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The long-term unemployed are not an inflation constraint in a recovery

Published by Anonymous (not verified) on Mon, 19/10/2020 - 5:46pm in

I gave some advice to a politician last week who had read some MMT literature that he said indicated that using the Job Guarantee reduces inflationary pressures in a recovery relative to a situation where a nation had an unemployment buffer stock. I was surprised by the question because the assertions didn’t appear congruent with the facts. It appeared to be rehearsing and endorsing the standard neoliberal supply-side agenda that defined the so-called ‘activation’ approach to unemployment, which militated against job creation programs in favour of training initiatives – the full employability rather than the full employment mindset. The fact is that long-term unemployment always lags behind the overall unemployment movements given it takes time for people to work their way through the duration categories until they get to 52 weeks, after which the national statistician terms a person long-term unemployed. The longer the recession the higher average duration of unemployment becomes and the larger the pool of long-term unemployed as people start to flow into that category. However, the way we think about solutions has been influenced by the myths about the way long-term unemployment behaves, which we summarise as the – ‘irreversibility hypothesis’. This idea has influenced governments to rely on training approaches rather than job creation as solutions to unemployment. And, it has led to the various pernicious unemployment management policies where the victims of the system’s failure to create enough jobs are considered culpable in their own misfortune and shunted through a series of compliance processes in order to receive income support, which do little to get them work.

The argument the politician presented to me was that:

1. Employers do not know whether a long-term unemployed person has desirable traits and will prefer to employ a short-term unemployed person.

2. So employers choose not to employ the long-term unemployed in a recovery and instead compete among each other for those already employed.

3. The wage chase then causes inflation.

4. So the long-term unemployed represent an inflation constraint until they are subjected to attitudinal training so they work with others, training etc.

5. In other words, stimulating the economy will only induce inflationary pressures if there is a significant pool of long-term unemployed.

6. The solution is to have a Job Guarantee, where the workers are ready for work and reduce the inflationary pressures in an expansion.

All but the last point, could have been written by a supply-side oriented, mainstream economist. The type I have been opposing for all my career.

The problem with this sort of reasoning is that it doesn’t reflect the empirical world.

1. Obviously, if there is an all out bidding war in the private labour market for labour for workers who are already employed then the rising nominal wage pressures may provoke an inflationary spiral.

Whether this does become inflationary depends on what else happens. For example, if productivity growth provides the room to accommodate the nominal pressures and unit labour costs do not accelerate then for given margins there will be no inflation.

2. The empirical evidence is clear – when a recovery occurs, employers bid for labour out of both the long-term and short-term unemployment pools.

The stronger the recovery, the more quickly the long-term get absorbed.

But usually there is not a sequential process where the employers exhaust the short-term pool and then turn to the long-term pool.

And when the labour market tightens, the employer’s job offer is typically a package, which combines some job specific training and a wage offer.

It is generally cheaper for firms to do that rather than try to bid workers away from other firms.

Moreover, firms with market power (meaning they have price setting volition) rarely try to compete on price (up or down).

When sales opportunities increase they defend their market share first and foremost.

They fear that if they push prices up and their immediate competitors do not then they will lose market share which is very costly.

As a result, they will avoid adopt non-price strategies that allow for increased production (and employment) to meet the rising demand for goods and services.

3. A Job Guarantee is not inflationary, in itself, because the government is buying off the bottom of the market – offering a fixed price for a resource that has zero bid in the market.

That is the point.

The government offers an unconditional job offer at a socially-inclusive minimum wage to anyone who wants to work and cannot find it. There is no competitive process from the side of the government.

They just act passively – that is, the Job Guarantee acts as an automatic stabiliser and the pool rises and falls on the tide of non-government spending.

The pool will increase for two reasons:

(a) The government is tightening policy settings to cut into an inflationary spiral in the non-government sector, or

(b) There are no inflationary pressures but the non-government sector cuts spending for any number of reasons – uncertainty, excessive debt, etc

4. Clearly, if there is a Job Guarantee in place, then in the early days of a recovery, when the Job Guarantee pool might be bigger than usual, the wage offers required to bid the workers back into the private labour market may be modest and there are plenty of workers available, so it is unlikely that there would be any inflationary pressures.

It is also true that Job Guarantee workers are more attached to the labour market than the unemployed.

But the hysteretic mechanisms that see firms relax and tighten hiring standards and combine training slots with jobs slots at different points of the economic cycle also mean that the long-term unemployed are absorbed along with the short-term unemployment when economic growth is strong enough coming out of a recession.

I provide some evidence of that below.

In a deep and long recession, the number of long-term duration Job Guarantee workers will be higher than if the recession is short and sharp.

If the recovery is strong enough, then they will get absorbed back into the employed workforce just as they would be if they were long-term unemployed.

5. But once the economy gets close to capacity and the Job Guarantee pool is minimised, then any extra bidding from that pool will be stronger than before and the margin over the Job Guarantee wage that would arise will be larger than before. Again, this might not spark inflation but it is more likely to than before.

6. The point is that the price anchor provided by the Job Guarantee becomes moot when the pool of jobs becomes very small, just as in the case when the unemployment pool is small.

The difference between the two buffer stock mechanisms, however, is that if there are inflationary pressures in the non-government sector, and the government tightens policy settings to suppress them, then under the unemployment buffer stock approach, workers lose their jobs, whereas under a Job Guarantee workers are redistributed from the inflating sector to the fixed price job sector.

While neither system is ideal, the employment buffer approach is vastly superior to using the unemployed as a front line fighting force to discipline distributional struggles between labour and capital.

Definitions

The first issue to clear up is the definition of long-term unemployment. Long-term unemployment tracks the total unemployment rate in a lagged fashion. So as governments abandoned full employment in the in the 1970s and allowed unemployment to rise significantly, they also had to then contend with the politically troubling issue of long-term unemployment.

The solution they took was the purely political – they redefined long-term unemployment. So in the early 1970s, a person was long-term unemployed if they has been unemployed for 13 or more weeks. This was changed in the late 1970s to 26 weeks and from the mid-1980s to 52 weeks. There is on-going pressure change the threshold to 104 weeks and confine it to a small number of so-called intransigents.

The changes were designed to disabuse the citizens of the severity of the problem that occurs when government’s fail to deal with an economic downturn in a timely and sufficient manner.

This has become a common problem during the neoliberal period.

Patterns of unemployment duration

First, what is the pattern of unemployment duration?

The next graph shows the pattern of unemployment duration in Australia since January 1992.

It shows the evolution of the workers (000s of persons unemployed) across the duration of unemployment categories (in weeks) since February 1992.

The consistent dataset begins in January 1991 and I have calculated 12-month trailing moving averages of raw ABS data to allow you see trends a bit better.

The graph provides interesting information about how the pool of unemployment builds as the cycle turns down. After a long period of growth, long-term unemployment (currently defined as more than 52 weeks of continuous joblessness) is relatively low and workers enter and exit the unemployment pool regularly as jobs are created and destroyed.

The initial spike is because the series starts about a year after the severe 1991 recession and the lack of policy response over the 1990s saw a slow decline in all categories of unemployment. But the longer the recovery was delayed the more workers flowed into the LTU category.

Once the downturn started (February 2008), the short-duration categories obviously take the initial unemployment. So the 4-13 weeks; 13-26 weeks; 26-52 weeks categories all rise sharply in a lagged pattern with the shorter-duration categories lead.

As the recession persists, you start to see the longer-duration categories rising sharply (the dynamics are suppressed somewhat by the moving-average construction of the time series).

The irreversibility agenda

As unemployment started rising in the 1970s and has mostly persisted at high levels ever since, orthodox economists concentrated on the supply side of the labour market, hypothesising that full employment should be redefined to occur at much higher unemployment rates than in the past.

My definition of full employment is less than 2 per cent official unemployment, zero hidden unemployment and zero time-based underemployment.

I base this on the view that the government can always run the economy at sufficient pressure to absorb all the workers who desire a job.

And if we introduce a Job Guarantee, then the problem of involuntary unemployment disappears as does time-based underemployment (because Job Guarantee workers can always choose their own hours).

Skills-based underemployment where a worker may not be able to find a job in their given skill range is more difficult and open to all sorts of definitional issues.

The reminder from American economist Michael Piore (1979: 10) is also worth remembering:

Presumably, there is an irreducible residual level of unemployment composed of people who don’t want to work, who are moving between jobs, or who are unqualified. If there is in fact some such residual level of unemployment, it is not one we have encountered in the United States. Never in the post war period has the government been unsuccessful when it has made a sustained effort to reduce unemployment. (emphasis in original)

(Reference: Piore, M.J. (ed.) (1979) Unemployment and Inflation, Institutionalist and Structuralist Views, M.E. Sharpe, Inc.: White Plains.)

The orthodox approach, however, has been to consider long-term unemployment to be a (linear) constraint on a person’s chances of getting a job.

The so-called negative duration effects (scarring etc) are meant to play out through loss of search effectiveness or demand side stigmatisation of the long-term unemployed.

That is, they become lazy and stop trying to find work and employers know that and decline to hire them. Over this period, skill atrophy is also claimed to occur.

All sorts of vile nomenclature was then introduced to make sure that the workers were divided between those who worked and those who didn’t – the latter being bludgers and more.

So it has been common for mainstream economists and policy makers to postulate that there is a formal link between unemployment persistence, on one hand and so-called ‘negative dependence duration’ and long-term unemployment, on the other hand.

Although negative dependence duration (which suggests that the long-term unemployed exhibit a lower re-employment probability than short-term jobless) is frequently asserted as an explanation for persistently high levels of unemployment, no formal link that is credible has ever been established.

However, despite the lack of evidence, the entire logic of the 1994 OECD Jobs Study which marked the beginning of the so-called supply-side agenda defined by active labour market programs was based on this idea.

This was the period when governments abandoned their Post World War 2 commitment to full employment, and, instead, adopted the diminished, supply-side goal of full employability.

The import of that shift was that governments stopped dealing with downturns in non-government spending, especially when the downturn was severe, with direct job creation programs, and, instead, introduced supply-side programs – training, attitudinal coaching, CV preparation and all the rest of it.

Labour market recoveries from downturns in the full employment era were much more rapid because governments used their fiscal capacity to address the spending gaps.

In the neoliberal era, a major downturn which drives unemployment up sharply, results in a slow, drawn out recovery where unemployment takes many years to recover.

This period also coincided with the creation of a new industry. We mostly think of industries as being where production occurs – adding value to our lives.

In the neoliberal period, the Financial sector grew quickly which is largely unproductive (wealth shuffling).

But another, new industry was also created – the unemployment industry.

In Australia, the government privatised the Commonwealth Employment Service and created a sort of quasi-market where all sorts of private companies (including Churches – to their eternal shame) tendered to offer case management services for the unemployed under the guise of preparing them for work.

