to create public goods such a health and education systems.

Obviously capital still tried to manipulate those developments – for example, by attempting to control educational curricula and the like.

But for a time workers could organise and confront capital as a collective to extract better wage outcomes and working conditions.

Full employment gave tremendous advantages to the working class and allowed for upward intergenerational socio-economic mobility – where children born into poorer families could aspire to transcend that social class and enter the more secure middle class.

And as capital became more concentrated – through takeovers etc, and, trade unions became more powerful, the two conflicting forces obviously gained increasing price setting power.

Firms set prices according to markups which reflected their expected profit return on capital and unions, representing their workforces, could exert power to gain wage increases.

As a result real wages mostly grew in proportion with productivity growth which reduced the likelihood of a realisation crisis (expenditure lagging behind production) but also reduced income inequalities and allowed workers to fast track into middle class life (and mass consumption).

But that increase in ‘price setting’ power brought a new propensity to crisis relating not to unemployment but rather to inflationary biases.

The – 1973 OPEC Oil Crises – triggered an inflationary spiral driven by the ‘battle of the markups’ (the conflictual struggle between capital and labour for real income shares).

The existing Keynesian policy consensus had really only constructed inflation threats in terms of demand pull events – where nominal spending outstrips the capacity of the economy to respond by producing more real goods and services.

There was some delay among policy elites in grasping what a raw material price hike (particularly one that is imported – such as the oil shock) meant when it interacted with the distributional conflict between labour and capital.

The point was that nations as a whole had to take a real income loss because an essential raw material they imported now took a larger share of nominal income.

So who would take that loss?

Capital didn’t want to take it, and, rather tried to pass it onto workers by increasing their markups and pushing up prices, thereby reducing real wages and the purchasing power of workers.

But strong trade unions were not keen to accept that profit push and ‘real wage resistance’ became a force, which was expressed in increased wage demands – thereby restoring the real wage cuts resulting from the price rises.

As both sides had price setting power, a price-wage spiral was easy to trigger and that is what happened.

Before long, inflation was accelerating away and governments, under the influence of the emerging Monetarist paradigm in macroeconomics, sought to cut net spending.

This resulted in rising unemployment coinciding with accelerating inflation, which we called ‘stagflation’ – the twin evils.

The rising unemployment was devastating but airbrushed by the Monetarists as being an essential ‘natural’ adjustment that we just had to tolerate to stabilise inflation.

And so the ‘natural rate of unemployment’ or NAIRU (non-accelerating-inflation-rate-of-unemployment) entered the picture and governments were told that there was no longer a choice to use discretionary fiscal expansion to reduce unemployment.

The only thing that would result from this strategy, we were told, was that inflation would continue to accelerate and only stabilise when the natural rate of unemployment was reached.

I was a young student as all this was going on and mainstream economists were estimating that the natural rate in the late 1970s had risen (due to microeconomic inefficiencies) and full employment could no longer be considered to be 2 per cent or lower, a level that had been sustained for 3 or more decades following the Second World War.

In 1978, I was doing my fourth year studies at the University of Melbourne and one of the units I took as part of the course work component was Agricultural Economics.

As a child from a working class family, the rise in unemployment in the late 1970s and the response of the federal government to create a ‘razor gang’ under the then Treasurer Phillip Lynch, which sought to cut government deficits, was devastating.

Unemployment continued to rise. It was the beginning of high youth unemployment because one of the things the Razor Gang cut was apprenticeships, which were largely offered within the public sector.

Youth unemployment rose sharply (and never returned to low levels again) because its major employer stopped employing! All sorts of mainstream economists starting raving on about excessive youth wages, excessively generous youth unemployment benefits etc but it was as simple as their major employer bailing out due to the erroneous idea that fiscal deficits were dangerous and had to be cut.

So this was the period I was starting out in.

Inflation was very high.

The economics academy had become infested with Monetarist ideas and governments had shifted from seeing unemployment as a policy target to be minimised through public policy to being a policy tool that could be used to discipline the inflationary spiral.

That discipline would come by pushing workers into unemployment, which increased the fear of those still in work of having to endure the same fate if they persisted with their wage demands.

The unemployment and lost income also meant that ‘product market’ conditions (sales and demand) weakened, which made it harder or acted as a disincentive for firms to push up prices for fear of losing market share to rivals.

As I became more aware of economics, causation, class struggle and the rest of it, I realised that this anti-inflation strategy was incredibly damaging to the working class both in personal terms (undermining family stability, rising poverty rates and the rest) but also represented a massive loss in terms of daily GDP that was foregone as a result of the unemployment.

Not having workers who wanted to work working was a massive waste of human potential and income generation capacity.

The rising neoliberalism at the time ignored these losses and started to, instead, worry about whether buses and trains ran on time (the so-called microeconomic inefficiencies).

Micro reform became the policy flavour and led to attacks on conditions of work, attacks on trade union power etc, while the massive daily losses of the macroeconomic failure (the systemic shortage of jobs deliberately created by fiscal austerity) was staring them in the face.

Of course, all of this was a strategy (apropos of the Powell Memorandum and what followed) to undermine the gains made by citizens as a result of the three or so decades of social democracy.

Capital was fighting back and governments were being reconfigured by the neoliberals (supported by my profession) to aid and abet that fight back.

The times were very different to what they are now.

To really understand where the MMT version of the Job Guarantee comes from you have to try to put yourself back into that milieu.

When I was in that Agricultural Economics class, we were studying the wool price stabilisation program and I have already written about that in previous posts – see linked post above.

It was at the time unemployment was rising sharply, which was anathema to me.

So as a young progressive aspiring economist I wanted to devote my project work in that course, but as it turns out, all of my later work through PhD then academic work to countering:

1. The fiscal deficit fetishism that had taken over the profession by the late 1970s

2. The idea that the only way out of inflation was to use unemployment.

3. The idea that markets would deliver optimal outcomes if left unfettered from government spending interventions and regulation.

4. The idea that there was some natural rate of unemployment that we had to accept was a market phenomena that government could do little about.

That was my mission and why the idea of the Job Guarantee was an early expression of that mission was because I got the idea from the Wool Price stabilisation scheme, which was a government run buffer stock mechanism that effectively always ensure there was full employment of wool each year (no excess demand or supply) and stabilised the price of wool at a level agreed to be acceptable to the sheep farmers and government.

I wasn’t so much interested in wool but was very interested in labour and unemployment.

So a moment’s lateral thinking one cold winter’s day in Melbourne as I stared out the window of the lecture theatre onto Royal Parade shifted me from thinking about buffer stocks of wool to thinking about and sketching a plan for a buffer stock of jobs.

That sketch became my final paper in that course.

But you have to be clear it was a scheme to address the inflationary crises endemic to late industrial capitalism where capital and labour are in conflict and both had price setting power.

It was not conceived as a job creation program. It certainly had that additional advantage.

But it was conceived as a way of addressing the distributional struggle and the price-wage spiral without having to create unemployment.

I understood that a solution within capitalism had to be found because I hadn’t identified any revolutionary armies forming in the suburbs that might overthrow that particular (and pernicious) system of ownership and production.

That understanding didn’t suggest I supported capitalism. It just reflected the reality that while these revolutionary armies might have been a figment of ideation in the minds of the urban guerrillas that spent a lot of time talking over coffee in university cafes about overthrowing capitalism, the cold hard facts were that working class people were enduring massive hardships because they were being forced into unemployment as front line soldiers in the government’s fight against inflation.

So in ordering my priorities I decided the daily human suffering that was before my eyes, in the streets, in my own parent’s home, in the homes of my friend’s parents, etc was more pressing than the revolution which would have to come a bit later.

As I became an academic and developed the idea further in the 1990s, I was often confronted with critics – self-styled Marxists etc – who accused me of being an apologist for capitalism because I was proposing what they referred to as ‘palliative care’ for the workers which would lead them to have better lives and reduce their propensity to engage in revolutionary action.

Most of the criticisms came from academics with tenured, well-paid jobs.

They wanted the precariat to have to endure the perils of unemployment and become revolutionaries while they enjoyed relatively secure and high paid jobs.

You can imagine what I thought of their position.

The point of all this is that to understand the Job Guarantee in MMT you have to see it in this historical context.

It was a means of dealing with the inflationary biases at the time in capitalism which led governments deliberately creating unemployment as a vehicle to arrest the distributional struggle between capital and labour.

It was obvious to me at the time that the price the government was prepared to pay for labour as it absorbed workers released from the non-government sector as it tightened policy settings to choke off the inflationary pressures would ultimately set the price of the currency.

It could not be any other way.

The only question was how large the buffer stock of labour had to be to complete the task.

Some years later, when I came in contact with Warren Mosler, we discovered that we had come to the same conclusion from quite different starting points, which was both interesting and exciting.

And this idea of the buffer stock which was the terminology I introduced (given the agricultural beginnings of my thinking) then became central to our development of MMT.

We have discussed this a lot over the years.

Neither of us saw the Job Guarantee as being purely a vehicle for creating work.

It was always a price anchor.

Neither of us consider the Job Guarantee should be the first response to a downturn in spending by the non-government sector.

Neither of us want the Job Guarantee to be very large in size.

In the late 1970s, as I worked on the idea for my final paper in the Ag Ec course, I came to realise that in the Post World War 2 period, the only way that Australia had maintained low unemployment (below 2 per cent) for all that time was because it was actually running an implicit job guarantee scheme.

Jobs could always be gained in public utilities, infrastructure departments (housing, roads), railways, post and telecommunications, local governments etc.

There was an effective buffer stock operating all that time implicitly that allowed the most disadvantaged workers to always be able to work.

These jobs were accessible to those who the private market would never employ – people who had mental disabilities but could function episodically, people who were in and out of the prison system, young musicians that were often broke, and other cohorts.

So while I saw the Job Guarantee as principally my answer to dealing with the inherent inflationary propensities within capitalism, I also understood that for some, the jobs would be permanent and so it could not be a stop-start sort of program.

Which meant that I saw it as being the most basic part of a progressive economic policy structure that could help in the inflation struggle without creating unemployment but also provide accessible and stable employment at socially inclusive wage rates to those who the private market wouldn’t touch.

That latter cohort though important was typically relatively small.

And that is why I don’t use Warren’s terminology of a ‘transitional job’. For those who would occupy the Job Guarantee pool almost permanently it would be their careers.

But both Warren Mosler and myself were always clear that the first thing a government should do if it wants to create work is spend to create well-paid, high productivity jobs in the regular public sector.

And that is especially the case if there is no stagflation problem.

In a normal economic downturn, which arises because the non-government sector becomes pessimistic, relying purely on a Job Guarantee to solve the unemployment problem that arises, is likely to be a poor policy choice.

It would be there for sure to absorb some workers.

But overall governments should be about creating high-paid jobs not minimum wage jobs.

That is another misconception out there – that MMT just wants to create lots of minimum wage jobs.

Well Warren and I, who were there at the beginning of this MMT sojourn, have never seen it that way.

We want to create as few of those type of jobs as possible and only rely on the Job Guarantee in any significant way if inflation is rising fast.

Otherwise, our attention is not on disciplining the distributional struggle but on spending up to full employment.

Finally, this sort of thinking also allows one to see my criticism of Basic Income strategies in a historical setting.

Essentially, an income guarantee means the government is spending – via the agent receiving the basic income – at market prices.

So this increases the inflation risk of that spending, especially when capital and labour are engaging in distributional conflict.

The question then arises is how does the government then deal with those inflationary biases in capitalism, which are endemic?

Well without a buffer stock of jobs, the only other functional (effective) option is to create unemployment.

So we are back to that.