In addition, the governments (federal and state) started starving the public education system of funds and created a private training system where all sorts of fly-by-night operators emerged, where a steel set of shelves with a single book would be called a ‘library’ and millions of dollars were given to them under the guise of vocational training.

And the job service providers became the front-line attack dogs for government in that they implemented the pernicious welfare-to-work regulations.

The entire system was a depoliticised farce with terrible impacts for the victims – the unemployed seeking income support at a time when the government austerity starved the economy of job creation potential.

All this was justified by the claim that the long-term unemployed were unemployable and unless they were trained up and disciplined to have better work attitudes then they would never be absorbed back into work.

And if governments tried to stimulate an economy where there was significant long-term unemployment then inflation would result – because employers would just compete among the existing employed workforce to expand.

The question as to why anyone was long-term unemployed fell to the back of the public debate.

Does long-term unemployment have strong irreversibility properties?

There is little credence in the irreversibility hypothesis.

Once you examine the dynamics of the data you quickly realise that short-term unemployment rates do not behave much differently to long-term unemployment rates.

The irreversibility hypothesis is unfounded.

Clearly, if the government allows a downturn in non-government spending to descend into recession and refuses to stimulate the economy in any significant manner then long-term unemployment rises just because of the movements of the short-term unemployed through the duration categories.

But the data shows that the relationship between long-term unemployment and the unemployment rate is very close as can be seen in the following graph.

We have defined short-term unemployment as the residual between long-term (above 52 weeks) and total unemployment. The dataset used here is seasonally adjusted from February 1978 to August 2020.

As unemployment rises (falls), the proportion of long-term unemployment in total unemployment rises (falls) with a lag.

Several studies have formally examined this relationship.

My earlier work has found that a rising proportion of long-term unemployed is not a separate problem from that of the general rise in unemployment.

This casts doubt on the supply-side policy emphasis that OECD governments have adopted over the last two decades.

So while the mainstream economics profession may claim search effectiveness declines and this contributes to rising unemployment rates, the overwhelming evidence is that both are caused by insufficient demand.

The policy response then is entirely different.

To argue that long-term unemployment is a constraint on growth and therefore needs supply-side programs rather than direct job creation, you would have to find that even during growth periods, long-term unemployment was resistant to decline.

How have the LTUR and STUR behaved over the business cycle? Is there evidence that the LTUR is resistant to growth as is claimed by the irreversibility hypothesis?

The following graph shows the decline in the LTUR and the STUR from the unemployment rate peaks coinciding with the 1982 and 1991 recessions, respectively.

The peaks were in July 1983 and July 1992. The observations are indexed with the peak observations being 100. The behaviour is charted out until low-point is reached.

The peaks for the short-term unemployment rate precede that of the long-term unemployment, which in turn, lag the related troughs in GDP.

The important finding is that the growth phase provides job opportunities for both pools of unemployment.

There does not appear to be any sequential accessing of the short-term first, followed by the long-term unemployed, as the irreversibility hypothesis would suggest.

Indeed, following the 1991 recession, the long-term unemployment rate fell much more sharply than the short-term rate.

I also have examined the possibility that this could have been due to labour force exit and I largely reject that proposition as an explanation.

And this graph shows the most recent cycle after the GFC. The unemployment rate rose from 4 per cent in February 2008 (the low-point of the previous cycle) to 5.9 per cent by June 2009.

The initial fiscal stimulus then started to reduce the short-term unemployment rate but was not strong enough to start eating in to the long-term pool.

By 2012, the Federal government was under extreme pressure from the conservatives to start cutting the fiscal support, which they did, and the economy nose-dived and unemployment started to creep up again, which meant that more and more workers at the longer end of the short-term category started to move into the long-term unemployed pool.

And the on-going pursuit of fiscal surpluses has meant it has been very hard for the long-term unemployed to gain work.

This period shows what happens when the economy is slowed due to fiscal drag which reduces duration transitions away from the longer duration categories.

And then the pandemic struck and short-term unemployment has shot up.

Conclusion

The evidence very strongly supports the view that long-term unemployment rises and falls with net job creation. The stronger is employment growth the more quickly long-term unemployment falls.

When recoveries are stalled and slow, the long-term unemployed get trapped in that state.

And in the periods examined, there is no evidence that as the pool of long-term unemployed was declining (simultaneously with the short-run pool) that inflation was accelerating.

It is far better for the government to ensure there is strong spending support when non-government spending declines to prevent the build up of long-term unemployed in the first place.

That is enough for today!

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

Tracing the roots of progressive views on the duty to work – Part 7

Published by Anonymous (not verified) on Tue, 06/10/2020 - 1:57pm in

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job guarantee

This is Part 7 of my on-going examination of the concept of ‘duty to work’ and how it was associated with the related idea of a ‘right to work’. Today, I go back in history (again) to discuss a literature that influenced the evolution of my own early advocacy of a Job Guarantee. We see how I considered developments in the early C19th which established very clearly the responsibility of the government to act as an ’employer of last resort’ could be integrated with the buffer stock literature (which analysed the use of commodity buffer systems) in C20th to provide a coherent buffer stock full employment capacity in our modern economies. In Part, this establishes where the Job Guarantee idea, that is now central to Modern Monetary Theory (MMT) came from – at least, in terms of my early contribution to that body of work.

The earlier parts in this series are:

1. Tracing the roots of progressive views on the duty to work – Part 1 (August 4, 2020).

2. Tracing the roots of progressive views on the duty to work – Part 2 (August 11, 2020).

3. Tracing the roots of progressive views on the duty to work – Part 3 (August 20, 2020).

4. Tracing the roots of progressive views on the duty to work – Part 4 (September 1, 2020).

5. Tracing the roots of progressive views on the duty to work – Part 5 (September 8, 2020).

6. Tracing the roots of progressive views on the duty to work – Part 6 (September 29, 2020).

The theme today is to report on early concepts of the right to work, which in Modern Monetary Theory (MMT) are expressed, in part, by a commitment to a Job Guarantee.

But, we should not think of the Job Guarantee as the only expression of a government’s responsibility to ensure a right to work.

I often see commentary in the social media from those who are apparently sympathetic to the idea of a Job Guarantee that would lead one to conclude that MMT economists think the buffer stock capacity will solve all unemployment issues.

The way we conceived of the Job Guarantee from day 1 was to be a relatively small, steady-state pool of jobs which would expand in the relatively rare times that inflation became a problem and/or private spending collapsed.

Typically the Job Guarantee pool would be very small and provide work for the most disadvantaged workers in the society.

When confronted with say a major downturn in private spending, while the Job Guarantee pool will expand, the most valuable intervention a government can make is to create career-based, high skilled jobs in the economy rather than passively sit back and allow the Job Guarantee pool to expand.

Warren Mosler constructs the Job Guarantee as a transition job – transiting the work back in the private sector.

I do not give it that emphasis for my own reasons and am happy to see the a worker permanently occupy a Job Guarantee job if that is the best outcome for them.

But the difference in that construction does not alter the fact that we both conceive of the pool of jobs as being very small when economies are operating at higher pressure levels.

The Job Guarantee is not a panacea for all ills.

As an aside, I keep getting E-mails with statements about the Job Guarantee and links to articles about it, which continue to repeat the assertion that the Job Guarantee is derived from the work of Hyman Minsky.

One recent Op Ed even claimed the idea was “first put forward” by Minsky. The author followed that statement claiming that this idea was “now promoted by” yours truly (and Noel Pearson) insinuating that I was promoting the work of Minsky.

The initial statement is factually wrong and demonstrates an ignorance of history or a willingness to revise history to fulfill some agenda.

The second statement – insinuating I am promoting Minsky’s work – is equally in contradiction with reality and the historical record.

I dealt with these matters in these blog posts:

1. The provenance of the Job Guarantee concept in MMT (April 20, 2020).

2. The historical beginning of the MMT team – from the archives (November 27, 2019).

3. Flattening the curve – the Phillips curve that is (April 7, 2020).

The point is this.

At the outset when the MMT work began, the concept of a Job Guarantee was the outcome of input from myself and Warren Mosler to an early E-mail discussion list (PKT) in mid-1990s.

I document those discussions in the blog posts cited above.

The historical record is clear.

Neither of us were influenced in any way by the work of Hyman Minsky. Warren and I came to the same point from quite different angles and those insights were then developed within the body of work we now know as MMT.

It is true that Randy Wray, who was a participant in the discussions on that E-mail discussion list was very influenced by Hyman Minsky (having had him as a doctoral supervisor) and saw similiarities in what Warren and I were inputting to the List with early work that Minsky had published.

And subsequently, it is true, that Randy and those that were influenced by his work built further connections with Minsky and the unfolding body of MMT work.

But that doesn’t allow one to conclude that the concept of the Job Guarantee as it became a central part of MMT was derived from Minsky. It categorically was not!

And an interesting question one might ask in this context is whether one could have extrapolated the body of work we now call MMT from Minsky’s earlier work.

My answer is that there is no possible way that sort of evolution would have occurred.

I considered those sort of issues in this blog post – Hyman Minsky was not a guiding light for MMT
(November 9, 2016).

Just before I came into contact with Warren Mosler on the PKT list, Hyman Minsky was expressing deep concern about deficits and inflation, which I document in that cited blog post.

In 1991, he was advocating what we call ‘sound finance’ the anathema to the ‘functional finance’, which underpins aspects of Modern Monetary Theory (MMT).

He says things such as:

1. “the government must validate our debt with taxes”.

2. In the context of rising government deficits in the 1980s, he claimed that “the quality of the government’s debt in international markets is deteriorating”.

3. “we lack the will to tax ourselves so that the government liabilities are fully validated by receipts”.

His public comments amounted to a rejection of basic MMT propositions.

While early in his career he was supportive of Abba Lerner’s functional finance ideas, by the time his 1986 book came out – Stabilizing an Unstable Economy – (Yale University Press), he was articulating the ‘sound finance’ principles.

This was the first book or article of Minsky’s that I had read in detail and it marked a change in his position after the election of Ronald Reagan.

At this point, he increasingly argued that government debt was at risk of becoming non-credible in the face of non-government bond investors.

His main message became that the fiscal outcome should be in balance or in surplus at full employment, which of course is not the MMT position at all.

His later work build on these non-MMT propositions, which I discuss in detail in the blog post cited.

The point is that by this time, a natural evolution of his ideas would never have yielded the insights that have become integrated in MMT.

Buffer stocks and the Job Guarantee

Further, I included that brief clarification because it actually bears on what I was going to write in this Part 7 of the series.

It is simply untrue to say that the idea of employment guarantees was first proposed by Hyman Minsky. A short research effort would disabuse anyone of that idea.