The so-called ‘freedom’ that basic income recipients enjoy (allegedly) comes at the expense of those who want to work being forced to be front line soldiers in the fight against inflation.

Essentially, basic income advocates have no answer to that question and problem. They are essentially in denial of the realities of capitalism.

And when they Tweet their heads off about MMT just wanting workers to be enslaved in shocking capitalist jobs, they miss the point that the Job Guarantee jobs would be in the public sector serving the communities, but they also fail to recognise that the basic income recipients are being reduced to the most elemental and crude unit that capitalism can offer – a consumption unit without any of the social advantages that work brings.

Conclusion

There is more I can write about these matters.

But it is crucial when considering the Job Guarantee in MMT to understand the historical context.

Otherwise, you will just waste your time Tweeting inane things about our work that might make you feel good but misses the point entirely.

That is enough for today!

(c) Copyright 2021 William Mitchell. All Rights Reserved.

The “Thing” with Job Guarantee Programs…

Published by Anonymous (not verified) on Mon, 22/02/2021 - 2:05am in

In a February 18th front page article in the business section of the New York Times, Eduardo Porter surveys the potential for a job guarantee program. After starting with the caveat issued by Republican politicians—why trust your life choices to bureaucrats?—the piece goes on to present opinions of various experts on employment programs.

It is noteworthy that even among the specialists, not one has ever been involved in actual fieldwork or research in the various experiments with job guarantee programs. In an era in which we are asked to respond to facts, none of those consulted on the implementation of job programs has ever provided statistical analysis of results, nor studied the communities where the programs were actually successful in achieving their stated goals—which in general are much wider than the suggestions that the programs have not contributed significantly to lessen economic recessions, or that they are too expensive and that they might produce “useless make-work.” Indeed, there are no references to the many existing experiments.

Consider Argentina, where there is ample evidence that the Head of Households Program (HHP) played an important role in alleviating the recession and actually had a significant impact on the recovery of the economy after the 2001-2 economic, political, and social collapse. In situ fieldwork based on participant interviews conducted in urban irregular settlements shows[1] that the impact of program work experience was much greater than a simple impact on sustenance incomes. Indeed, program design produced significant impacts on gender equality and environmental preservation.

Women were able to join several activities that not only provided them with an income but also provided access to food, basic medical attention, regular health checks for families, child care, literacy, and training. Most importantly, participation in program activities created a community support network in areas of extreme poverty. The jobs that many consider “useless make-work” provide training for women that allows them to leave abusive domestic conditions.

Fieldwork undertaken in Lomas de Zamora shows that the programs provided relief for families experiencing food insecurity and improved women’s participation in training activities that allowed them to apply for jobs beyond housekeeping or as street vendors. The women also expressed their satisfaction at being able to help their children with school work and were proud to go to work and participate in educational activities.

Other employment opportunities that have been reported in on-site studies include that of a women’s cooperative (in the area of Lomas de Zamora in the provincia de Buenos Aires)—the “Agua mas trabajo” (Water plus Labor)—which installed sewage in underserved areas in the metropolitan area of Buenos Aires. The federal government provided the heavy machinery and the materials to several cooperatives; among them cooperativa Nueva Argentina, composed of 15 women and one man. The women learnt plumbing, welding, and basic construction skills and received technical, legal, and business training as well.

These aspects might not seem relevant in the discussion of countercyclical policy and labor market efficiency, but in communities with high unemployment, crime, and domestic violence rates and high percentages of immigrants and unemployed heads of households, the social contributions can be significant.

If we are to appropriately assess the viability and costs of these programs, it is incumbent on experts to analyze the more general benefits they provide. One reason that these aspects have been overlooked is that the programs Porter mentions, such as “work opportunity tax credits,” are simply subsidies to the private companies where the government covers a percentage of the workers’ wages. They are not successful because they only offer money and don’t include the most successful part of the programs—the activities that encourage people to improve their education and their training, having a long lasting impact on their lives and the lives of their families and communities. Further, the European research cited in the article that provides an “overview” of the labor market effectiveness does not represent micro statistical survey data from the programs they analyze. None of the work of the researchers cited provides statistics derived from actually visiting the community projects and interviewing participants. Instead, their conclusions are based on results from macro data. Their analysis is based on databases compiled by the United Nations and doesn’t include the details of each program—leaving an important blind spot not captured by the numbers and models they have selected.

Government programs always incite political debate and recrimination, usually based on the prejudice of the analyst rather than the hard work of actual on-site analysis. There are always examples of programs that do not produce the desired objectives, but it is important to learn from those that actually work and recognize the appropriate catalogue of costs and benefits. When the programs’ activities are designed with the participation of members of the communities where they are implemented, the gains are significant. But government officials must commit to improve the well-being of the participant communities, not the balance of the government’s budgets.

 

[1] TEPEPA, Martha 2013 El Programa Jefes y Jefes de Hogar: Experiencia en Ing. Budge, Lomas de Zamora, Argentina, Tesis de Doctorado, Colegio de Mexico.

The “Thing” with Job Guarantee Programs…

Published by Anonymous (not verified) on Mon, 22/02/2021 - 2:05am in

In a February 18th front page article in the business section of the New York Times, Eduardo Porter surveys the potential for a job guarantee program. After starting with the caveat issued by Republican politicians—why trust your life choices to bureaucrats?—the piece goes on to present opinions of various experts on employment programs.

It is noteworthy that even among the specialists, not one has ever been involved in actual fieldwork or research in the various experiments with job guarantee programs. In an era in which we are asked to respond to facts, none of those consulted on the implementation of job programs has ever provided statistical analysis of results, nor studied the communities where the programs were actually successful in achieving their stated goals—which in general are much wider than the suggestions that the programs have not contributed significantly to lessen economic recessions, or that they are too expensive and that they might produce “useless make-work.” Indeed, there are no references to the many existing experiments.

Consider Argentina, where there is ample evidence that the Head of Households Program (HHP) played an important role in alleviating the recession and actually had a significant impact on the recovery of the economy after the 2001-2 economic, political, and social collapse. In situ fieldwork based on participant interviews conducted in urban irregular settlements shows[1] that the impact of program work experience was much greater than a simple impact on sustenance incomes. Indeed, program design produced significant impacts on gender equality and environmental preservation.

Women were able to join several activities that not only provided them with an income but also provided access to food, basic medical attention, regular health checks for families, child care, literacy, and training. Most importantly, participation in program activities created a community support network in areas of extreme poverty. The jobs that many consider “useless make-work” provide training for women that allows them to leave abusive domestic conditions.

Fieldwork undertaken in Lomas de Zamora shows that the programs provided relief for families experiencing food insecurity and improved women’s participation in training activities that allowed them to apply for jobs beyond housekeeping or as street vendors. The women also expressed their satisfaction at being able to help their children with school work and were proud to go to work and participate in educational activities.

Other employment opportunities that have been reported in on-site studies include that of a women’s cooperative (in the area of Lomas de Zamora in the provincia de Buenos Aires)—the “Agua mas trabajo” (Water plus Labor)—which installed sewage in underserved areas in the metropolitan area of Buenos Aires. The federal government provided the heavy machinery and the materials to several cooperatives; among them cooperativa Nueva Argentina, composed of 15 women and one man. The women learnt plumbing, welding, and basic construction skills and received technical, legal, and business training as well.

These aspects might not seem relevant in the discussion of countercyclical policy and labor market efficiency, but in communities with high unemployment, crime, and domestic violence rates and high percentages of immigrants and unemployed heads of households, the social contributions can be significant.

If we are to appropriately assess the viability and costs of these programs, it is incumbent on experts to analyze the more general benefits they provide. One reason that these aspects have been overlooked is that the programs Porter mentions, such as “work opportunity tax credits,” are simply subsidies to the private companies where the government covers a percentage of the workers’ wages. They are not successful because they only offer money and don’t include the most successful part of the programs—the activities that encourage people to improve their education and their training, having a long lasting impact on their lives and the lives of their families and communities. Further, the European research cited in the article that provides an “overview” of the labor market effectiveness does not represent micro statistical survey data from the programs they analyze. None of the work of the researchers cited provides statistics derived from actually visiting the community projects and interviewing participants. Instead, their conclusions are based on results from macro data. Their analysis is based on databases compiled by the United Nations and doesn’t include the details of each program—leaving an important blind spot not captured by the numbers and models they have selected.

Government programs always incite political debate and recrimination, usually based on the prejudice of the analyst rather than the hard work of actual on-site analysis. There are always examples of programs that do not produce the desired objectives, but it is important to learn from those that actually work and recognize the appropriate catalogue of costs and benefits. When the programs’ activities are designed with the participation of members of the communities where they are implemented, the gains are significant. But government officials must commit to improve the well-being of the participant communities, not the balance of the government’s budgets.

 

[1] TEPEPA, Martha 2013 El Programa Jefes y Jefes de Hogar: Experiencia en Ing. Budge, Lomas de Zamora, Argentina, Tesis de Doctorado, Colegio de Mexico.

The need is to fix the system, not just to provide ‘sticking plasters’

Food Bank Cupboard stocked with tinned and packet foodImage by Staffs Live (CC BY-NC 2.0)

“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”

Franklin D. Roosevelt

 

It feels lately that we, like Lewis Carrol’s Alice, have fallen down a rabbit hole into an immensely troubling surreal situation with seemingly no idea how we are going to extricate ourselves.

Whether it is the distressing daily reports of Covid-19 deaths, the disturbing video accounts of the huge pressures on our NHS or care services, the political upheavals taking place across the Atlantic and elsewhere or the most serious challenge of all, climate change, it seems ever clearer that we are in Antonio Gramsci’s ‘time of monsters’ in which ‘the old world is dying and the new world struggles to be born’.

What that world will look like remains to be seen, but recent political events would seem to suggest that we still have some way to go before the ‘old world’ breathes its last. The pandemic, combined with the consequences of forty and more years of Neoliberalism Central which has infected every aspect of our lives and dominates political decision making, has created not only public disillusionment, but also petrification as our institutions sit in their blinkered bunkers holding on for dear life to all they knew.

Whether it’s the existing and growing union between government and global corporations, policy decisions which have increased inequality and poverty and encouraged charity, volunteering and philanthropy to take up the reins of public provision, or the promotion of sound finance as a vital component of good governance, the old structures are embedded in our consciousness.

It wasn’t always like this.

During the second world war, William Beveridge was appointed to investigate social security in Britain and his report, published in 1942, identified five major problems which prevented people from improving their lives. These were:

Want (caused by poverty)

Ignorance (caused by a lack of education)

Squalor (caused by poor housing

Idleness (caused by the lack of jobs or the ability to gain employment)

Disease (caused by inadequate health care provision)

It was recognised that government had a role to play in addressing those five ‘evils’ and as a result of the Beveridge report, the post-war government set up the social security system and pursued policies which aimed to address them including full employment. It may not have been perfect, but it changed people’s lives for the better.

Over recent decades, that connection between the state and publicly paid-for provision, management and delivery of services has been broken. Responsibility for such provision is increasingly being shifted into the charitable/voluntary sector, whilst at the same time, the dominant orthodoxy of individual responsibility has led to shaming and blaming people for their situation as the government takes a back-seat role.

Food banks have become a normalised feature of Britain, as Therese Coffey, the Tory minister for the Department for Work and Pensions, indicated last year when she referred to people using food banks as ‘customers’ and suggested they were a ‘perfect way to help the poor’. It implies that government has no role at all in ensuring the economic well-being of its citizens, and worse, that the 14 million Britons who do not have enough to live on are there through their own lack of moral fibre!

When charities buy into this picture and act as mitigators for a rotten economic system (which drives the poverty and inequality, that drive, in turn, the consequences including hunger, homelessness, and illness), they are not aiming to fix the system, but to provide sticking plasters. As such, it demonstrates how they, too, have been captured by an ideology and accept it without question.

This was made shockingly clear in a paid-for content article in this week’s Guardian. The CEO of the Bethany Christian Trust, when talking about tackling the problem of food insecurity said: ‘if by giving someone a meal we’re sitting them down with people they can talk to about debt counselling, mental health issues, addiction, domestic abuse, or whatever help they might need, then that plate of food can work so much harder’.

Rather than starting with the political roots of these problems, charities increasingly view them as issues to be solved through improving the capacity of the individuals themselves to manage the challenges they face.

Quite simply, this facilitates the shifting of blame onto people, rather than highlighting the failure of the government to make provision for its citizens and is classic neoliberal text. As Neil Valley suggests in his article in the New Internationalist ‘The Self-Help Myth’.

‘The pervasive rhetoric of personal responsibility has transformed the role of government and society in the neoliberal era. Where once the role of government was to safeguard the general happiness of the majority of citizens, albeit to varying degrees, its primary role now is to facilitate the conditions where each citizen can take on more and more individual responsibility, absolving the state from its responsibility towards its citizens.’

Then step in charities to fill the gap in service provision and provide the mitigating support for the rotten toxic system which has created the need in the first place and designates those in receipt of such support as customers rather than victims.

The increasingly pervasive narrative, which is being driven further by the pandemic crisis, is that charities and the voluntary sector should be at the heart of our local communities to ensure that vulnerable people don’t fall between the cracks, rather than publicly paid for, managed and delivered state provision.

It was, therefore, all the more disconcerting this week to read the proposal in the left-wing publication The Tribune that a National Food Service should be set up. Whilst its aims to serve the public good rather than private profit are indeed laudable, one has to question the logic.

Of course, one could not object to the removal of private companies delivering public services, given that the tentacles of private profit are growing exponentially as government distributes contracts to its friends and large corporations with few strings attached, whilst at the same time the coffers remain largely bare to serve the needs of those who have for decades been at the sharp end of government policies. The resulting poverty and inequality have been highlighted during this crisis.

The proposal, however, seems to suggest that we mitigate for the crisis of capitalism being played out in the growth of hunger through mutual on the ground action, rather than dealing with its root causes – government policy driven by ideology. We don’t need a plan to ‘respond’ to this fundamental crisis of capitalism, we need a plan to change it; to put public purpose and the interests of citizens, not to mention the planet, at the heart of all government policy.

Over the last few decades, working people have borne the consequences of a toxic economic ideology underpinned by the notion of monetary scarcity, which has led to the reduction in their share of their productivity, which has translated into lower wages, insecure employment and underemployment and a decline in living standards. Poverty is the direct result. The constant repetition of these ideas via politicians, think tanks, economists and the media has led us to believe that this is the inescapable default.

Government, far from serving its citizens, has overseen through its employment and other policies, huge disparities in wealth and access to resources, allowing, for example, chief executives of big corporations to earn many more times that of their employees, not to mention garner political influence as a result.

To add to this picture is the decimation of our post-war public and social security infrastructure, which existed to provide health and social care through various publicly paid for institutions, to ensure that those in need had access to shelter, food and warmth, in times of personal tragedy, sickness, unemployment or economic collapse. When this infrastructure was built, the profiteers had no place in this model and nor should they today.

Whilst the human suffering continues to play out across the nation, the government cynically continues with its U-turns on policy in the vain attempt to keep its MPs and the public on side. Last week, as noted in the MMT Lens, Boris Johnson told MPs that ‘most people would rather see a focus on jobs and growth in wages than…welfare.’ This week, with his signature tune U-Turn, he has indicated a potential rethink of ending the £20 a week Universal Credit uplift, saying he wanted to ensure that ‘people don’t suffer as a result of the economic consequences of the pandemic’. You couldn’t make it up.

Yes, indeed, to more jobs through the implementation of a Job Guarantee, to drive better wages overall and restore the government’s role as the price setter and rebuilding public service provision. But in the meantime, let’s ensure while the consequences of the pandemic continue to cause economic and social pain, that all people have enough to pay their bills and keep food on the table without worry, stress or having to get into debt to keep their heads above water. We have witnessed the power of the public purse, let us not allow that knowledge to be polluted by the restoration of household budget politics.

It is regrettable that politicians, journalists, institutions and think tanks, in their weekly forecasts of doom and gloom, continue to build up the narrative of money scarcity and a future price to pay for this massive round of government monetary intervention. A narrative that will be used to justify eventual hard decisions or another round of austerity in some form or another.

Whilst the livelihoods of many people lie in the balance, not just for now but in a rapidly changing world, we still have to endure the false notions of tax rises to pay for government spending and the penchant for sound finance. Such narratives suggest, not only that people must suffer, but also that the cost of saving our planet from climactic destruction will be too high.

The fact that the government continues to find huge sums of money to support businesses and yet quibbles over a few pounds to working people, suggesting that it is unaffordable should surely be a public conversation starter!

As the chancellor opines that there are some hard choices ahead, one of his treasury ministers clearly of the deficit dove variety, softens the blow by suggesting that the need for tax rises to tackle the record levels of government borrowing could be delayed at least until the economy ‘bounces back’. As if somehow increased tax revenues equate to the capacity to spend or pay down the national debt.

The experts at the Institute of Fiscal Studies and other think tanks then put the fear of God into the public that £40bn in tax rises might be necessary to put the public finances back onto a sustainable footing. Thus, making that public even more cautious about the government’s future spending plans. Self-fulfilling prophecies come to mind.

And then, just this week, when people thought that the vast round of government spending signified a change of approach to managing the economy, Rishi Sunak told Conservative MPs that he will be using his March budget to begin the process of restoring ‘order’ to the public finances through implementing higher taxes.

To those Tories who would like to see the Universal Credit uplift continue beyond April, he gave a reminder of its high cost which represents, according to his calculations, an equivalent of 1p on income tax plus 5p per litre on fuel duty. Thus, further reinforcing the idea that the provision of higher welfare benefits means collecting tax from elsewhere to cover it.

The ‘someone, somewhere will have to pay for it’ model of the state finances will no doubt be used cynically to drive further wedges between the haves and the have nots and justify the further decimation of the already inadequate social security safety net.

According to this narrative, the magic porridge pot is running on empty and needs replenishing in order to pay down debt and avoid a giant burden for future generations.

This tale of supposed coming woe serves to keep people in their place while reinforcing the old myths about how governments spend. It displays both economic illiteracy and a disregard for the lives of those who will lose out as a result, not to mention addressing the biggest challenge of all – climate change.

And then at the ‘left’ end of the household budget scale, we have economists, opposition politicians, unions and other so-called experts, urging the Chancellor to take advantage of low borrowing rates of interest to avoid tax rises until the economy gets back on its feet and restores tax revenues, or reinforcing the false narratives about taxing the rich to pay for the pandemic. The household budget model is endemic and those on the political left keep shooting themselves in the foot repeatedly.

A paper published by the LSE’s International Inequalities Institute last December, using data from 18 OECD countries over the last five decades, concluded unsurprisingly enough that tax cuts for the rich didn’t trickle down; that they contributed to inequality and did little to stimulate business investment.

The authors then went on to suggest that it was time to tax the rich more to repair the public finances. This was backed up in the same month when the Wealth Tax Commission, founded in April of last year, concluded that a one-off wealth tax would raise significant revenue and be fairer and more efficient than other alternatives. To be exact, it suggested that a ‘one-off wealth tax on millionaire couples would raise £260 billion’ The implication being yet again that such a tax could be used to repair the public finances.

Whilst we can’t avoid these false tropes, which lead the public astray and reinforce the messages that government spends like a household, we can challenge them. When Matt Hancock, the Secretary of State for Health and Social Care, bleats on as he did this week about the NHS Pay review body taking ‘account of the extremely challenging fiscal and economic context’ in its decision about future pay rises, we can show the public that such decisions have no connection, either with the current state of the public finances or the future monetary affordability of those pay rises.

We can reinforce the message that curtailing public sector pay won’t increase the ability of the government to ‘set the public finances straight’, any more than the decade of austerity did. It could actually have a negative, indeed disastrous, effect on the economy at a time when it will, without doubt, need continuing government support.

Aside from the fact that public sector and, indeed, other key workers have seen their pay dwindle in real terms as a result of a decade of pay freezes or inadequate employment legislation, and that the pandemic has revealed the vital nature of their contribution to society, all increasing taxation will do is leave less money for working people to spend into both the national and local economies. Also, should that increased taxation fall on corporations, (as is being suggested) who will likely pass that additional cost on through higher prices to working people anyway, it will create a double whammy effect.

Whilst a pay rise will increase tax revenues, it will not increase the government’s capacity to spend. But we see the false narrative again in a study published this week by the London Economic Consultancy. The report claimed that the government would recover 81% of the cost of any pay rise in additional taxes, which would, in turn, have significant ‘knock-on’ benefits for the Treasury. Clearly suggesting that tax funds its spending.

Whether from the left or right of the political spectrum, the public is treated daily to a mishmash of false information dictated by the dominant economic paradigm which masquerades as truth. It’s no wonder that people are confused and feel disempowered or turned off by politics and economics, which they feel do not relate to their lives at all, even though, in reality, these things have everything to do with them.

While politicians, journalists and economists argue about monetary affordability and who should pay for government spending, people are dying and will continue to die for the want of a government that puts their interests first.

What happens next will depend on a successful challenge through raising public awareness that there is indeed an alternative to the vast disparities in wealth, the rise of poverty and inequality, the whittling down of democracy and increased corporate dominance in our lives. And it starts with understanding how government really spends.

 

Upcoming Event

Phil Armstrong in Conversation with Pavlina Tcherneva – Online

January 24th 2021 @ 4:00 pm – 5:30 pm GMT

GIMMS is delighted to present another in its series ‘In Conversation’.

Phil Armstrong, author of ‘Can Heterodox Economics Make a Difference’ published in November 2020, will be talking to Pavlina Tcherneva.

Pavlina is program director and associate professor of economics at Bard College and a research associate at the Levy Economics Institute. She conducts research in the fields of modern monetary theory and public policy and has collaborated with policymakers from around the world on developing and evaluating various job-creation programmes. Her work on the Job Guarantee spans over 20 years.

Author of the recently published book ‘The Case for a Job Guarantee’, she challenges us to imagine a world where the phantom of unemployment is banished and anyone who seeks decent living-wage work can find it – guaranteed. It will be of particular relevance as we begin to grapple with the economic fall-out of the Covid-19 pandemic but for anyone passionate about social justice and building a fairer economy it should be essential reading.

We invite you to join us for this informal event which we are sure will be both stimulating and insightful.

Tickets via Eventbrite

 

Past Event

Phil Armstrong in Conversation with Fadhel Kaboub – Online

Author and MMT Scholar Phil Armstrong talks to professor of economics and president of the Global Institute for Sustainable Prosperity Fadhel Kaboub about how MMT insights apply to the global south, colonial reparations, the MMT Job Guarantee contrasted with Universal Basic Income, and much more.

 

 

Audio via the MMT Podcast here

 

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The post The need is to fix the system, not just to provide ‘sticking plasters’ appeared first on The Gower Initiative for Modern Money Studies.

The Covid-19 pandemic shows the need for change. For a real ‘Reset’.

Button with label "Push to reset the world"Photo by Jose Antonio Gallego Vázquez on Unsplash

‘We live in capitalism. Its power seems inescapable. So did the divine right of kings.’