My evolution that led me to outline a Job Guarantee scheme, first, in 1978 and then later during the early discussions on the PKT List, was influenced by my research into the commodities literature on buffer stock schemes, which were common in pre-Second World War Australia and later.

It was well-understood that these schemes could provide a framework for macroeconomic stability (redress market movements that would lead to price and income instability).

And I was influenced by the work of Benjamin Graham (particularly his 1937 book ‘Storage and Stability: A Modern Ever-normal Granary’) which laid out a price stability plan based on the use of commodity buffer stocks (storage in the ‘Ever-normal Granary’), which he morphed into a derivative scheme he proposed to create a commodity reserve currency, that would reflect some weighted composite from 21 raw material stocks in the Granary.

I am skating through detail here because this is not the primary emphasis today and I could write a lot about Graham (as I did in my PhD thesis).

I had also read John Maynard Keynes’ 1938 paper – The Policy of Government Storage of Foodstuffs and Raw Materials – (published in the Economic Journal, Vol. 48, No. 191, September, pp.449-460) – link is to JSTOR which requires library access.

Keynes was impressed by Graham’s work and saw it as a way of stabilising prices amidst market fluctuations in commodity supply.

He refers to his 1937 book and Graham’s contention that government storage would be relatively low cost (see discussion in J.M. Keynes, ‘Activities 1931-1939: World Crises and Policies in Britain and America’, published in the Volume 21 The Collected Writings of John Maynard Keynes.

In his 1938 Economic Journal article, Keynes observed (p. 450):

… the fluctuations in the prices of the principal raw materials which are produced and marketed in conditions of unrestricted competition, are quite staggering …

An orderly programme of output, either of the raw materials themselves or of their manufactured products, is scarcely possible in such conditions.

He saw this problem as contributing to instabilities in export trade, which was a major issue for Britain at the time, given its export prominence.

He also saw that (pp. 451-52):

… nothing can be more inefficient than the present system by which the price is always too high or too low and there are frequent meaningless fluctuations in the plant and labour force employed.

While he considered that “measures to stabilise the aggregate of effective demand” (p.451) could be of help here, he considered a ‘storage’ approach could supplement.

He considered the government had a responsibility to facilitate this storage solution (a buffer stock manager) given that the competitive firms had no incentive to hold inventories in this way.

H.M. Treasury would fund the “warehouse costs and interest”, which he considered would be a modest expense.

He wanted to extend the scheme to the British Empire nations which provided raw materials – “sugar from the West Indies, jute from India, wool from Australia, vegetable oil products from West Africa, non-ferrous metals, and all the endless variety of Empire products which must be stored somewhere”.

I refer to the influence that Benjamin Graham had on my thinking as a student in this blog post: Modern monetary theory and inflation – Part 1 (July 7, 2010).

The point was that the principle that buffer stock mechanisms funded and administered by government could provide for market stability (volumes and prices) was well established in the commodities literature.

My departure came from an idea I had 1978 when I was studying agricultural economics at the University of Melbourne as part of my fourth-year studies.

It was a time when unemployment was rising sharply in Australia and inflation was high (as a result of the OPEC oil crises). I was trying to work out a way to advocate for continued full employment but address the issues that economists were raising about inflation.

I was also very interested in the Phillips curve literature which I saw as the major battleground for the emerging dominance of the NAIRU approach (using unemployment buffer stocks to discipline inflation) – that sort of research became my Phd research program.

So it came to be that if the government could buy and sell wool at will to correct shortfalls (or surpluses) of wool production relative to demand, which allowed it to stabilise prices and incomes, then why could it not do the same with labour.

And, for me the Job Guarantee idea was formed. Minsky was nowhere to be seen!

But I had also been reading historical literature that first introduced me to the idea of employment guarantees and the government as ’employer of last resort’.

The buffer stock approach allowed me to tie together full employment and price stability.

But that earlier literature reinforced my thinking about the centrality of government in maintaining a ‘right to work’ through employment guarantees.

So far from Hyman Minsky being the “first to propose” employment guarantees, we now head back to the early C19th. We could have gone back earlier but it is the early C19th literature that I first became acquainted with state-run employment guarantees.

The Saint Simonians

As a young student I read a lot of the literature about and by the – Saint Simonians – who were a “French political, religious and social movement of the first half of the 19th century” who followed the lead of “Claude Henri de Rouvroy, comte de Saint-Simon”.

He advocated the transformation of industrialisation so that “true equality” could be achieved by the “union of men engaged in useful work”.

He was one of the thinkers who tried to build a liberation Socialist philosophy after the French Revolution.

His early work – particularly the publications in l’Industrie (1816-18) – which was a collection of pamphlets where he and others would expound their philosophical positions on how humanity might develop from the primitive to sophisticated.

The Saint Simonians advocated socialism but were not aligned with the emerging Marxists.

Claude Henri de Rouvroy proposed that government would cease being a vehicle for class domination, and, instead use science and technology to introduce and maintain a welfare state to benefit all.

As I was working my way through the Marxist literature I was very interested in these alternative visions of socialism as a vehicle to advancing improved well-being for workers.

Louis Blanc

Louis Blanc – was a historian, a socialist influenced by the Saint Simonians, and for a short period, a French politician.

Karl Marx called him a ‘utopian socialist’

In the leadup to the – 1848 Revolution in France – Louis Blanc was among several writers who saw the 1846 harvest and financial crises as an instigation for progressive reform.

Louis Blanc became prominent in advocating the ‘right to work’ and his writing was interrupted by the February 1848 revolt, upon which he took a position in the provisional government and became Chairman of the Luxemburg Committee.

The February Revolution arose on the back of rising unemployment and poverty. Skilled workers were pushed down to material levels commensurate with the ‘proletariat’.

The so-called “Bourgeois Monarch”, Louis Philippe sat on his heels and acted in the interests of capital (particularly the bankers – the “financial aristocracy”) and largely ignored the growing plight of industrial labour.

Louis Philippe ignored the growing protest movement and because the poor did not enjoy political franchise, a revolt was inevitable.

The Revolution established the “droit du travail” (‘right to work’) as an operative principle binding government initiatives.

This article – Employment and the Revolution of 1848 in France – provides useful historical narrative and facts.

On February 25, 1848, Louis Blanc proposed a motion to the French government:

… to guarantee the existence of the workmen by work …

The provisional government rejected the motion saying it was outside its provisional jurisdiction.

Instead, Louis Blanc was appointed on February 28, 1848 to oversee a new body – Commission du Gouvernement pour les travailleurs (Government Labour Commission)- which operated out of the Palace of Luxembourg.

In a way, we are completing a circle here to – Part 1 – of this series, given that it was Louis Blanc who entered the phrase:

De chacun selon ses facultés, à chacun selon ses besoins

That is, “from each according to his ability, to each according to his needs”.

Louis Blanc believed this could be accomplished through strictly enforced labour regulations (safety etc), nationalisation of key industries, and the creation of a cooperative system of “social workshops”, which would be worker controlled in relation to the trade union movement.

His eventual socialist goal was “the eventual wholesale elimination of private capitalism and the market wage system, and its substitution by a “universal association” geared towards the needs of workers.” (Source).

The Commission set about fulfilling their agenda to create the ‘ateliers nationaux’ (national workshops) for all the existing trades, which would provide guarantee work for the unemployed.

There was considerable disputation however over topics such as whether the low-skilled were receiving favours that were not forthcoming for the higher skilled workers.

In terms of documenting the historical record of the evolution of the ‘right to work’ and employment guarantee ideas, no better person to be consulted is Dr Victor Quirk who wrote a masterly PhD thesis under my supervision on the topic.

He goes back to the 1351.

He wrote a guest blog here which is relevant – Advocating full employment (November 24, 2010).

He also provided some excellent analysis on the fortunes of these national workshops.

Given the necessity to organise the jobs quickly, the workshops struggled to come up to scale.

On March 15, 1848, 14,000 workers were employed in Paris. By June 15, 1848, this number had risen to 117,310.

But there were always more workers desiring jobs than the capacity could create which resulted in conflict.

Victor Quirk writes:

The chaotic nature of the scheme was partially the consequence of the tensions within the cabinet on the question of the elimination of unemployment.

Louis Blanc was largely sidelined in the management of the scheme once the fear of on-going revolts subsided.

In effect, the conservative forces did not support this utopian scheme. Ultimately, the National Assembly exploited the chaos within Louis Blanc’s workshop system to withdraw it.

If you want chapter and verse on this scheme then I urge you to consult Victor’s thesis.

Having failed, Louis Blanc migrated to England in August 1848 and was considered a “a leader of petty-bourgeois émigrés in London” (see Karl Marx and Frederick Engels, Selected Correspondence (Progress Publishers, Moscow, 1975)).

The point here is that his proposal was a coherent early example of the ‘right to work’ and for the government to act as an ’employer of last resort’.

When I read this literature as a student in the late 1970s and early 1980s, I was convinced that the government had to act in this way and that the later literature on the buffer stock mechanisms, provided me an understanding of the architecture and machinery in which this sort of capacity could be exercised to maintain price stability.

I saw the melding of these literatures (the ‘right to work’ socialists and the buffer stock approach) to be a way to overcome the Phillips curve dilemma of having to endure high unemployment to maintain price stability.

And Minsky was nowhere to be seen.

It is false to assert he was the first to introduce the notion of employer of last resort.

The US Second Bill of Rights 1944

The – Second Bill of Rights – was proposed by the then US President Roosevelt on January 11, 1944 as part of his – Eleventh State of the Union Address.

In it, he articulated that a key feature of the Bill would be a ‘right to work’ among other rights that are visibly absent from American life today. The ‘right to work’ meant, in those days, that the government was responsible to ensure that everyone who wanted to work had a job (that is, an employment guarantee).

In this neoliberal era, the term has become used in the context of right-wing “right-to-work laws” that attack trade unions an push power towards employers.

Unfortunately, Roosevelt’s bill never made it to the US Congress and he died before the Second World War was terminated. Subsequent efforts to revive it were always blocked by the conservative political forces.

But, clearly, the tradition of employment guarantees went back long before Hyman Minsky was writing about it (though briefly).

Conclusion

In Part 8 I will deal with the issue of coercion.

That is enough for today!

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

Tracing the roots of progressive views on the duty to work – Part 6

Published by Anonymous (not verified) on Tue, 29/09/2020 - 5:50pm in

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job guarantee

This is Part 6 of my on-going examination of the concept of ‘duty to work’ and how it was associated with the related idea of a ‘right to work’. Neoliberalism has broken the nexus between the ‘right to work’ responsibilities that the state assumed in the social democratic period and the ‘duty to work’ responsibilities that are imposed on workers in return for income support. That break abandons the binding reciprocity that enriched our societies and has spawned a solid argument for a basic income. But the solution to the problem is to reinstate the link between opportunity to work and the societal benefits of work, especially as it enhances the material well-being of the least advantaged. In this part, I explore that theme.