Ursula K Le Guin

The year 2020 will be not be remembered with any great affection. So much suffering, loss of human life and economic uncertainty has left the nation in turmoil. Whilst in normal times we would be welcoming the new year with resolutions and hope for better days to come, the prospects for the future remain very uncertain.

Whilst the government’s handling of this pandemic crisis has been chaotic and indecisive with disastrous consequences, it has also revealed the dire state of our public and social infrastructure for which decades of ideologically driven government policies have been responsible. That, combined with the vast wealth and other inequalities that exist in both rich and poor countries across the planet and the climate tsunami following up frighteningly behind, should leave a bad taste in our collective mouth. It should start to make us question the very foundations of the economic model now turning to sand before our very eyes.

Covid-19 has exposed in the most distressing way the damaging consequences of the pursuit of balanced budget narratives which have allowed governments to justify public sector rationalisation or austerity on the grounds of unaffordability, and overseen a huge increase in poverty and inequality. Successive governments have abdicated their responsibility for the lives of citizens; their responsibility to create a fairer distribution of wealth and real resources and ensure that the public infrastructure meets their needs. Instead, they have plumped in favour of that elusive but all-seeing ‘god of the market’ which, in real terms, has meant ceding control to global corporations who direct the policy orchestra and pouring public money into the pockets of those same corporations with little transparency or accountability.

Whilst the government has found the power of the public purse to manage this crisis, there have been winners and losers throughout which reflect its ideological persuasion. It has only been with public pressure that it has been forced into political U-turns to help some of the poorest people in our communities, whilst leaving still others in distress and without adequate support. The road to Damascus moment still eludes a government which has chosen a path that so far has only led to economic hardship and inequity for many and yet great wealth for a few others.

It has also done so with the usual threats of a financial price to pay in the future to keep the household budget narratives of state spending alive and well. It would not do for the public to be disabused of the notion that taxes fund spending, that government has to borrow to cover its deficit and that public debt is real and will require difficult decisions at some unspecified time in the future. Such narratives are vital to government and will, without challenge, allow them to be able to finish off the job of destroying publicly paid for and managed public and social infrastructure and thus ensure the continuing dominance of global corporate power. We do indeed face a continuing hollowing out of democracy in favour of a growing alliance between the state and big business and the big political revolving door.

Whilst GIMMS and other educational organisations across the world have made huge strides in raising awareness of how money really works, the task ahead remains a daunting one. The weekly news is testament to the ongoing consequences of government policies and the spun narratives of how government spends but also encouragingly shows the power the public has to effect change, and not just through the ballot box. The on-going saga of free school meals continues to rumble on and elicit government U-turns. The latest, and most shameful, were the pictures on social media of the meagre ‘rations’ from a private company contracted and paid huge sums to provide substandard food packs which it turned out largely reflected government guidelines and did not meet the standards for the nutritious, balanced diet all children need to grow and thrive. It is to be regretted that the government, in the same week, went on to tell headteachers in England not to supply vouchers and food parcels to disadvantaged children during the February half-term, signalling it was already doing enough which is clearly not the case. There are no excuses for hungry children, or hungry adults for that matter.

The fiasco was yet another example of public money being poured into private profit and at the same time failing to address the reasons for children going hungry in the first place. Poverty and hunger are not new phenomena. Covid-19 has, without doubt, put a spotlight on the prevailing economic system and the economic decisions of successive governments which have not only been responsible for increasing poverty and inequality through employment, welfare and taxation policies but also shifted blame and created widening societal divisions which allow the real authors of economic distress to go scot-free.

It is therefore shameful that the Chancellor Rishi Sunak whilst facing opposition from campaigners is still considering cutting the meagre £20 per week universal credit uplift which has helped people struggling to get by during the pandemic. The consequences of the crisis will be with us for many months to come, possibly years, and therefore the government with its power of the public purse has no excuses when it comes to ensuring that its citizens can pay their bills and put food on the table while the disruption continues. Instead, its policy responses have proved not strategic but piecemeal and ill-thought-out with plenty of U-turns along the way.

Whilst we need the power of the public purse to mitigate the economic consequences of the current crisis, we also need a government with a long-term strategy for addressing the poverty and inequality that has arisen over decades and which has allowed top managers to reap excessive monetary rewards whilst depriving working people and their families, whose standards of living have declined substantially through low incomes and insecure employment.

Boris Johnson suggested earlier this week that he was still in favour of reducing Universal Credit saying:

‘what we want to see is jobs, we want people in employment, and we want to see the economy bouncing back. And I think most people in this country want to see a focus on jobs and growth in wages than on welfare’.

A change of heart? Given that the Tory government has presided over exactly the opposite over the last 10 years through austerity and economic policies which have increased economic instability whilst at the same time serving the corporate estate, instead, it is likely to be yet another in a long line of so far undelivered promises to level up. However, the sentiment is correct and is what should be driving government policy. We need a recognition of the power of the public purse to pursue full employment through a Job Guarantee and the vested power of government to legislate fair employment terms and conditions with the aim of shifting the balance of power back to working people instead of where it currently lies in corporate hands with government approval. We need a government prepared to address the key issues of our time using its currency-issuing powers, not just for the coming months but for always. Whilst Rishi Sunak calls upon the nation to spend the savings resulting from lockdown to get the economy going again (aside from the fact that he is turning a blind eye to the many millions of people as reported by the Resolution Think Thank this week who have lost out or got into further debt as a result of the pandemic adding to their already insecure lives) the looming crisis of climate change has been put on the back burner and time is running out. The god of growth must be worshipped anew to get the economy back into shape.

Aside from the fact that people are unlikely to spend their savings like drunken sailors in the near future, given the on-going uncertainty about the economy and jobs, exhorting the gods of growth and indiscriminate private consumption as a solution to economic slow-down would not only be folly but denies the clear power of government to spend to effect real and sustainable change.

We need a sea change in how we live our lives to address the already happening climate catastrophe and indeed, it will only be through large scale government action in spending policies and legislation that will enable this to happen. There is a pressing need for a national investment strategy that includes a massive and long-term investment in education and training in order to secure our future productive capacity. We much focus on high-skilled, low-carbon and well-paid jobs both for the private sector and in a much-expanded public sector to ensure high-quality basic services are provided to everyone, including our disabled and elderly citizens. Our nation must become more productive if we are to reduce our working week and support our retirees and support to those nations without the necessary real resources to support their communities.

The overarching need is to protect our environment for future generations which should also include acting to redress the vast wealth inequalities that exist. We need to restore our sense of the value of publicly paid for and provided public sector work to national well-being, implement a Job Guarantee to provide stability through an effective countercyclical response to the inevitable economic ups and downs all economies face, and a living income for anyone who is unable to work for health reasons or caring or other essential duties including higher education. Of course, these will not be magic bullets to bring about a perfect world, but provide a basis for a conversation that we need to have.

These are important decisions, not just concerning the big macroeconomic questions about creating an efficient functioning economy, but also relating to the sort of society we want to see. For left-wing progressives, this would suggest creating a fairer and more equitable society where people have sufficient wages to live comfortably with adequate nutrition and good living conditions as well as good public services such as health and education. Assuming that the future will bring forth a political party that has the express intention of addressing these issues, change is in our collective hands as an electorate and we should not forget the power we hold.

It is regrettable that currently there is no such party dedicated to the change we need and that all roads are still leading to an ever-distorted capitalism wherever you place the X on the ballot paper.

Whilst the very real human consequences of government decisions and its policies continue to play out in our communities and our families the government, opposition politicians, economists and journalists continue to pound out the messages of monetary scarcity; either talking about the need for ‘hard choices’ to deal with the deterioration of the public finances or delaying the ‘repayment pain’ until economic conditions will allow.

Whether it’s Rishi Sunak the Chancellor or his shadow opposition sidekick Labour’s Annaliese Dodds, they both adhere to a household budget narrative of the public accounts, in other words, the diktat of sound finance as if a government suffered from the same constraints as business. The operative question in either case being, at what point do you enact such fiscal tightening, not whether you actually need to. How the state really spends cannot have escaped their notice, and yet they stick to the orthodoxy like glue.

Whilst that is undeniably to be expected with the Conservatives, whose agenda is more about creating an alliance with big business under cover of stories about monetary scarcity and ‘hard choices’, Annaliese Dodds in this week’s Mais lecture indicated clearly her party’s on-going adherence to the false notion that government constraints are monetary. Whilst, to be fair, she gave a cutting analysis of the effects of government policies on people’s lives both before and after the arrival of Covid-19, she stuck to the orthodox economic mantras. Namely keeping the City sweet by maintaining the joke of supposed Central Bank independence and having a ‘responsible approach to government debt.

She summarised her approach to fiscal policy as requiring ‘a set of rules around both annual and the stock of debt, that simultaneously demonstrates a prudent approach to the public finances and leaves space for investment in the future and the ability to adapt to crises’. A sound approach to the public finances she said must ‘also include consideration of the quality and effectiveness of public spending.’ Whilst such evaluation should always be a part of government spending strategies (and clearly, we have seen in recent months and years the exact opposite) the concept of sound finance continues to be the guiding doctrine of politicians on both sides of the political spectrum. They might have different spending objectives, but both are couched within the clear limitations of household budget thinking.

As society implodes as a result of rising poverty, inequality and ill health which has arisen as a result of government policies and placed increasing pressures on public services such as our NHS which this last year has bravely served the nation in a deliberately created environment of insufficient staff, facilities and other resources, there is only one direction in which we can place the blame. Governments whose decisions have favoured market solutions through privatisation and legislative policies which favour them – with shocking consequences.

In similarity to nature’s web of life, which is defined by its interdependence, our economy does not exist as disparate parts. The economy represents the lives of working people and the businesses that employ them, and its health is reliant on the public and social infrastructure provided by the government to support it. Remove one vital link and you risk that eventually the whole will collapse.

This is the frightening consequence we already face, not just in the real but finite resources upon which our societies are built and owe their existence, but also our dependency on the goodwill and care we express for others. As reliance on charitable institutions to feed hungry people or deal with rising homelessness increases, or rich philanthropists replace public institutions with the equivalent of poor law boards dictating the pace and deciding who will be a beneficiary, our society will continue to break down on the basis of a ‘convenient lie’ that the state has no money of its own and there is no alternative course of action.

Instead of examining the public accounts and deducting from the financial position the health of a country, a future government should be turning that idea on its head to see the reality of the challenges we face. The reality of the real constraints which are not money but real resources and how they can be managed fairly in the interests of all citizens. The fast-approaching reality of climate change and its consequences threaten to engulf us if world governments fail to work together to create better, fairer and more sustainable solutions.

We need a ‘Reset’. Not the ‘Great Reset’ being promoted by the World Economic Forum which, whilst sounding just the thing to address rising inequality and climate disaster, will maintain the same power structures with the same corporations dictating the rules in the interests of accumulating more profit and wealth whilst still clinging to the sham economic model which seeks to keep power in the hands of the few.

We need quite a different ‘Reset’ as suggested by Associate Professor Fadhel Kaboub in a GIMMS ‘in conversation’ event last week. One where public purpose, not profit or greed, directs government spending and legislative actions for a sustainable and fairer future and without which the light at the end of the tunnel will recede, not get closer.

There is an alternative and history is still to be written on the choices we make. We once believed that the Earth was flat, that it was at the centre of the universe and the sun and planets revolved around it. Those notions were disproved by the observations of scientists like Copernicus and Galileo. We need now to disprove the notions that money is scarce – not because knowing it makes a difference in itself, but because knowing it will enable us to decide what history will eventually record about the decisions that were taken as a result.

We can be on the right side of history if we choose to be.

 

Upcoming Event

Phil Armstrong in Conversation with Pavlina Tcherneva – Online

January 24th 2021 @ 4:00 pm – 5:30 pm GMT

GIMMS is delighted to present another in its series ‘In Conversation’.

Phil Armstrong, author of ‘Can Heterodox Economics Make a Difference’ published in November 2020, will be talking to Pavlina Tcherneva.

Pavlina is program director and associate professor of economics at Bard College and a research associate at the Levy Economics Institute. She conducts research in the fields of modern monetary theory and public policy and has collaborated with policymakers from around the world on developing and evaluating various job-creation programmes. Her work on the Job Guarantee spans over 20 years.

Author of the recently published book ‘The Case for a Job Guarantee’, she challenges us to imagine a world where the phantom of unemployment is banished and anyone who seeks decent living-wage work can find it – guaranteed. It will be of particular relevance as we begin to grapple with the economic fall-out of the Covid-19 pandemic but for anyone passionate about social justice and building a fairer economy it should be essential reading.

We invite you to join us for this informal event which we are sure will be both stimulating and insightful.

Tickets via Eventbrite

 

Past Event

Phil Armstrong in Conversation with Fadhel Kaboub – Online

Author and MMT Scholar Phil Armstrong talks to professor of economics and president of the Global Institute for Sustainable Prosperity Fadhel Kaboub about how MMT insights apply to the global south, colonial reparations, the MMT Job Guarantee contrasted with Universal Basic Income, and much more.

Audio via the MMT Podcast here

Video will be available soon.

 

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The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

 

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The post The Covid-19 pandemic shows the need for change. For a real ‘Reset’. appeared first on The Gower Initiative for Modern Money Studies.

Further evidence undermining the mainstream case against fiscal deficits

Published by Anonymous (not verified) on Tue, 22/12/2020 - 2:03pm in

Tags 

job guarantee

Yesterday, I discussed the results of recent research that demonstrated the ‘trickle down’ hypothesis, which has been used to justify the sequence of tax cuts for high income recipients, was without any empirical foundation. While mainstream economists have been enchanted with that hypothesis, heterodox (including Modern Monetary Theory (MMT) economists have never considered it had any validity – neither theoretical nor empirical. But it is good that mainstream researchers are now ratifying that long-held view. Today, I am discussing another case of the mainstream catching up. When I say catching up, the implications of these new empirical studies are devastating for key propositions that the mainstream macroeconomists maintain. The ECB Working Paper series published an interesting paper (No. 2509) yesterday (December 21, 2020) by an Italian economist from the Bank of Italy – Losers amongst the losers: the welfare effects of the Great Recession across cohorts. In brief, the research found that younger people bear disproportionate burdens during recession in the short-run, but also, face diminished prospects over the longer-term. The paper bears on some of the major fictions that have been propagated to disabuse governments of using fiscal deficits to smooth out the economic cycle – namely, the alleged burden that is created by the current generation’s excesses (the deficit) for their children and grandchildren (who according to the narrative have to pay back the debt incurred by the excesses). This is another case of evidence being produced that ratify the analysis that MMT economists have been advancing for the last 25 years.

Background reading

I have written about these issues – the grandkids myth – several times over the last few decades.

1. Democracy, accountability and more intergenerational nonsense (May 22, 2009).

2. The rising future burden on our kids (August 2, 2009).

3. Another intergenerational report – another waste of time (February 2, 2010).

4. Our children never hand real output back in time (December 13, 2010).

5. 66,592 children relieved of debt burdens by their parents (April 11, 2011).

6. When 50 per cent youth unemployment is (apparently) protecting the grand kids (June 18, 2012).

7. Lower deficits now, undermine our grandchildren’s future (May 7, 2013).

8. Australia – the Fourth Intergenerational Myth Report (March 5, 2015).

So a consistent record of conceptual and empirical analysis based on MMT rejecting the arguments that are designed to convince the public that they should lower standards of public services and higher unemployment because it is good for their grandchildren.

Latest evidence

The author of the ECB Working Paper, Alessandro Ferrari, who works for the Bank of Italy (its central bank), set about examining how recessions impat on different age cohorts.

The reason why we might expect different impacts is because of the different life-cycle behaviour in saving, debt profiles, wealth accumulation, age-earnings profiles across the age cohorts.

So young people engage in schooling enter the workforce to earn labour income and expect to keep earning for the duration of their working lives as they start to accumulate assets.

Retired people no longer rely on labour income (typically) and rely on a combination of financial wealth and government transfers.

In terms of these age profiles, recession damages the older cohorts because it reduces the value of their financial wealth, whereas persistent unemployment damages workers who are reliant on labour income.

The author of the ECB Working Paper sought to estimate how these two impacts affect “households at different ages and quantify the welfare costs of deep recessionary episodes for different cohorts.”

Mainstream economists have previously claimed that younger people benefit from recessions because they can buy up risky financial and real estate assets that lose value during a recession.

The problem with the extant studies is that they typically ignore the impacts of unemployment.

Mainstream theory is generally in denial about involuntary unemployment and so it is no surprise that they ignore it in these type of studies.

The ECB Working Paper explicitly includes the intergenerational impacts of income loss arising from unemployment.

The Working Paper focuses on the impacts arising from the GFC. It uses three US datasets – the Consumer Expenditure Survey (CE), and the Panel Survey of Income Dynamics (PSID) which is a household panel survey going back to 1968, and the Survey of Consumer Finances (SCF).

The use of the PSID allows the researcher “to follow an household across the recession” and well beyond.

I won’t go into the technical aspects of the research design, which explots an overlapping-generations model approach. You can read up on that if you have that bent.

The main result of the paper is that:

… younger households, who become active during an economic downturn, are the most severely hit by the recession. Their welfare losses are more than double in magnitude than any other cohort and that this result is mainly driven by the permanent losses of unemployment.

The mechanisms or “channels” that cause this result are:

1. An enduring recession prevents young people from accumulating relevant ‘human capital’ (experience, skills etc), which impact over the duration of their working lives.

2. The loss of income arising from recession is the most important reason for the author’s main result.

We read that:

… as a consequence of the Great Recession households’ in their 20s experienced a loss in human wealth 25% higher than those of any other cohort in the model …

… the cohorts that entered the labour market during the Great Recession suffered a huge welfare loss from the uninsurable shock of being born during a major downturn.

3. Individuals impacted by recession adopt risk-averse attitudes to accumulating financial assets and real estate. They also cannot gain loans to enter the real estate market.

As a result, they fall behind the usual wealth profiles for those already accumulating wealth.

4. “welfare losses arising from employment fall dominate those arising from assets’ markets collapse.”

This result means that policies that bail out the financial markets are less beneficial than those who aim to restore employment as quickly as possible.

Why?

The author concludes that:

… it reduces the welfare loss of those cohorts that are most damaged and it reduces the welfare loss of all cohorts minimizing the loss on potential growth that affects welfare also to those cohorts that are already out of the labour market.

In turn, this means that policy should always prioritise large-scale job creation when private employment falls due to a non-government spending disturbance.

It also means that having a Job Guarantee in place as a safety-net employment capacity will deliver massive long-term gains, especially to young people who find themselves being the first to join the unemployment queue in a downturn under LIFO type hiring strategies.

And if you reflect on the results further, you will also conclude that employment creation strategies including a Job Guarantee buffer is far superior than an basic income guarantee (UBI) approach to income loss.

A UBI can never address the life-cycle earning profiles that result from on-going employment. A young person who gets trapped in a UBI (that may or may not be indexed) will never enjoy the income growth that their employed peers benefit from over their lifetimes.

The paper makes the important point that the income losses arising from recession are not temporary:

… a worker that suffers layoff and/or unemployment has, ceteris paribus, lower labour income even after decades …

In other words, there are first-round (immediate) losses, which then are made worse by the second-round losses that arise from the way individuals respond to the income losses and the constraints that are put on them as a result (such as ability to access credit to purchase homes).

I have also previously discussed the impacts on children who grow up in jobless households. The evidence is very clear that they inherit the disadvantages of their parents and endure negative effects all their lives – increased propensity for job loss, higher rates of job instability, lower life-time incomes, lower capacity to accumulate wealth (particularly housing), and other negative impacts relating to personal health, family stability and more.

With private spending lagging at present, higher deficits are required to stimulate saving and wealth creation at the lower end of the distribution. Higher deficits now will lead to a better life for our grandchildren later.

Poor framing subtracts from the paper’s credibility

Just as the research I discussed yesterday fell into mainstream framing about taxing the rich to repair fiscal positions, which reduces the impact of the substantive results presents, the ECB Working Paper also cannot break out of the mainstream framing.

In the first paragraph it talks about “the elevated public debt burden has reduced the fiscal policy space in many western countries”, which says that governments (so constrained) have to ration “available resources” to ensure they help the most impacted by recession.

The “available resources” are in the view of the author – government spending capacity – rather than actual real productive resources.

While the public debt issue presents restrictions on the 19 Eurozone Member States because they forfeited their own currency creation capacity, the other western nations (the majority) face no such constraint.

The paper concludes in the same way talking about increasing taxes on the next generation to pay back the debt.

The MMT position

The only reasonable conclusion when you understand how the monetary system functions is that burdens can only be considered in terms of real resources.

In that context, the level of public debt that is carried through time has no bearing on what each generation is able to consume (or produce). The next generation will be able to consume the outputs of their labour in the same way that the current generation is potentially able.

Clearly, governments bent on fiscal austerity deliberately deny successive generations the ability to consume and produce but that is not an intrinsic function of the level of public debt outstanding.

It is rather a wrongful policy direction driven by an irrational fear (and ignorance) of what the public debt means.

The mainstream belief is based on the erroneous conflation of a household and government budget.

So when a household/firm borrows now to increase current consumption (or build productive capacity) there is a clear understanding that future income will have to be sacrificed to repay the loan with interest.

This result follows because spending by the non-government body (household and/or firm) is financially constrained.

A household must finance its spending either by earning income, running down saving, borrowing and/or selling previously accumulated assets. There is no other way.

Borrowing has to be repaid via access to the other sources of spending capacity but by implication such repayments reduce the future capacity to spend.

This is translated (erroneously) into the public sphere with the claim that governments have to pay the debt back in the future by increasing taxes.

The consumption benefits of the higher spending now are enjoyed by us and our children pay for our joy by facing higher tax burdens. That is the nub of the mainstream argument.

But do our children forego real consumption in this way?

Answer: no!

If our children produce $x billion in real GDP in 2020 all of that flow of real goods and services (and income) will be available for consumption should they choose to do that.

They probably will save some of it (especially if the government runs a deficit of sufficient magnitude to fill the spending gap left by the desire to save by the non-government sector).

But the important point is that real GDP is not a reverse-time traveller. There is no government agency collecting real output to “pay back past debts”.

Moreover, running fiscal deficits which support aggregate demand at levels where everybody who wants a job can get one maximises employment and output each year and provides each demographic with the best opportunities to expand their real consumption possibilities.

Fiscal austerity – in the misguided hope that the public debt ratio will fall – undermines growth over time and the resulting unemployment erodes the capacity of our children to consume in the future.

Potential output (expanded by investment) and productivity growth are cyclical in the sense that if an economy is in recession or stagnating investment falters and future growth potential is reduced.

Similarly, productivity growth lags when aggregate levels of activity falter.

So the best way to increase the opportunity set for our children is to keep (environmentally-sustainable) economic growth strong and fiscal austerity will typically work against that reality.

The public debt ratio has no bearing on any of this. The only possible burden on our children relates to my term “environmentally-sustainable” which includes consuming through time within the limits of real resource availability.