The earlier parts in this series are:

1. Tracing the roots of progressive views on the duty to work – Part 1 (August 4, 2020).

2. Tracing the roots of progressive views on the duty to work – Part 2 (August 11, 2020).

3. Tracing the roots of progressive views on the duty to work – Part 3 (August 20, 2020).

4. Tracing the roots of progressive views on the duty to work – Part 4 (September 1, 2020).

5. Tracing the roots of progressive views on the duty to work – Part 5 (September 8, 2020).

In Part 5, I introduced the concepts of justice developed by John Rawls in relation to work.

His work has a broad remit and I am only focusing here on what he said about full employment and work, although I provided a basic introduction to the development of his idea of justice.

We also learned that John Rawls had a complex view of work.

On the one hand, he tied it in with the production of ‘primary goods’ – the act of transforming nature in order to survive and achieve higher material standards of living.

But in his conception of justice, work goes beyond that narrow aspiration, and, includes the advancement of “self-respect”, which necessitates a much broader conception of work.

Meagre redistribution of income, according to Rawls does not provide for ‘self-respect’ because it does not “put all citizens in a position to manage their own affairs on a footing of a suitable degreee of social and economic equality”.

Those who just take when they can also give are considered operating outside of societal norms.

John Rawls clearly considered the opportunity to work to be a crucial path to achieving self-respect, and, in that respect he advocated that government should maintain a Job Guarantee (employer of last resort – in his terms) as a pre-condition for social stability.

This is because the lack of work was in his words “destructive .. of citizen’s self respect”.

So when the ‘market’ doesn’t produce enough jobs, the state must fill the gap.

Self-respect requires a mutuality, which in his 1971 book said depended on us:

… finding our person and deeds appreciated and confirmed by others who are likewise esteemed and their association enjoyed.

This can be taken to mean that an emphasis on what each person does for work might obscure the social aspects of work – that is, the contribution of each individual to society, which is how we measure that mutuality.

Thus we encounter in John Rawls a notion of citizenship and reciprocity.

He wrote in his 1980 article ‘Kantian constructivism in moral theory’, which was published in the Journal of Philosphy (Vol. 77) (p.546) that citizens are:

… fully cooperating members of society over the course of a complete life.

This cooperation involves the sharing of the returns to being a member of society but also the burdens (see the 1994 article by Elizabeth Anderson, ‘Welfare, Work Requirements and Dependent-Care in the Journal of Applied Philosophy (Vol 21, No.3)).

Elizabeth Anderson writes (p.245):

Rawls’ scheme allows income inequalities if they provide incentives that maximize the prospects of the least advantaged. If these prospects were unconditionally guaranteed, a substantial portion of the population would not work. This would depress total production, and thereby reduce the size of the social minimum. Work requirements, by enlisting all in production, would arguably maximize the social minimum.

It, of course becomes a rather sensitive issue how we construct ‘work requirements’ in moral debates within society.

We can cast ‘non-work’ in a stigmatising way, which does not enhance the concept of reciprocity or self-respect. Alternatively, we can think of ‘work requirements’ as being a social act to maximise the resources available to enhance the lives of the poorest – the ‘social maximum’.

The conservatives tend to emphasise the moral failing argument while collectivists emphasise the contribution to the greater good motivation. They are quite different in meaning and impact.

This difference is especially important when considering what the state’s responsibilities are in this.

If the state is deliberately maintaining policies that ensure individuals are not able to gain access to work or the hours of work they desire and then impose work requirements in return for the welfare payments (‘work for the dole’, ‘workfare’) then that is an entirely different moral canvas to one where the state takes responsibilities to ensure everyone who can is able to work so as to maximise the potential of its citizens to promote material well-being for all.

A Job Guarantee wage payment is not welfare!

It is a job offer with a socially-inclusive array of wages and non-wage entitlements (holiday and sick pay, special leave payments, training, superannuation, choice of hours, etc) within an environment of other broader social wage universality (free health care, public transport, child care, etc).

One might argue that requiring the most disadvantaged workers to work as long as there is a reasonable job offer from the state places too much emphasis on activities that elicit a wage payment to define a contribution to society.

It is often pointed out that mothers who decide to stay at home to rear their young children are making a valuable contribution to society, which means that not all contributions can be measured in terms of paid work.

That is clearly true and in a progressive society such mothers would be funded properly for their work in recognition of its value.

And what about the idle rich? What do they do by way of reciprocity? Not much.

Which is one of the reasons that steeply progressive tax systems are required. I emphasise that the tax revenue gained has nothing to do with funding government (standard disclaimer).

Returning to the self-respect argument, John Rawls criticised what he termed Welfare-State Capitalism (WSC) for adopting an excessively narrow conception of a social minimum, the latter being an integral aspect of his concept of justice.

He wrote in his 1985 book – Justice as Fairness – that the (p.59)

social bases of self-respect … [are] … those aspects of basic institutions normally essential if citizen are to have a lively sense of their worth as persons and to be able to advance their ends with self-confidence.

Samuel Freeman’s 2007 book Justice and the Social Contract (Oxford University Press) also discusses this point at length.

The point is that in designing the jobs that are guaranteed the state has a choice.

It can limit its imagination and require workers to dig holes and fill them in again, which will accomplish the goal of having workers do something in a day but achieve little else. It will certainly not engender the broader goals of advancing self-respect.

Alternatively, it can ensure all the jobs add social value and be visibily demonstrated to do so. Then workers will enjoy self-respect from being engaged in these activities.

Which is where the Job Guarantee can play a major role in pushing out the boundaries of what we call productive work.

Notice I used the term ‘social’ value. In my own research work, we have found almost unlimited activities that require human effort which would enhance unmet social needs, community well-being, environmental care etc but which no profit-seeking employer will offer any wage for.

There is huge scope for the state to expand these activities within a paid-work environment to increase well-being and enhance the self-worth of workers.

Michael Festl (in the journal Analyse & Kritik, Vol 1 2013, pp.141-162) distinguishes between two perspectives of work in relation to how we view the conceptualisation of work in the writing of John Rawls – instrumentalism and sentimentalism.

The former relates to work as “providing the necessary means for a good life” and is “a necessary evil until technology is sophisticated enough to provide the resources needed for fullfilling each individual’s conception of the good life without the help of labour” (p.143).

The latter considers work more broadly to be “a vital part in the building of … character and identity” and therefore provides the opportunity to pursue a “good life”.

Again, in this second conception, work needs to be meaningful – adding social value. Self-respect requires that richness.

Self-respect, according to John Rawls is “perhaps the most important primary good” (1971: p.386):

Without it nothing may seem worth doing, or if some things have value for us, we lack the will to strive for them. All desire and activity becomes empty and vain, and we sink into apathy and cynicism.

Now it can be argued that one doesn’t need to work to gain self-respect, which is true.

John Rawls talks about “communities and associations” (1971, p.387):

For while it is true that unless our endeavors are appreciated by our associates it is impossible for us to maintain the conviction that they are worthwhile, it is also true that others tend to value them only if what we do elicits their admiration or gives them pleasure …

It normally suffices that for each person there is some association (one or more) to which he belongs and within which the activities that are rational for him are publicly affirmed by others. In this way we acquire a sense that what we do in everyday life is worthwhile …

To be sure, men have varying capacities and abilities, and what seems interesting and challenging to some will not seem so to others. Yet in a well-ordered society anyway, there are a variety of communities and associations, and the members of each have their own ideals appropriately matched to their aspirations and talents.

We know that for those of working age and who are not infirmed, a dominant association or community is the work place.

As Micheal Festl writes (p.144):

… for a majority of citizens … the workplace is the place where they spend most of their time awake, it is of vital importance that they get respect for what they do at work …

So while John Rawls clearly considered work in instrumental terms and argued that government should use its policy capacity to maintain full employment (where “those wo want to work can find it” (1971: p.244)), he went beyond that to construct work as an essential element in providing the opportunity for individuals to attain self-respect.

It is also not the case, that John Rawls focused only on how society might view an individual’s work – in the sense that we have indicated that self-respect can come from a worker observing that their contribution is viewed warmly by others.

Michael Festl (p.150) also noted that:

Individuals are supposed to be aware that it is a reasonable demand that they contribute to society’s overall well-being and are not only fixed on their personal well-being.

In his 2001 book – Justice as Fairness: A Restatement, John Rawls wrote that (p.179):

In elaborating justice as fairness we assume that all citizens are normal and fully cooperating members of society over a complete life. We do this because for us the question of the fair terms of cooperation between citizens so regarded is fundamental and to be examined first. Now this assumption implies that all are willing to work and to do their part in sharing the burdens of social life, provided of course the terms of cooperation are seen as fair.

He wrote this in relation to the counter-argument, expressed by UBI advocates, who considered it fair that the surfers of Malibu should be able to receive income support without working.

Samuel Freeman clarified this position in this way (2007: p.229):

… does not regard it as appropriate to provide people with full ‘welfare’ payments if they are able but unwilling to work. By providing a social minimum for all whether they work or not, the welfare state can encourage dependency among the worst-off, and a feeling of being left out of society.

John Rawls considered this issue in relation to his ‘difference principle’ (see Part 5) and asked whether it was true that the “least advantaged” are “those who live on welfare and surf all day off Malibu”.

His response was to argue that “a certain amount of leisure” must be included in the index of primary goods so that “those who do no work have eight extra hours a day of leisure and we count those eight extra hours as equivalent to the index of the least advantaged who do work a standard day.”

The conclusion for a just society:

Surfers must somehow support themselves.

In this context, if we consider leisure to be among the primary goods, then:

… society must make sure that opportunities for fruitful work are generally available.

So the two aspects are essential – to demonstrate a willingness to contribute to society through work there also has to be the opportunity to work.

To take this further and to understand why John Rawls was opposed to basic income we need to extend his reasoning about the “social union of social unions”, which will help us understand the idea that work and community awareness are interrelated and take us well beyond the idea that we are individuals seeking to maximise our own well-being.

In turn, this will help us understand how we construct societal justice and why most workers are opposed to the idea that a person who can work should be supported by all others when they refuse to contribute in this way.

In other words, we now have a third reason for considering work is important in a just society that takes us beyond the need to transform nature to survive and a vehicle to attain self-respect.

Conclusion

In Part 7, we will explore why we should assume that through work that willingness is manifest and perhaps some other issues that arise.

That is enough for today!

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

Time to worry less (or better not at all) about the national debt and challenge the government’s economic record instead.

£1 coin and £10 Bank of England banknoteImage by bluebudgie from pixabay

The old world is dying, and the new world struggles to be born; now is the time of monsters.