If the current generation cruels the world’s environment and exhausts finite resources then unless technology changes dramatically (for example, to use different energy sources for transport, etc) then our children will not enjoy the same lifestyle that we enjoy (using enjoy liberally!).

But that conclusion relates to competing uses of real resources.

The public debt ratio has nothing to do with that possibility.

Public policy should be aiming to promote material prosperity across time that allows the available real resources to be shared across generations and prorated according to a sense of public purpose. Using the “price system” only prorates according to “dollar votes” and intertemporal considerations are subjugated.

Once you understand that there are no real consumption burdens to be borne by our children as a result of the public debt ratios, you then can trace the origin of this myth to the false government/household analogy.

Conclusion

It is interesting to see these ‘mainstream’ research papers seeping into the public arena.

They don’t tell me anything that wasn’t already clear decades ago.

And they don’t seem to question the underlying theoretical approaches that they effectively undermine.

But they do open the debate up further – more people see that the sort of conclusions that MMT economists were providing over the last 25 years have empirical support and that is a good thing.

The next step is to take these empirical results out of the mainstream framing at which time the full import of the findings will be realised.

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.

The Paradox of the Two Knights

Published by Anonymous (not verified) on Mon, 07/12/2020 - 12:01am in

By Carlos García Hernández

Article originally published in Spanish by RedMMT here

Two knights chess pieces on a chess boardPhoto by Hassan Pasha on Unsplash

Marx argues that any economic system based on private ownership of the means of production is doomed to disappear, in order to give rise to a superior system without private ownership of the means of production. The reason for this collapse of capitalist society and the subsequent emergence of socialism is to be found in the Law of the Tendency of the Rate of Profit to Fall. According to this law, the contradictions among social classes within the capitalist system can only tend to increase, because in order to be able to compete against each other, the capitalists have to increase their rate of profit permanently. This is only possible through increased exploitation of the workers, which results in ever lower wages and ever longer working hours. However, this impoverishment of wage-earning labour comes up against a limit, “capital itself”. Below this limit, a crisis of demand occurs after which workers cannot subsist, as they cannot buy enough of the goods they produce. Moreover, the few capitalists who exist at this stage go out of business. This is how the edifice of capitalism collapses and a better, sustainable system without private ownership of the means of production, called socialism, emerges, whose higher phase is called communism. “Development of the productive forces of social labour is the historical task and justification of capital. This is just the way in which it unconsciously creates the material requirements of a higher mode of production”.

No one took Marx’s work more seriously than John Maynard Keynes. That is why he realised that history was faced with a fundamental question: Is what Marx says true? In order to answer this question, we have to pay attention to the logical form of the Law of the Tendency of the Rate of Profit to Fall. The logical form that this law takes is the modus tollens ((P→Q) ʌ ¬Q) → ¬P, if private property exists (P) then the system collapses (Q); if the system does not collapse (¬Q) then private property does not imply the collapse of the system (¬P).

Certainly, during the decades between the publication of Marx’s Capital and the time of Keynes, there had been dramatic developments. While capitalism did not seem to be on the verge of collapse in many places on the planet, the communist revolution had triumphed in the Soviet Union, in 1929 the US economy had entered a major recession following the analyses of the demand crises set out by Marx and Germany was being torn between Nazism and communism. In the eyes of an anti-socialist like Keynes, the situation was highly worrying. However, to prove the falsity of the premise P→Q it is enough that this premise is false in one single case. This led Keynes to study what, in his eyes, was Marx’s main contribution, his analysis of the monetary circuit. If there was any contradiction in Marx’s approaches, it had to be there.

To get to the monetary circuit, Keynes had to go first through Marx’s theory of labour. In fact, he accepted it as true and wrote: “It is my belief that much unnecessary perplexity can be avoided if we limit ourselves strictly to the two units, money and labour, when we are dealing with the behaviour of the economic system as a whole”. From an anthropological point of view, Keynes has no problem accepting that human labour is the only source of value and that commodities receive the value from human labour, just as cold water receives the heat from a hot object when the object is immersed in it. The contradiction is found in the next step, when Marx analyses the monetary circuit in a monetary economy of production in which there is a shift from having producers who exchange their commodities for money in order to buy other commodities (c – m – c) to having capitalists who accumulate money in order to buy commodities which they then sell for a larger amount of money thanks to the surplus value extracted from the workers (m – c – M). This step is explained by Marx as an extension of barter, he mentions Robinson Crusoe and takes a metallist stance with regard to money, this is where Keynes finds the contradiction he was looking for, in the exogenous commodity money presented by Marx, and it is from here that he builds his work.

First, he denies exogenous money and defends the endogenous character of fiat money. Thus, in his “Treatise on Money,” he presents the creation of money as an endogenous part of the economic cycle and denies the loanable funds theory. The money is mostly created by banks lending to their customers regardless of their money reserves, as they can always turn to the Central Bank as a lender of last resort. The rest of the money is created directly by the states through the coordination of the Central Bank and the Treasury to carry out public spending. In both cases, the money is denominated in national currency and comes from the Central Bank, which does not depend on its gold or silver reserves, tax collection or debt issuance to issue national currency.

This raises a political question, again not analysed by Marx. If in the “Treatise on Money” the creation of money is presented as a decision made by banks when they are faced with an opportunity to make profits, in the “General Theory”, the creation of money is also presented as a political decision by governments to create aggregate demand through public spending via deficits. Without this ability of governments to create aggregate demand through public deficits, not only would Marx’s prophecy about the collapse of capitalism be fulfilled, but it would also be impossible to explain the very birth of the monetary economies of production. The monetary circuit is not born of barter, neither of gold nor of silver, but of credit granted by governments as sovereign issuers of national currency, which in today’s societies passes through the existence of central banks.

Keynes’ recipe is simple: to avoid the demand crises described by Marx, states must create aggregate demand through public expenditure in order to maintain levels of full employment and levels of welfare that do not lead to the collapse of capitalism. This is the recipe that Franklin Delano Roosevelt applied, in contact with Keynes himself, to set in motion the New Deal that brought the US out of the Great Recession of 1929, and it is also the recipe that was applied in the West after the Second World War to build up welfare and social protection systems. Here are two cases in which P→Q is not fulfilled and therefore the premise enunciated by Marx is refuted.

 

Chess board showing the two knights endgame

 

In my opinion, it is essential for the left to draw lessons from all this accumulated experience. I like to pose the question as the end of a chess game in which only the two kings and two knights of the same colour are on the board. In these cases, the game is considered a draw. However, a paradox occurs. Theoretically, it is still possible to reach a checkmate position as the one shown in the diagram. However, the game is considered a draw because a checkmate position like the one shown in the diagram is only obtained if the player who only has his king collaborates with the player who has both knights. If the player with only the king on the board does not cooperate, checkmate is impossible. The same applies to the question at hand. The states that allow the existence of private ownership of the means of production collapse if they are incompetently governed. States with private ownership of the means of production do not collapse if they create sufficient aggregate demand through their spending policies via public deficits and if they intervene in the economy through a strong public sector presence that guarantees high levels of welfare for their citizens. The collapse of capitalism in Russia and the rise of National Socialism in Germany were only possible because of the manifest incompetence of Tsar Nicholas II and Kaiser Wilhelm II respectively; likewise, the collapse of capitalism in the USA due to the Great Recession of 1929 was only prevented by public intervention through the New Deal. We are currently witnessing a similar event in the European Union. To combat the COVID pandemic, the EU has decided to suspend its absurd and reactionary deficit limits. It has done so because the pandemic threatened the existence of capitalism itself in the EU. As soon as the pandemic passes, the EU will re-impose its deficit limits so that its model of mercantilist capitalism continues to guarantee the privileges of the export elites and continues to condemn the working majority to suboptimal living standards.

Does this mean that we should renounce socialism, that the attempt at a socialist transformation of the economy and society as a whole is a waste of time? Not at all. To renounce socialism is to renounce a better life. Keynes himself writes: “it is an outstanding characteristic of the economic system in which we live that, whilst it is subject to severe fluctuations in respect of output and employment, it is not violently unstable. Indeed, it seems capable of remaining in a chronic condition of subnormal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse. Moreover, the evidence indicates that full, or even approximately full, employment is of rare and short-lived occurrence. Fluctuations may start briskly but seem to wear themselves out before they have proceeded to great extremes, and an intermediate situation which is neither desperate nor satisfactory is our normal lot”. We socialists cannot resign ourselves to living under this order of things. To conclude this article I would like to present very succinctly a proposal, which I have elsewhere called fiat socialism, as an alternative path towards the socialist transformation of society and which I hope will soon take the form of a book so that it can be presented more widely.

To begin with, the two opponents must shake hands and accept that the game is a draw. Socialists have to accept that there are no historical laws and capitalists have to accept that the most they can offer are unsatisfactory solutions to major social problems. Then the pieces have to be put in place to start a new game.

We have to start asking ourselves, what does it mean that there are no historical laws? Historical laws like the one expounded by Marx conceive history as the development of a law towards whose essence (idea) humanity flows over time. Therefore, the essence (the idea) is placed at the end of a process towards which humanity tends inexorably. This scheme followed by Marx was adopted first by Aristotle and then by Hegel as opposed to Plato and Kant respectively and must be abandoned by the left. This means that we must return to Kant and abandon Hegel. There are no inexorable historical laws governing the destiny of humanity; the human being is not an actor whose mission is to hasten the birth pangs of a new society predetermined from the beginning of history. On the contrary, we must start from a primaeval idea from which our political activity is derived. This entails establishing our goals as the premises of our politics. We believe that these premises are correct, but we cannot be sure of this and we do not even know if they will become a reality. The truth or falsity of our premises will have to be corroborated by free and democratic elections. In the specific case of socialism, we have to start from a definition that does not reflect any inexorable historical law but the ends we defend. I propose that those ends should be those set out by the American economist Stuart Chase, who in his 1942 book “The Road We Are Traveling” says that all economic policy must meet five fundamental objectives:

  • guaranteed and permanent full employment
  • full and prudent use of natural resources
  • a guarantee of food, shelter, clothing, health services and education to every citizen
  • social security in the form of pensions and subsidies
  • a guarantee of decent labour standards.

If we look at all but the second point, which has to do with the preservation of nature, these have been fundamental axes of socialism in all its forms, from the socialism of the Soviet Constitution as the first binding legal document that included guaranteed work, to the socialism of the welfare systems, which both in the former socialist bloc and in the advanced societies of the West guaranteed access to the services set out by Chase. In fact, it was the defence of these five points that enabled the left to survive the demise of the Soviet Union, and in terms of environmental protection, the left has already incorporated the Green New Deal to its ideas. Furthermore, these five points were fundamental in non-Soviet socialist experiences of great importance that we cannot forget, such as that of Mohammad Mosaddeq in Iran, the Arab socialism of Gamal Abdel Nasser and the Ba’ath Party, the experience of Olof Palme in Sweden, of Thomas Sankara in Burkina Faso, of Patrice Lumumba in Congo, of Salvador Allende in Chile, of Evo Morales in Bolivia, of Jaime Roldós Aguilera in Ecuador, of Maurice Bishop in Grenada or of Hugo Chávez in Venezuela, among others. It is, therefore, these five points and their achievement that we must call socialism, not a system in which, regardless of the achievement of these five points, but in accordance with a historical law, there is no private ownership of the means of production or in which the surplus value is equal to zero. Both the size of the private sector and the levels of surplus value must be decided by the citizenry democratically. There will be places where, in accordance with the different cultural traditions of their constituents, socialist organizations will advocate the achievement of these five points through greater or lesser involvement of the private sector. Likewise, workers, in return for guaranteed work, good wages, adequate social benefits and not having to take the risks involved in private entrepreneurship, will tolerate a greater or lesser degree of surplus value. What is important is that they have in their hands the democratic mechanisms necessary to control these levels. In my view, the best mechanism for this are the job guarantees based on employment buffer stocks advocated by modern monetary theory.

This leads us to the last section of this article, the one devoted to the method. In my view, the best method to achieve the five goals of socialism outlined above without creating runaway inflation is modern monetary theory. As its founder, the Australian economist Bill Mitchell, says, this economic school is not a political regime, but a lens through which economic science can be focused in the right way. Modern monetary theory tells us the method for employing all the real resources of the economy while maintaining price stability. The full employment of these resources can be directed towards the objectives that are decided politically. My proposal is to direct the full employment of real resources to the five objectives set out above and to give this employment the name of socialism.

I am therefore of the opinion that a new definition of socialism should be put forward. Currently, the Spanish Royal Academy of Language defines socialism as: “Social and economic system based on collective or state ownership and administration of the means of production and of distribution of goods”. This definition is filled with notions from historical laws, whose existence we have previously denied. I, therefore, propose that a new definition of socialism be: Social and economic system which, through modern monetary theory, provides guaranteed and permanent full employment, full and prudent use of natural resources, a guarantee of food, shelter, clothing, health services and education to every citizen, social security in the form of pensions and subsidies, and a guarantee of decent labour standards.

As I have said, I have called this in the past fiat socialism, but it could also be called flexible socialism, as it frees socialism from the rigidities imposed by historical law. This socialism will take different forms in different places, it accepts that socialist organizations are not exempt from making mistakes, it will involve different levels of participation by the private sector, as well as different levels in the gross operating surpluses, and it is open to processes of improvement in order to mobilize real resources in the best possible way to achieve the five ends of socialism. Only one rigidity is established: monetary sovereignty. Modern monetary theory is only valid in monetary systems where the state is the sovereign issuer of its currency and where there is an appropriate coordination between the Central Bank and the Treasury. If Archimedes in ancient Greece said give me a point of support and I will move the world, a socialist Archimedes would say give me monetary sovereignty and I will build you socialism. Without the point of support of monetary sovereignty, the proposal of socialism as explained above is not possible. In most parts of the world, this is not a problem because monetary sovereignty is already in place, but in the European Union this is the main stumbling block to any socialist transformation of the economy. Therefore, in Spain, the first step towards socialism would be to abandon the European Union and the euro.

Euro delendus est.

Carlos García Hernández – editor of Lola Books publishing house.

 

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The post The Paradox of the Two Knights appeared first on The Gower Initiative for Modern Money Studies.

Governments will always let inflation accelerate – apparently

Published by Anonymous (not verified) on Tue, 17/11/2020 - 1:43pm in

Tags 

job guarantee

Today the UK Guardian editorial – The Guardian view on Rishi Sunak: time to create jobs, not anxiety – endorsed the introduction of a Job Guarantee to alleviate the terrible unemployment situation that Britain will create in the coming 12 months. Existing programs from the British government are “too small and too reliant on private companies to help much”. Even after the pandemic is solved (hopefully via vaccine) “the unemployment crisis will remain”. That is a positive step from the Guardian. And, it runs counter to the way many progressives are viewing the solution box, with UBI still figuring among their main options. The problem is that the UBI cannot deliver on its promises to everyone. But this blog post is not about UBI. As the Job Guarantee gains more profile in the public debate, several mainstream economists are now taking aim at it. The latest attempt, which I choose not to link to because it is not worth reading in full, invokes one of the arguments that mainstream economists developed in the late 1970s and early 1980s to justify their attacks on discretionary fiscal policy and elevate rules-based monetary policy to become the primary, counter-stabilisation tool. It was, of course part of the neoliberal putsch that has seen sub-optimal outcomes ever since for most of us and superlative outcomes for the top ends of the income distribution. The reason I note this argument is because it is general in nature and should be understood. In other words, I do not have to talk about the paper that introduces this attack on the Job Guarantee, because it just mimics the standard criticisms of government policy making that have been around for ages. So any time some new government policy approach is proposed, these characters just whip out this tired old defense. But it is useful for my readers to be on the lookout for it.

In 1977, Edward C. Prescott and his former PhD student Finn Kydland published a paper entitled Rules Rather than Discretion: The Inconsistency of Optimal Plans in the Journal of Political Economy (85(3), pp. 473-492).

They published a few more papers on this topic in the ensuring years.

Their conjecture was termed ‘time inconsistency’ and they were awarded the (so-called but it is not) a Nobel Prize for the papers.

You can be sure that if some economists are awarded this prize that they are not threatening any of the mainstream fictions. In this case, their work was a fundamental building block to the anti-government policy paradigm that began with Monetarism, then morphed into Real Business Cycle theory, New Classical Economics and most recently New Keynesian economics.

What is ‘time inconsistency’?

Kydland and Prescott argued that (pp.473-474):

We find that a discretionary policy for which policymakers select the best action, given the current situation, will not typically result in the social objective function being maximized. Rather, by relying on some policy rules, economic performance can be improved. In effect this is an argument for rules rather than discretion …

How do they justify this conclusion?:

Current decisions of economic agents depend in part upon their expectations of future policy actions … In situations in which the structure is well understood, agents will surely surmise the way policy will be selected in the future. Changes in the social objective function reflected in, say, a change of administration do have an immediate effect upon agents’ expectations of future policies and affect their current decisions.

Okay, and their example?:

The issues are obvious in many well-known problems of public policy. For example, suppose the socially desirable outcome is not to have houses built in a particular flood plain but, given that they are there, to take certain costly flood-control measures. If the government’s policy were not to build the dams and levees needed for flood protection and agents knew this was the case, even if houses were built there, rational agents would not live in the flood plains. But the rational agent knows that, if he and others build houses there, the government will take the necessary flood-control measures. Consequently, in the absence of a law prohibiting the construction of houses in the flood plain, houses are built there, and the army corps of engineers subsequently builds the dams and levees.

So the government is seen as a sucker – they are forced by smart private sector decision makers into policy development that runs against socially desirable outcomes.

Conclusion: the government shouldn’t have discretion.

Okay, but see the logic flaw.

In most nations, government is not only responsible for building flood protection infrastructures (dams and levees) but also in charge of planning regulations.

If they were reluctant to provide the infrastructure up front and believed that residential development was harmful to social well-being then they can easily prevent it through the planning process.

Yes, that means rules are required, but that doesn’t justify banning discretionary policy shifts.

Kydland and Prescott also claimed that their analysis had implications for “aggregate demand management” aimed at addressing an inflation or unemployment problem.

So they were building on Friedman’s Natural Rate Hypothesis that said that if governments tried to reduce unemployment using fiscal policy initiatives all they would achieve was accelerating inflation because decisions-makers (consumers, households, workers, price setters) would expect higher inflation and build that into their pricing decisions (wage claims, mark-ups, etc) which would just drive the inflation rate up without reducing unemployment.

The only way that the government could stabilise inflation would be to allow unemployment to rise to the ‘natural rate’, which was invariant to aggregate demand management and had to be addressed via microeconomic reforms – cutting unemployment benefits, cutting minimum wages, deregulating occupational health and safety standards.

In other words, the whole neoliberal agenda.

During the 1980s, their estimates of the natural rate rose to ridiculous levels. At one stage, in Australia, in the late 1980s, mainstream economists were trying to argue that the rate of unemployment below which inflation would accelerate was in excess of 8 per cent.

I discussed that issue in this recent working paper – The Job Guarantee and the Phillips Curve (November 2020) as well as countless other papers and blog posts.

In my 2008 book with Joan Muysken – Full Employment abandoned – we provided an analytical approach to debunking the natural rate theories.

Kydland and Prescott claim that (p. 477):

The standard policy prescription is to select that policy which is best, given the current situation … such policy results in excessive rates of inflation without any reduction in unemployment. The policy of maintaining price stability is preferable.

They assume that “private agents or their agents have as much information about the economic structure as does the policymaker”. This is the standard claim of those who consider rational expectations to rule.

I considered that proposition in this blog post (among others) – The myth of rational expectations (July 21, 2009).

RATEX theory claims that individuals (you and me) essentially know the true economic model that is driving economic outcomes and make accurate predictions of these outcomes with white noise (random) errors only. The expected value of the errors is zero so on average the prediction is accurate.

Everyone is assumed to act in this way and have this capacity. So we all understand the QTM and understand that whenever the central bank expands the monetary base or the treasury increases the deficit there will be inflation.

So “pre-announced” policy expansions or contractions will have no effect on the real economy.

For example, if the government announces it will be expanding the deficit and adding new high powered money, we will also assume immediately that it will be inflationary and will not alter our real demands or supply (so real outcomes remain fixed).

Our response will be to simply increase the value of all nominal contracts and thus generate the inflation we predict via our expectations.

If there proposition was true, then there would be no need to undertake a PhD in economics because everybody already understands economics (the “economic structure”).

It is clearly not sensible to believe that households and firms know very much about what drives economic outcomes.

While my blog readership is probably more informed than most, can any of you predict with white noise errors only what is going to happen in the next 12 months.

Do you seriously believe that people use the myriad of financial and economic data to determine every spending decision they take.

Does anyone believe that households are always rational and perfectly informed about all current and future events?

When I was a graduate student, I recall reading a critique of RATEX from James Tobin where he said that if everybody is rational and has the same information as the government and uses the same “model” of the economy that the policy makers use then what use is the economics profession.

If we can get our forecasts from the person who delivers the post or around our kitchen tables what can we learn by studying economics (RATEX says nothing – so sack all the mainstream economists in universities).

Other than me, of course!

Why would we pay economic forecasting agencies (RATEX says they are useless because we already know what they are going to produce – so send all of them broke).

Their point about inflation and unemployment was that if the government committed via its central bank to a low inflation rate and sustained policy rates that delivered that outcome then all of use would come to believe that they were committed and act as if there was to be sustained low inflation.

However, if the government then changed that approach and decided the unemployment rate associated with that low inflation commitment was too high, and, as a consequence, increased spending, Kydland and Prescott claim that we would all know this would be inflationary and we would no longer beleive the government was committed to low inflation.

As a result, we would start hiking wage demands (to protect real wages) and firms would hike prices (to protect real margins) and the situation is “worsened by the discretionary policy”.

So there is nothing left for governments to do but hand over policy responsibility to central banks who have one aim – to lower inflation.

Enter the period of elevated unemployment rates, diminished real wages growth, rising inequality and poverty rates and all the rest of it.

And, the historical record shows that central bank policy is ineffective in altering the inflation rate. For how long have central banks been expanding their balance sheets (through QE bond purchases) to, in their own words, get inflation back up to their price stability targets.

With the massive deficits in Japan over three decades (nearly) where is the accelerating inflation.

The problem with all this time inconsistency stuff is that it is a closed system.

I can write out an economic model with starting assumptions that will prove anything.

For example, I could write a model that proved that government spending leads to my football team winning each week and jazz being played on TV every night. It would be true, within the boundaries set by the model.

But the model would be so preposterous that no-one would credit it.

Same deal here.

GIGO.

I have given other examples of the GIGO disease in economics in these posts:

1. GIGO … (October 7, 2009).

2. OECD – GIGO Part 2 (July 27, 2010).

3. A continuum of infinitely lived agents normalized to one – GIGO Part 3 (February 6, 2012).

Time Inconsistency and the Job Guarantee

Apparently the Job Guarantee will fail to deliver stable inflation due to ‘time inconsistency’.