Antonio Gramsci

In the week that the Chancellor Rishi Sunak announced his latest Job Support Scheme, everywhere you look the TV journalists and other media pundits are bewailing the rising cost in terms of “borrowing” and government debt. TV presenters can’t help themselves. ‘We’ll be paying for it for years to come’, is the on-going mantra being drummed into the public consciousness, just in case we forget. It was even suggested on this week’s BBC’s Money Box programme that it would take 3000 years to repay the national debt! An astounding calculation made on the basis of current borrowing levels and the annual tax take. However, given that a sovereign currency-issuing government like the UK’s doesn’t even have to borrow to spend, it’s just another example of household budget accounting.

Whilst those of us with a better understanding of how money works shout at the TV with incredulity that the same falsities are being repeated endlessly, many of those same journalists and presenters fail to make the very real connections between government spending, the state of the economy and the lives of its citizens.

Whilst the implication of unaffordability and a future tax burden prevails as a reason to curtail spending eventually, the real price has been and remains a human one; economic instability and uncertainty for people and the prospect of more damage to the environment. We can’t afford to improve people’s lives or even save the planet! Apparently.

Whilst we read endless articles reporting on the declining state of our public services and local government, the injustice of a social security system which is failing too many people the elephant in the room largely goes unacknowledged; the role that government plays in the welfare of its citizens through its spending decisions. While we see huge sums of money being poured into private profit, our public and social infrastructure is in a state of decay. Their choice is clear.

At the same time, the left-wing social media pages continue to shoot themselves in the foot by posting articles and memes with language designed to increase the public’s fear of too much spending and its consequences on future generations; ‘UK national debt soars to record levels as Covid pushes up borrowing’ is one such posted this week.

Whilst such pages are clearly and quite rightly aimed at holding the government to account for their abysmal management of the economy and its consequences for some of the poorest people in our communities, they do so within the context of a household budget narrative. Such a narrative will, without doubt, constrain a future progressive government, not liberate it!

Instead of focusing on deficits as if they were a measure of good or bad stewardship of the public finances, we might better and more correctly point out the government’s economic record. How did it respond to the on-going crisis and the economic fallout? Had it, through its spending policies, ensured a well-functioning public infrastructure able to rise to the current challenges? Did it spend sufficiently to secure the financial stability of its citizens during this uncertain time? Or not?

In an unstable and uncertain environment, the job of the Chancellor is to mitigate those losses with sound policies and sufficient spending to keep the economic boat afloat as long as is necessary, whilst also ploughing additional investment into the public and social infrastructure to support the economy. Instead, government spending policies over the last 10 years have left the country’s infrastructure in a perilous state and unable to respond effectively. The price in human lives, poverty and rising wealth inequality is to be added to the devastating effects of the pandemic.

And yet, still in mainstream reporting, it’s as if people’s lives matter less than digits on a computer. And all this despite the growing understanding of the sovereign powers of a currency-issuing government. Whilst politicians, think tanks and journalists still have their heads firmly stuck in the sand like ostriches, people are led to believe that there will be no alternative to a future reckoning if the country is not to be bankrupted or future generations of taxpayers burdened with huge debt.

The role of the media and indeed the political opposition, if we did but know it, is to challenge government. Not to uphold and reinforce its power. Their role is to make the government accountable for its political and spending decisions and to bring to public notice when it abuses its sovereign powers in favour of other estates. Its job is to ask questions. Instead, whilst they approve of government intervention at this serious time they still prefer to talk about the state of the public accounts, rising public debt and the consequences for future generations. Thus, they continue to reinforce the myths about how sovereign governments really spend. The neoliberal economic orthodoxy rules.

The Chancellor’s plans sit very much within the neoliberal economic orthodoxy, despite the vast sums of essential government spending to prop up the economy and secure people’s financial security. He has already let it be known that he is considering a freeze of benefits and public sector pay and abandoning the pension ‘triple lock’. It will no doubt be presented as a necessity to get public spending under control and pay back the vast sums of money it has supposedly ‘borrowed’.

However, the truth is that it will be more to do with the government’s long term aim which had its origins in the actions of successive governments since Thatcher to transfer public provision to the private sector whilst ensuring the state’s role as a cash cow to the corporate sector.

Whilst Sunak’s increased spending was and remains vital, there has been valid criticism of his plans both early on and now with the proposed job support scheme which was referred to more correctly as an ‘unemployment creation scheme’ by the tax campaigner Richard Murphy. Sunak has failed on all levels and the promised V-shaped recovery is looking less and less likely.

Apart from being a short-term solution to a problem which is likely to persist for some time, it will require employers to share the cost of paying wages with damaging consequences. This will, without doubt, provide a significant motivation to make staff redundant, not preserve jobs. It fails to support those working in the hospitality industry whose businesses have been put on hold due to Covid-19 restrictions and furthermore the 3 million self-employed often working in creative industries have also once again lost out and will not benefit from these new measures. Far from being the party of the entrepreneur (unless of course, you happen to be rich one like Dyson and likely to contribute to your party funds), Sunak has shown complete disregard for the army of self-employed and small business entrepreneurs who make valuable contributions to the economy.

As the furlough scheme draws to a close, many thousands of people have already lost their employment and found themselves on Universal Credit. And yet many, despite the increased benefits now being paid, find themselves with insufficient income to manage their finances. Many hundreds of thousands will be added to that number over the next few months as the prospect of further restrictions resulting from the coming second wave of Coronavirus and the government’s inadequate plans.

The Resolution Foundation has suggested that it will be a significant mistake to end the £20 a week boost to tax credits and Universal Credit now being proposed by the Chancellor, the cut to come into effect next April. This the Resolution Foundation suggests rightly would clearly affect income and spending.

It has said that the rise in unemployment, combined with planned benefit cuts, means a ‘grim outlook for living-standards’. It has also noted that ‘The £20 a week boost can be seen as a reflection of the fact that out-of-work support was not adequate when we entered the crisis and – without the boost – certainly won’t be adequate in future. […] Ending the boost would mean withdrawing perhaps £8 billion from disposable incomes in 2021-22, precisely from those groups and places that need it most to support spending and the economic recovery in 2021-22.’ Removing that boost will have a huge negative impact on disposable incomes.

And here we come to the crux of the matter and one which the Chancellor cannot ignore. And that is, quite simply, that one person’s spending is another’s income. Rises in unemployment and proposals for public sector wage caps will drive the economy even further down the slippery slope.

On the one hand, Sunak says, ‘we must learn to live without fear’ and then counters that by saying ‘I cannot save every business. I cannot save every job’.

Whilst he implies he has no power to do otherwise and that people will have to bear the burden, he fails to mention that the government is in control. That it alone has the means, as a sovereign currency issuer, to mitigate the worst effects on the economy of the pandemic and indeed has the ability to use it to address the next great survival challenge bearing down on us like a tsunami – that of climate change (which seems strangely to have been put on the back burner).

The government, by dint of being the sovereign currency issuer, can spend what it needs to, within the limitations of real resources. It could rebuild a publicly-provided and paid-for infrastructure, both locally and nationally, thus providing more socially useful jobs paid at a living wage and could implement a permanent Job Guarantee to act as the economic stabilising mechanism to see us through this difficult time and most importantly to ensure a just transition towards an environmentally sustainable economy.

With such serious issues at stake, we must challenge the notion that the government cannot afford to deal with mass unemployment, poverty or climate change. We must challenge the notion that the government has to impose higher taxes or debt on the nation which limit what can be achieved to improve people’s lives.

Quite simply, the idea that there aren’t sufficient numeric digits available to make a better world is a fraud of the highest order. The future depends on our understanding it and challenging those that tout those lies either wilfully or unknowingly.

 

Further Reading:

National Debt https://gimms.org.uk/faq/what-is-the-national-debt/

Government Borrowing https://gimms.org.uk/faq/doesnt-the-government-have-to-borrow-when-it-spends-more-than-it-taxes/

The Job Guarantee https://gimms.org.uk/job-guarantee/

 

 

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How would Job Guarantee wages be set?

Published by Anonymous (not verified) on Wed, 16/09/2020 - 4:36pm in

It is Wednesday so some snippets and some music – sad music this week because it signals the death of one of the great pioneers of Jamaican music last week. I am holding a Mini-Music Festival today – right here on my blog. Join in an celebrate a legend. But a few economics matters first pertaining to the Job Guarantee and the nonsensical arguments I have been seeing in the media about it being a system of enslavement and not better than a system that forces workers into unemployment.

Job Guarantee wage setting in Australian context

I get sent various screenshots from Facebook and other social media debates about my work. I don’t solicit them nor particularly welcome them.

I have formed the view that much of the ‘conversation’ on Facebook is not helpful to advancing an education in Modern Monetary Theory (MMT).

As an example, last week, apparently there was a debate on Facebook about how Job Guarantee wages would be set.

It follows some stupid Op Ed (the Ed bit being missing) articles claiming that the Job Guarantee would be oppressive and not allow workers to bargain for their wages because the government would just dictate the levels.

The debate I saw parts of then launched into this topic reaching all sorts of conclusions that were spurious and venturing that the MMT originators really hadn’t thought any of this out etc. Ad nauseum.

We have written about this in the past and a moment’s research would have solved the question in the first place.

In Australia, we have a judicial process, independent (largely) of government, where wages are set.

There is some collective bargaining and the conservatives tried to increase the incidence of individual bargaining (because they knew workers would be screwed given the power imbalance).

Further, trade union membership in Australia has sharply declined since the 1990s.

The Australian Bureau of Statistics reported that in August 2016:

16% of full-time workers and 12% of part-time workers were trade union members.

Between 1976 and 2016, the number of trade union members decline from 2.5 million to 1.5 million, and given the labour force growth over that period, the density rates fell from 51 per cent to 14 per cent (Source).

This graph is taken from that cited article provided by the Parliamentary Library of Australia (October 15, 2018) – Trends in union membership in Australia and tells the story.

So the idea that most Australian workers are represented by a union which then achieves wage outcomes for them is far fetched.

The reality is that the Fair Work Commission and its predecessor Conciliation and Arbitration Tribunals set the minimum wage and the award wages that flow from that setting.

The – National Minimum Wage Orders – are set annually via a judicial process.

The decisions of the Fair Work Commission cover all workers who are part of the Australian national workplace relations system. Some workers are covered by the state workplace relations systems, which work in a similar fashion to set specific wage levels.

Organisations like the Australian Chamber of Commerce and Industry, the Australian Industry Group, the Australian Council of Social Service, the Australian Council of Trade Unions, the Australian Government, and State and Territory Governments – all make submissions to the process and can argue their cases at hearings.

I have been involved in these processes regularly on behalf of the unions.

The so-called Minimum Wage Order is then applied to minimum award wages across the plethora of award wage agreements that are set in the Commission.

Only workers who have achieved an enterprise bargain that has not fallen below the relevant judicial award are not covered by the decisions of the Commission.

Approximately 2.2 million workers are paid the minimum wage or get adjustments in line with the minimum wage decisions from the Commission. Total employment in July 2020 was 12.5 million.

So the Job Guarantee wage would not be a government dictate and workers through their relevant representatives would have the ability to influence the decisions of the Commission, just like a significant number of workers in Australia.

The idea that these other workers enjoy the capacity to set their own wages and Job Guarantee workers would not enjoy that capacity is ludicrous once you understand how wages are set in Australia.

Further, while the Job Guarantee wage would represent the minimum wage in Australia if such a program was introduced, I always emphasise that it would be a socially-inclusive minimum, which would be much higher than the current federal minimum today.

That would mean changing the legislation that binds and guides the Fair Work Commission in its deliberations.

1. The Commission would have to determine an annual productivity bonus (as it did under a different guise before neoliberalism) that would be passed onto all workers, including Job Guarantee workers.

This would allow the low-paid, who have limited power to complete enterprise bargaining agreements and who work in small workplaces that may not be capital intensive (hence high productivity) to enjoy real wage gains in line with the overall capacity of the economy.

That is an equity measure.

2. In determining what ‘socially-inclusive’ meant the considerations would move beyond simple ‘capacity to pay’ arguments from employers, and, instead, take into account factors that allow a person to be ‘included’ in society – housing costs, entertainment and dining out costs, transport costs, holiday costs, etc.

Forcing those considerations would take us away from the narrow private profit considerations that dominate current wage setting and ensure that the minimum wage allowed a worker the opportunity to participate meaningfully in society.

This type of wage setting system is nothing at all like what the critics, who want to cast the Job Guarantee as workfare, have claimed we advocate.

This wage setting would be more progressive and fair than anything we have seen in the past.

The Job Guarantee is not much different to the NAIRU

Among the more absurd claims I have seen recently is that the Job Guarantee is basically workfare. I dealt with that nonsense in this blog post – Setting things straight about the Job Guarantee (July 30, 2020).

Then, last week, a ‘senior economist’ from a centre that proffers itself as a progressive voice in the Australian policy context, claimed on Twitter that the Job Guarantee was “not a real departure from NAIRU”.

An astounding claim when you think about.

I wrote to the Director of that Centre and asked him:

Are we to conclude that the position of your Centre … considers that a guaranteed job at a socially-inclusive minimum wage (well above the current minimum wage in Australia), that provides holiday pay, sick pay, special leave, statutory employer contributions to superannuation, choice of hours of work, opportunities to undertake training and formal education within the paid-work environment, and can be held indefinitely if desired, is “not a real departure” from rendering a person unemployed and forced to undertake pernicious work tests in return for a below-poverty line income support payment?

I received a reply indicating that the Director was not concerned with the Twitter claim. Thus answering my question by implication.

Go figure!

The other part of the Twitter claim was that with a Job Guarantee, “higher wage workers are laid off to enter low-wage JG”.

I pointed out to the Director that this claim defies empirical logic.

Even when official unemployment is high, higher wage workers rarely have to endure job loss.

Unemployment is typically overwhelmingly endured by low-paid, precarious workers.

And when higher-wage workers do lose their jobs they typically are able to draw on redundancy payouts, which allow them to enter ‘wait unemployment’ and see out the crisis.

The following graph illustrates what happens to unemployment rates over the economic cycle.

The data is for Australia from 1989 to 2019 (OECD database) and the rates by level of educational attainment: Below upper secondary school, Upper secondary school, and tertiary education.

These levels are matched fairly closely with pay levels.

Even during the 1991 recession, the worst downturn since the Great Depression (to that date) the tertiary educated workers (who would form the higher paying workers) only saw their unemployment rate rise to 5.7 percent and drop quickly after that.

By contrast, the least educated (and paid) saw their unemployment rates rise well above 11 per cent and hover at those elevated rates for some years.

Would the low paid workers have preferred a Job Guarantee to that situation? Almost assuredly.

Would the highly paid workers have been forced into the Job Guarantee? Most had redundancy payments and other resources.

I am finding a lot of statements about the Job Guarantee to be really ill informed and bizarre.

Music – We say goodbye to Frederick Nathaniel “Toots” Hibbert

Frederick Nathaniel “Toots” Hibbert – was a Jamaican singer and songwriter who died at the age of 77 in Kingston last week (September 11, 2020) from COVID-19 complications.

His band – Toots and the Maytals – were giants in the reggae scene and one of my favourite bands.

His early recording (1968) – Do the Reggay – coined the name for the music, which followed a mighty lineage from Blue Beat, Ska, Rock Steady, then Reggae music.

‘The Reggay’ was a dance fad in the Kingston music clubs.

Toots was described as being “the nearest thing to Otis Redding left on the planet!”

Among other achievements:

In 2010, Hibbert ranked #71 in Rolling Stone magazine’s “100 Greatest Singers of All Time”

I loved listening to his singing and learned a lot from his guitar players, who had such an unmistakable groove.

Here is a documentary about Toots, which is worth the time spent watching.

Very sad to see him leave us.

So let’s have a Toots and the Maytals Mini-Festival today. There are so many magic numbers – here is a selection.

Pomps and Pride from Funky Kingston, 1972

Time Tough from In the Dark, 1973

Love Is Gonna Let Me Down from Funky Kingston, 1972

Funky Kingston from Funky Kingston, 1972

Pressure Drop from 1969 single and Monkey Man album, 1970

My Melbourne band was named after this song.

That is enough for today!

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

Tracing the roots of progressive views on the duty to work – Part 5

Published by Anonymous (not verified) on Tue, 08/09/2020 - 5:32pm in

This is Part 5 of my on-going examination of the concept of ‘duty to work’ and how it was associated with the related idea of a ‘right to work’. In Part 4, I demonstrated that the dual concepts were long-standing ideas and the emergence of neoliberalism distorted their meaning by, one, abandoning the commitment by governments to facilitating the right to work, and, two, perverting the meaning of duty to work. Neoliberalism thus has broken the nexus between the ‘right to work’ responsibilities that the state assumed in the social democratic period and the ‘duty to work’ responsibilities that are imposed on workers in return for income support. That break abandons the binding reciprocity that enriched our societies. In this part, I examine the way in which full employment and work has been treated within the justice literature to extend the notion of reciprocity that we discussed in Part 4. In Part 5 I will consider how this bears on discussions about basic income and coercion.

The earlier parts in this series are:

1. Tracing the roots of progressive views on the duty to work – Part 1 (August 4, 2020).

2. Tracing the roots of progressive views on the duty to work – Part 2 (August 11, 2020).

3. Tracing the roots of progressive views on the duty to work – Part 3 (August 20, 2020).

4. Tracing the roots of progressive views on the duty to work – Part 4 (September 1, 2020).

Work and Justice

Part of our thinking on this topic is guided either explicitly or implicitly by concepts of justice, which have occupied philosophers since day 1 (see Aristotle’s Nicomachean Ethics).

The idea that reciprocation requires some action from an individual in return for, say, income support, is dealt with in an extensive literature on political coercion and socioeconomic justice.

The question is should an individual be required to accept obligations driven by some idea of societal norm when they have no choice but to comply and when alternative, non-coercive arrangements can be made available.

This is clearly apposite to the duty to work debate.

In the modern era, John Rawls is a central figure since he published his 1971 book – A Theory of Justice.

Applying his notions of justice to government policy approaches to the labour market in the neoliberal era leads to the conclusion that there is a lack of justice.

His idea of a just society was entertained very early in his 1971 book (p.3):

Justice is the first virtue of social institutions, as truth is of systems of thought. A theory however elegant and economical must be rejected or revised if it is untrue; likewise laws and institutions no matter how efficient and well-arranged must be reformed or abolished if they are unjust.

I won’t go into a detailed outline of his approach to justice although I urge those who are unfamiliar with them to familiarise yourself because they are central to many public policy debates in the current day.

I only want to focus on his views on full employment and work.

For John Rawls, a just society is one that is “not only designed to advance the good of its members” but is “also effectively regulated by a public conception of justice.”

He thus writes (p.4):

… it is a society in which (1) everyone accepts and knows that the others accept the same principles of justice, and (2) the basic social institutions generally satisfy and are generally known to satisfy these principles.

So, pure self-interest is tempered here by a generalised “desire for justice” which “limits the pursuit of other ends”.

His thought experiment in outlining what he considered to be a just society required us to imagine a society that we would be willing to become part of at random – that is, without any knowledge of our own ascriptive characteristics (gender, race, inherited wealth, abilities, etc) and without any knowledge of where we would fit into this society’s social hierarchy.

So must design a society in which we might end up being at the bottom of the social ordering.

The idea was that to really think about justice and fairness, one had to assume an “original position” (a ‘veil of ignorance’)- which requires us to ignore who we are and assume we could be anybody.

This exercise eliminates selecting just society principles that reinforce our own interests, and, rather, focus on the design features that might be desirable, if, for example, we were among the most disadvantaged citizens.

The ensuing concept of fairness will thus emerge and logic tells us that it would replicate the sort of society that progressive thinkers would aspire to.

He developed his two principles of justice from this thought experiment.

(1) “First principle: each person is to have an equal right to the most extensive basic liberty compatible with a similar liberty for all”

(2) “Second principle: Social and economic inequalities are to be arranged so that they are both (a) To the greatest benefit of the least advantaged (the difference principle) (b) Attached to offices and positions open to all under conditions of fair equality of opportunity”.

The second principle is about economic institutions and the distribution of income and wealth but not the distributions of goods and services to specific persons.

He thought inequality was inevitable but should be limited to situations where it made the least fortunate better off. After that point, it should be eliminated through distributive policies.

And he considered that inequalities were justifiable as long as there was equality of opportunity.

This becomes important in our consideration of reciprocal responsibilities.

In determining the practicalities of the ‘difference principle’, John Rawls defined the least fortunate as those lacking what he termed “primary goods”, which are what rational people “want” (1971, p.93):

While persons in the original position do not know their conception of the good life, they do know that they prefer more rather than less primary goods

He outlined a list of potential primary goods, among those relating to the ‘difference principle’ were:

1. “powers and prerogatives of offices and positions of responsibility, particularly those in the main political and economic institutions”

2. “income and wealth”

3. “the social basis of self-respect”

Advancing justice was an exercising in improving the primary goods access to the least advantaged in society.

John Rawls didn’t say much about full employment specifically although his ‘second principle of justice’ becomes relevant.

Clearly, operating from the ‘original position’, it is likely that poeple would specify a society that maintained full employment would be essential.

Humans transform nature to survive through work.

Having access to work becomes essential once we transcend hunter and gathering type activities.

The ‘veil of ignorance’ exercise would thus lead to the ‘right to work’ principle being enshrined in law because then even the most disadvantaged person (which might end up being any one of us in the exercise) would be able to survive.

John Rawls had a complex view of work.