The argument is simplistic and goes like this.

The authors recognise that the Job Guarantee is a buffer stock mechanism, which means it is an automatic stabiliser.

That means the outlays on the Job Guarantee program are counter-cyclical – rising when the non-government sector economic cycle is falling and vice versa.

So there is no activation needed to build the Job Guarantee pool – as non-government spending falls and job losses occur in that sector, the Job Guarantee pool will increase.

The government doesn’t have to do anything – it just happens as a result of other unconditional job offer.

But that is one aspect of the Job Guarantee, which most people have become familiar with – especially since the GFC and, now the pandemic.

And that is the context in which the UK Guardian Editorial was written yesterday.

The Job Guarantee is a superior mechanism for dealing with declines in non-government sector spending, which would other manifest as harmful unemployment.

But recall that I wrote this blog post – The provenance of the Job Guarantee concept in MMT (April 20, 2020) – partly, because when we set out to develop these ideas, our concern was with the high inflation that was present (for me in the late 1970s).

Which means that the activation of the Job Guarantee mechanism requires government to engage in discretionary policy action.

This is the point that the authors relate the time inconsistency argument to.

So, we start with inflationary pressures in the non-government sector rather than recession.

Mainstream policy says the central bank has to hike interest rates to suppress spending and the outcome is rising unemployment.

Rising unemployment disciplines wage demands by workers and margin push by firms and by transferring workers from the employed sector to the unemployment pool, the government (via the central bank) suppresses the inflationary episode.

This is the standard Friedman-Phelps-style disinflation exercise.

According to their theory, eventually unemployment settles at the natural rate so all is well. I recall Milton Friedman being asked how long a disinflation exercise might have to be engaged in to get the economy back to the ‘natural rate’ and he replied maybe 15 years!

Amazing especially when all the estimates of the natural rate just follow the actual rate up and down anyway.

Under a Job Guarantee, the inflation fight is different but still involves discretionary policy interventions.

Here the government has to tighten fiscal and/or monetary policy and transfer workers into the fixed price Job Guarantee pool. The rising buffer employment ratio (BER) disciplines the inflationary process eventually.

How high does it have to go? That depends but the logic would suggest that the rise in the Job Guarantee pool would be smaller than the rise in the unemployment pool. See the working paper I referred to above.

The government would have other discretionary options, which do not require less spending and/or higher taxes. They could alter administrative pricing rules for example (indexation arrangements in health care, child care, energy pricing etc).

They could change the regulative framework.

But the critics focus on one thing only.

They argue that governments will never increase taxes to curb inflationary pressures.

So, apparently, no government would use the buffer stock to discipline inflation because no one would want to see workers in the Job Guarantee pool. As a consequence, governments will never step in to curb the inflationary pressures.

Which means, according to the assumptions (GIGO) used to mount the argument, that the Job Guarantee fails to provide an inflation anchor.

Two responses.

First, focusing on increasing taxes exclusively (as an expression of fiscal policy intervention) is very narrow.

In Modern Monetary Theory (MMT), we talk about a role of taxes is to create real resource space in which the government can spend without competing for goods and services at market prices and causing inflationary pressures.

However, we never say that when faced with an inflationary environment, the only tool that government would use was taxation hikes.

That is not to say that they would not.

Clearly, history shows that government adjust taxes up and down.

Take the Japanese case, where the sales tax was increased several times (unwisely) since 1997. So to eliminate the possibility of tax rises is counter-factual.

Second, governments have a wider array of policies that can slow the economy down and they regularly use them, in many situations unwisely.

If there was no public acceptance of tighter policies, how can we explain the years of fiscal austerity? Clearly, that exercise has created years of elevated unemployment and other problems.

The point is that while the justification for austerity was spurious, governments did it and continued to be reelected.

Third, if you really believed that government could not use discretionary policy interventions to curb inflation, then even the mainstream approach is invalidated.

Central banks make discretionary interest rate adjustments. We have been indoctrinated to accept them even if they create unemployment (as a tool to fight inflation).

Why would the public tolerate mass unemployment under the mainstream orthodoxy and eschew Job Guarantee employment within an MMT orthodoxy?

The reality is that the public are not very well informed and governments use all sorts of framing exercises to condition our responses.

Conclusion

Apparently, anyone who advocated discretionary fiscal policy interventions is naive to political economy.

So we just should have balanced fiscal outcome rules which provide these smart economic ‘agents’ (us) with certainty and all will be well.

If you believe any of that, send me an E-mail and I have things to ‘sell’ (anyone want to buy the Sydney Harbour Bridge?! Cheap!)

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.

Helen Lachs Ginsburg, Jobs-for-All Scholar-Activist

Published by Anonymous (not verified) on Wed, 11/11/2020 - 3:50am in

Scholar, activist, advocate for living wages and a job guarantee, and D&S supporter Helen Ginsburg passed away on October 8th. Her obituary appeared in the New York Times on November 6th (online version here). Below is an obituary from Gertrude Schaffner (“Trudy”) Goldberg of the National Jobs for All Network, a close friend of Helen’s and a frequent D&S author.  –Eds. 

Photo of Helen Lachs GinsburgHelen Lachs Ginsburg in an undated photo. A Brooklyn College professor, she was a founding member of the National Committee for Full Employment, which was led by Coretta Scott King.Credit…via Ginsburg family.

Helen Lachs Ginsburg, Scholar-Activist and Leader in Advocacy of Living-Wage Jobs for All

Helen Lachs Ginsburg, life-long advocate for full employment or a Job Guarantee, died on October 8th at the age of 91. She retired some years ago as Professor Emerita of Economics from Brooklyn College.  Professor Ginsburg gained distinction in a field that was dominated by men, particularly some seventy years ago when she launched her career as an economist.

As a founding member of the National Committee for Full Employment, led by Coretta Scott King, Ginsburg wrote and lectured around the country in the 1970s in support of  the full employment legislation proposed by Representative Augustus Hawkins (D-CA) and co-sponsored  by Senator Humbert Humphrey. The original legislation would have given everyone a decent job who wants one–a key policy to reduce inequality and poverty.  Thus Ginsburg was a link between those like her who fought for full employment fifty years ago and the young activists now pressing for a job guarantee, a $15 minimum wage, and a Green New Deal that would include a right to living-wage work.

The Humphrey-Hawkins Full Employment and Balanced Growth Act of 1978, a much watered-down version of the legislation originally proposed by Representative Hawkins, guaranteed neither full employment nor balanced growth. In the wake of that disappointment, Professor Ginsburg began her study of Sweden’s successful, sustained full employment policy. Visiting that country with a grant from the Swedish Bicentennial Fund, Ginsburg conducted numerous interviews with trade union leaders, government officials, and academics, including such luminaries as Gunnar and Alva Myrdal–not to mention many unemployed persons whom she met at Labor Market Training Centers, employment offices, and rehabilitation centers. The result of that research—her 1983 book, Full Employment and Public Policy: The US and Sweden– was an important influence on the thinking of those who, despite the disappointing results of Humphrey-Hawkins, continued to advocate full employment—or as Helen Ginsburg referred to that goal in the title of a 1978 article in The Nation: “Jobs  for All.”

Upon learning of Professor Ginsburg’s death, the distinguished economist L. Randall Ray, wrote that her 1983 book that introduced readers to the Swedish model of full employment helped him and his colleagues at both the University of Missouri’s Center for Full Employment and Price Stability and the Levy Economics Institute at Bard College to get started with their work on full employment. Similarly, Professor of Law and Economics at Rutgers Law, Philip Harvey was encouraged by Ginsburg’s book because its detailed treatment of the Swedish experiment convinced him that “incremental progress could achieve revolutionary social change over time.”  Historian Frank Stricker, whose latest book is American Unemployment, Past, Present, and Future, wrote: “I used her books in my work.  Such a model of devotion to the cause and to the truth. ” Eduardo Rosario, Executive Board member of the Labor Council for Latin American Advancement, wrote, “This is a tremendous loss for all of us and for working people everywhere.”

In the 1980s, when the disappointing results of the Humphrey-Hawkins struggle led many progressives to give up on full employment, Helen Ginsburg was a mainstay among the scholars and activists who kept alive the dream of living-wage work for all–in a group called New Initiatives for Full Employment or NIFE. Soon after, members of NIFE, led by Columbia professor Sumner Rosen, initiated the Columbia University Seminar on Full Employment—as one means of refining the group’s ability to conceptualize full employment and to contribute to its political resurgence. This Seminar which Helen Ginsburg co-led for many years, provided an opportunity for full employment advocates to meet with scholars and activists in this country and abroad.

The proceedings of the Seminar on Full Employment contributed to the conceptualization of full employment in a 1994 book or manifesto that Ginsburg co-authored with Sheila Collins and Gertrude Schaffner Goldberg:  Jobs for All: A Plan for the Revitalization of America. Their plan for revitalizing this nation was “based on the philosophy that work and production, exchange and distribution should be redesigned in ways that are conducive to the full development of the innate potential of all people and to the sustainability of the ecosystem.” Their book launched the successor to NIFE, the National Jobs for All Coalition (now National Jobs for All Network). Helen Ginsburg was a co-founder of the National Jobs for All Coalition and,  for the rest of her life, a member and mentor to its Board of Directors.  According to Gertrude Schaffner Goldberg, Chair of the National Jobs for All Network, “Helen Ginsburg was a model of a scholar-activist whose research and writing, always informed by her engagement in the struggle for economic justice, was an inspiration and impetus to all who carry on the struggle for “jobs for all.” The National Jobs for All Network is deeply indebted to our co-founder and diminished by her death.”

Beginning with her work on Swedish full employment policy, Helen Lachs Ginsburg was a trail-blazer in cross-national or comparative study. She continued to study, visit, and write about Sweden in the years following her initial research there. In 1990, she was a Guest Scholar at the Wissenschaftscentrum in Berlin in 1990, an opportunity that broadened her cross-national perspectives. A subsequent presentation to the Columbia Seminar reflected that research: “Jobs for All: Values, Concepts, and Policies in the US, Germany, and Sweden.” Professor Ginsburg encouraged her colleagues to follow her example of engaging in cross-national study, and she informally mentored and co-authored work with them.

In paying tribute to Helen Professor Ginsburg, Gűnther  Schmidt, Director Emeritus of the Wissenschaftscentrum  in Berlin where Ginsburg was a Guest Scholar, admired “her broad approach of combining philosophy ofwork with sound economics.” This broad approach is exemplified in an article in the Department of Labor’s Monthly Labor Review, “Flexible and partial retirement for Norwegian and Swedish Workers,” for which Ginsburg was awarded the prestigious Lawrence R. Klein Award.

In his remembrance, Professor Schmid called attention to Ginsburg’s 2011 article, “Historical Amnesia: The Humphrey‑Hawkins Act, Full Employment and Employment as a Right,” published in “Review of Black Political Economy.” The article reminded him of “the legacy of the Roosevelt’s New Deal and the original Humphrey-Hawkins proposal, freshly and powerfully reformulated in her conclusion”: “Full employment […] shifts power from capital to workers […]. The right to a job […] is a visionary concept and can be empowering. […]. Living wage jobs as a right may seem unrealistic but so once did the right of all children to go to school, the right of women to vote and the abolition of slavery.”

Helen Lachs Ginsburg  was born  and lived her entire life in New York City. She is a graduate of Queens College and earned her doctorate in Economics from The New School. She leaves her husband of more than 60 years, Nathan Ginsburg of Flushing, New York, her brother and sister-in-law Sherman and Lorraine Lachs of Scottsdale Arizona, and a number of nieces and nephews.

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