On the one hand, he tied it in with the production of ‘primary goods’ – the act of transforming nature in order to survive and achieve higher material standards of living.

But government becomes important in that process because of the distributive justice principle – the ‘difference principle’ – policy settings should be such that they enhance the aims of the second principle

But in his conception of justice, work goes beyond that narrow aspiration, and, includes the advancement of “self-respect”, which necessitates a much broader conception of work.

He wrote (1971, p.386) that “without … self-respect”:

… nothing may seem worth doing, or if some things have value for us, we lack the will to strive for them. All desire and activity becomes empty and vain, and we sink into apathy and cynicism …

A “well-ordered society” places work as a central part of “communities and associations” which provides the path to “self-respect” (1971, p.387):

It normally suffices that for each person there is some association (one or more) to which he belongs and within which the activities that are rational for him are publicly affirmed by others. In this way, we acquire a sense that what we do in everyday life is worthwhile.

Meagre redistribution of income, according to Rawls does not provide for ‘self-respect’ because it does not “put all citizens in a position to manage their own affairs on a footing of a suitable degreee of social and economic equality”.

Those who just take when they can also give are considered operating outside of societal norms.

John Rawls clearly considered the opportunity to work to be a crucial path to achieving self-respect.

He wrote (1971, p. 244) that one of the responsibilities of government is:

… to bring about reasonably full employment in the sense that those who want work can find it and the free choice of occupation and the deployment of finance are supported by strong effective demand.

So it is not just a responsibility to ensure everyone has sufficient income without concern for the way in which that income is gained.

For John Rawls, the attainment of ‘self-respect’, an essential element of a just society, must include the opportunity to work.

First, increasing employment increases the availability of social primary goods which, if accompanied by other redistributive policies, will increase the share of the least advantaged – thereby satisfying the difference principle.

If the educated middle-class, for example, choose not to work, they are reducing the available goods in the society, while still drawing on the efforts of others.

Rawls would consider that violates the difference principle.

However, we can go further than this.

If the policy settings are such that people are denied the opportunity to work, then the opportunity to attain “offices and positions open to all under conditions of fair equality of opportunity” is also denied, which reduces life-time access to primary goods.

Merely satisfying the needs of survival in this context with a non-work income transfer doesn’t correct the denial of ‘fair equality of opportunity’.

Justice thus requires policy settings that achieve full employment.

In his 1993 book – Political Liberalism – he advocated government should maintain a Job Guarantee (employer of last resort – in his terms) – John Rawls wrote (p.lix) that societal stability required:

… society as an employer of last resort.

This is because the lack of work “is destructive .. of citizen’s self respect”.

So when the ‘market’ doesn’t produce enough jobs, the state must fill the gap.

He was critical of what he termed “welfare state capitalism” (WSC), which had abandoned that state responsibility and thus was incapable of achieving a just society.

He considered one of the hallmarks of WSC to be the state providing the social minimum to all, even if they choose not to work, which he says makes people welfare dependent.

Under a just society (his so-called “property-owning democracy” (POD)), he redefined the concept of a social minimum.

This bears on our discussion beause in his 1993 book – The Law of Peoples – he writes denying an individual the “the opportunity of meaningful work” impedes the capacity of that individual the “sense that they are members of society (p.50)”.

But a close reading of this argument leads to the idea of self-respect, which emphasises the need for mutual interaction and the regard of our fellow citizens.

In other words, self-respect requires a mutuality, which in his 1971 book said depended on us:

finding our person and deeds appreciated and confirmed by others who are likewise esteemed and their association enjoyed.

This can be taken to mean that an emphasis on what each person does for work might obscure the social aspects of work – that is, the contribution of each individual to society, which is how we measure that mutuality.

Conclusion

In Part 5, we will continue this discussion and link the ‘duty to work’ concept with theories of justice and discuss coercion.

That is enough for today!

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

Tracing the roots of progressive views on the duty to work – Part 4

Published by Anonymous (not verified) on Tue, 01/09/2020 - 1:39pm in

This is Part 4 of my on-going examination of the concept of ‘duty to work’ and how it was associated with the related idea of a ‘right to work’. In Part 3, I extended the analysis to the Western democracies of the Post World War 2 period and found that progressive political parties and movements firmly considered the two concepts to be fundamental elements of a progressive society. In this part, I extend that analysis and consider ways in which the ‘duty to work’ has been justified, drawing on the idea of reciprocity and social obligation. I also show how the emergence of neoliberalism has broken the nexus between the ‘right to work’ responsibilities that the state assumed in the social democratic period and the ‘duty to work’ responsibilities that are imposed on workers in return for income support. That break abandons the binding reciprocity that enriched our societies.

The earlier parts in this series are:

1. Tracing the roots of progressive views on the duty to work – Part 1 (August 4, 2020).

2. Tracing the roots of progressive views on the duty to work – Part 2 (August 11, 2020).

3. Tracing the roots of progressive views on the duty to work – Part 3 (August 20, 2020).

4. Tracing the roots of progressive views on the duty to work – Part 4 (September 1, 2020).

Society and reciprocity

We concluded Part 3 with the clear understanding that there was an intrinsic link in Western social democracies in the Post World War 2 Period between the concepts of ‘right to work’ and the ‘duty to work’.

These work-related concepts, upon which policy was based, were considered to be the foundations of modern, progressive societies aiming to achieve increased increased equity, effective pathways to social mobility, poverty reduction and income security.

The state was committed to using its policy instruments to ensure there were enough jobs to absorb the desires to work, and, in return, citizens who were able to work were considered to have a communitarian responsibility to contribute to the material prosperity of society through work.

As part of this consensus, it was clearly understood that those who were unable to work for various reasons (age, health, etc) were to be provided with dignified income support.

The continuity of this societal consensus did not conceive of a class of workers who would be able to receive state income support (as a right) and thus enjoy the material benefits of production derived from the work of others.

Binding this consensus was a notion of reciprocity.

This principle extends well beyond concepts of work responsibilities.

Western democracies use parliamentary authority to grant rights to citizens but these rights also carry responsibilities (duties). And many of those responsibilities are explicitly coercive, and I will talk more about that presently.

We should be explicit here to disabuse people of the idea that a ‘duty to work’ means the same thing as a legal compulsion to work. The two are different obviously, although that seems to evade the understanding of many on social media.

Of course, Marx observed that while under capitalism superficially freed workers from the manorial coercion of the feudal system, such that they could choose freely which jobs they might take and who they might work for, the coercion of capitalism lay in the fact that workers did not have a choice whether to work at all.

Unlike owners of capital, who could enjoy access to the income distribution system without exerting any labour effort, workers had to work for someone if they wanted to eat.

And within socialist thinking, that was a motivation for the duty of work type ethics being formalised because they wanted no group being able to live off the work of others (bar those affirmed or unable to work).

Within social democracies, these ideas were expressed somewhat differently (the language was different) but the sentiment remained.

Even in the US, the concept of the ‘work ethic’ was a powerful social disciplining force.

Liberals who evoke ‘natural’ rights to freedom miss the point that all these ‘freedoms’ are social products – constructs that societies agree on in some way or another.

There is no real way of determining which of these constructed ‘rights’ are more privileged over others.

In his 1980 article – ‘The Obligation to Work’ – (see reference in Part 2), Lawrence Becker wrote:

No one is self-made. Whatever good there is in our lives is, in part, a product of the acts of others. Moreover, it is also the product of others’ fulfilling their putative social obligations: obligations of restraint (such as are found in the criminal laws against murder and theft), of care (as found in the law of negligence), of effort (“trying” to help) …

All the standard theories of justice support a requirement (obligation) of reciprocity, that is, a proportional return of good for good …

Citizenship obligations may be thought of as the institutionalized demands of our benefactors for reciprocity. Thus, an important class of nonvoluntary social obligations is justified.

He goes on to discuss the complexity that can be involved in determining proportionality in the “good for good” principle.

The question he explores is whether the ‘duty to work’ can be justified within this reciprocity ideal.

He understands that “Obligations must be scaled to competence, ability, and benefits … it would be impossible to justify any proposal to require the same work from everyone”.

Why would anyone think they were exempt from a “social obligation to work”?

Some use the arguments we debated in Philosophy 101 – I “did not ask to be born”.

I did not ask my mother to nourish me when I was young.

But I receive the benefits from the work of others.

Further, Lawrence Becker notes that:

Each of us is a burden on others. Our mere existence diminishes natural resources; we pollute; we consume the time and energy of those who have to deal with us. We are a net burden on others if we do not make an offsetting contribution to their welfare. Now, it is a fact that some people do make an effort to offset these burdens and succeed in offsetting them. Reciprocity to them is as much in order as it is for people who produce “positive” good for us. And reciprocity here may also require a contribution produced by effort.

Why should we contribute to the society rather than just those who directly benefit us as individuals? In other words, do we have a sense of society?

Clearly, we accept the benefits that are derived from public infrastructure (so-called public goods). So all workers who produce these goods and services are effectively contributing to society rather than to specific individuals.

Once we have public goods, we also accept social obligations.

We also accept membership obligations of social groups from an early age, which clearly establishes the concept of social obligations that transcend our individual leanings.

Does this argument extend to work obligations?

Some might argue that a person might just contribute financial input and be exempt from having to expend effort. But that would offend any progressive sense of equity.

While nations in the immediate Post World War 2 period were embarking on a nation-building process and were keenly aware that all available labour was necessary to quickly improve material prosperity, it might be argued that we need less production now and technology has solved scarcity.

There is truth in that argument but it requires that societies always need work effort to continue functioning and we all benefit from that work.

And as scarcity gives way to material affluent (generalised), we have the luxury in many nations of being able to expand the concept of productivity and valued labour, which means there are unlimited jobs that can be created and performed which enhance our well-being, whether measured in material terms or other more qualitative terms.

In that sense, there remains an argument based on reciprocity for a ‘duty to work’.

Lawrence Becker wrote in this respect that:

People who are able to work, and do not work, are parasites, however unattractive and emotionally loaded that label is. People in this society all live, in part, off the labor of others. And there is a chronic oversupply of jobs which need to be done to sustain and improve the quality of life for us all. (I am not speaking here of simply income-producing jobs.) So reciprocity in the form of work seems not only appropriate but necessary in our present circumstances.

The neoliberal evolution – reciprocity abandoned

Over the last several decades, as neoliberal ideology has emerged as the dominant approach to policy, the foundations of the social democratic consensus have been fractured.

Thomas Fazi and I trace this evolution in our book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017).

Relevant to this discussion, is the fact that the ‘duty to work’ idea has been retained and fine-tuned (along parasitic lines), while the state has abandoned its responsibilities to provide sufficient work, which has terminally compromised the ‘right to work’ principle, especially for the most disadvantaged workers.

It is also true that progressive political parties, in many nations, have led the deterioration in this consensus by abandoning the aim of full employment and adopting pernicious activity test approaches to the unemployed that they created through the embrace of neoliberal fiscal austerity.

As an example, think about Germany (thanks to Graham and Jochem for some research help here).

I have written about the German embrace of neoliberalism many times.

Here is an early blog post – Germany attacks its unemployed! (January 4, 2005) – which was written as we learned more of the so-called Hartz reforms that transformed the way the state income support systems changed.

When the Social Democratic Party in Germany embraced neoliberalism during the Chancellorship of Gerhard Schröder (in power 1998-2005) the government made several major policy shifts.

They abolished regulative restraint on the financial markets (for example, abandoned the capital gains tax on the sale of shares) which spawned the financial excesses that are still playing out (think Deutsche Bank).

The previous Helmut Kohl CDU regime would not have been able to pull that off – a feature of social democratic parties across the globe – as neoliberal leaders!

At the same time, Gerhard Schröder’s Agenda 2010 program sought to reduce the German welfare state and impose harsh work obligations on income recipients.

The interesting point here is that at the time, Schröder and his officials made it rather explicit – that if you were not prepared to work then you would not eat!

In a Speech to the Bundestag on March 14, 2003 – Gerhard Schröders Agenda gegen den Reformstau – the Chancellor said at the 34:40 mark that (translated)

In future no one will be permitted to refuse reasonable work at the cost of the community – he must expect sanctions.

Their concept of ‘reasonable work’ was very broad.

Another example of this sentiment came from SPD politician Franz Müntefering when he was the Bundesminister für Arbeit und Soziales (Federal Minister for Labor and Social Affairs) who told the SPD Parliamentary Group on Tuesday, May 6, 2006, as part of the process for reforming the SGB II-Optimierungsgesetz (the social code in Germany) that (Source):

Wer nicht arbeitet, soll auch nicht essen … Nur wer arbeitet, soll auch essen.

(Those who do not work should not eat … Only those who work should also eat).

So for those who thought the ‘parasite laws’ were just a construct of the hideous Stalinist Soviet regime, thinking that Western democracies were exempt from such thinking, think again.

Here is modern-day Germany, under the rule of a ‘progressive’ social democratic government articulating just the same attitudes.

An interesting article – Faule Arbeitslose? (May 6, 2003) – published by the – Bundeszentrale für politische Bildung (BPB) – which is the Federal Agency for Civic Education in Germany, shed some light on this debate at the time.

Faule Arbeitslose = Lazy unemployed and the article discussed the willingness to work in Germany.

It quotes Gerhard Schröder from April 2001, when he said “Es gibt kein Recht auf Faulheit in unserer Gesellschaft” (There is no right to be lazy in our society) and started the debate about “eine heftige Debatte über “Faulenzer”, “Drückeberger”, “Scheinarbeitslose” und “Sozialschmarotzer” vom Zaun” (“idlers”, “slackers”, “bogus unemployed” and “social parasites”.)

It is interesting that when unemployment began to rise in Europe and the rest of the world, this nomenclature started to enter the political narratives.

In Australia, the term ‘dole bludger’ was first introduced in 1974 by a Labor Party employment minister. It was not the conservatives who started this descent into indecency, although they certainly exploited it to the hilt once they gained power.

Similarly in Germany. The BPB article documents how SPD Federal Minister of Labor Walter Arendt “triggered the first laziness debate” in the Bundestag in 1975 as mass unemployment rose.

By the 1980s, this narrative was adopted by progressives and conservatives alike.

The obligation to work was at the centre of the debates, while the right to work had largely disappeared as a responsibility of the state to guarantee.

Of course, the obligation was applied exclusively to the working class.

The banksters who did nothing more than shuffle wealth and were thus largely unproductive were given state support to expand their profit-seeking behaviour.

But the low-paid and vulnerable were shoehorned into poverty-wage, mini-jobs because the German government refused to create the conditions for full employment.

The German derivation of this was influenced by harking back to religious documents.

In the – Second Epistle to the Thessalonians – sometimes, but not without dispute, attributed to the apostle Paul, the discussion is about the way the people of the city of Thessalonica, the “second city in Europe where Paul helped to create an organized Christian community” could maintain the traditions they had been taught (either in written form or by word of mouth) as they waited the “second advent of Christ”.

In Thessalonians 2, Chapter 3, Verse 6 begins the topic – “Warning against Idleness” and we read (thanks Tom):

6 Now we command you, brothers, sin the name of our Lord Jesus Christ, that you keep away from any brother who is walking in idleness and not in accord with the tradition that you received from us.

7 For you yourselves know whow you ought to imitate us, because we were not idle when we were with you,

8 nor did we eat anyone’s bread without paying for it, but with toil and labor we worked night and day, that we might not be a burden to any of you.

9 It was not because we do not have that right, but to give you in ourselves aan example to imitate.

10 For even when we were with you, we would give you this command: If anyone is not willing to work, let him not eat.

11 For we hear that some among you cwalk in idleness, not busy at work, but busybodies.

12 Now such persons we command and encourage in the Lord Jesus Christ to do their work quietly and to earn their own living.

13 As for you, brothers, do not grow weary in doing good.

14 If anyone does not obey what we say in this letter, take note of that person, and have nothing to do with him, that he may be ashamed.

15 Do not regard him as an enemy, but warn him as a brother.

So Christians were invoking the ‘no work, no eat’ idea – as a ‘tradition’, some centuries before Stalin’s parasite approach.

In other words, these ideas have been part of human life for a very long period of time.

Conclusion

In Part 5, we will link the ‘duty to work’ concept with theories of justice and discuss coercion.

That is enough for today!

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

While a governmental blame game distracts the public, what democracy we had is being further hollowed out.

Published by Anonymous (not verified) on Sun, 30/08/2020 - 6:00pm in

Before it’s too late let’s not let the window of opportunity pass us by. The government is us, or it could be.

Fingers pointing at the words "The others"Image by Gerd Altmann from Pixabay

As many of us sit in our living rooms watching TV it often feels that we are living in some sort of tragic farce being played out on the world stage. Or maybe even that we’ve been transported into the realms of the ‘imaginary’ Matrix of Agent Smith and Morpheus. It is difficult to know these days what is real, what is not or indeed what the future holds for us humans as Covid-19 brings a new normal and AI and automation becomes a seeming reality. We are coasting along perhaps hoping tomorrow will be another day and will bring better things.

Our illusory sense of stability and certainty is being replaced with deep anxiety. It is alarming for many to find that the foundations we have been standing on for decades were actually made of sand and prone to eventual collapse. On a daily basis, the pandemic reveals the gaping holes in public and social infrastructure provision that has resulted from over 40 years of neoliberal orthodoxy aided by the deeply held and politically inculcated public beliefs that there is always a price to pay for too much spending. We seem to have accepted instinctively that reducing inequality and poverty or addressing climate change is unachievable because governments are constrained by the scarcity of money. That nothing can be done.

We confuse Charles Dicken’s character Micawber’s dilemma as a currency user “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery” by translating that same household budget narrative into how the UK government spends. Instead of understanding that governments are currency issuers and cannot be confused with currency users, we believe in a logical but mistaken fashion that after the big spend the government will, like Micawber, have to pull in its horns eventually if it is not to end up in debtors’ prison or be proscribed by the ratings agencies as not good credit risks.

The ’there is no alternative’ mantra lives on as if somehow the market is all-powerful and governments must bow down to its all-knowing nature. And yet none of this is true. Sovereign currency-issuing government like the UK and many others not only hold the key to finding solutions to the economic chaos that is currently before us and the future challenges we face but also have the keys to the public purse. Unlike the commonly believed narrative, neither the bond markets nor the taxpaying rich determine how much the government can borrow or spend. These are government decisions relating to a political agenda and political will to deliver it with the resources it has at its disposal. It is beautifully simple.

The wreckage of 10 years of austerity, deliberate and continued shrinkage of our publicly managed and paid for infrastructure, as well as the increases in poverty and inequality as a result of a low wage, precarious economy is strewn in its wake. Combined with the on-going consequences of the pandemic on the economy in the form of increasing levels of unemployment then things are looking distinctly worrying.

Already this week more redundancies have been announced with Pret a Manger indicating that 2700 people will lose their jobs at its branches across the country as cities become deserts devoid of workers looking for their lunch. These will not be the last. As has been pointed out in previous blogs, many more will find themselves without employment over the next few weeks and months as the Job Retention Scheme comes to a close when many employers will find themselves with no choice but to let their workforces go. As Frances Grady of the TUC indicated this week millions of jobs are at stake.

This is the government’s wakeup call, but it is important to understand that what comes next will be a political decision unrelated to the state of the public finances. When the Chancellor Rishi Sunak says that the nation must buckle up and prepare for hard times it is almost as if he is saying that what happens will be unavoidable. It is as if he is saying that the short spell of propping up the economy with a round of fiscal intervention is unsustainable and that he will have no choice but to bow to the dictates of the market. We will have no option but to take the pain (by which he means us) to sort out the mess which will clearly mean a reset of the economy even if that means huge unemployment whilst at the same time as he has already intimated getting deficits and debt down and the public finances back into order. A recipe for disaster.

His job retention scheme and the much-praised ‘eat out to help out’ have shown what government can do, but those programmes have quite simply been skirting around the edges in terms of what government must do if we are to avoid a collapse of the economy and further hardship for citizens. It is avoiding the opportunities that exist to address the key challenges which face us in terms of climate change and indeed that ‘levelling up’ which Boris Johnson has spoken about which will be essential to ensure a fairer distribution of wealth and resources across the population. The truth is that we need an expansion of the public sector alongside a Job Guarantee and Green New Deal if we are to confront and address these challenges directly and effectively.

The implication of Sunak’s statement is that the government is not in charge and does not have the tools to manage the worst economic effects of the pandemic, nor indeed of coming climate change which will demand big solutions not just for the health of the planet but human existence.

It’s the market, stupid! It’s not the fault of government! That is what they want us to believe. The blame game lives on and not just in terms of the neoliberal diktat that the invisible hand of the market rules the roost. Like a magician’s sleight of hand which draws our attention away from the real trick being played on us, government has used the same mechanisms to ensure that the public is not looking at what is really happening and why. And more importantly who is responsible.

Indeed, this week the news was encapsulated in Boris Johnson’s statement that we had a ‘mutant algorithm’ in our midst. The computer had messed up apparently. Never mind the uncomfortable fact that computer programmes and algorithms are only as good as the person who programmed them.

It has become an on-going cause of criticism of government’s handling of this crisis and in particular of the Prime Minister that it is always someone else’s fault for the train crash that is occurring. Who has not come in for the opprobrium of various government ministers when things have gone wrong? From teachers to nurses, to social care workers and now civil servants who have either been sacked or had to resign in recent weeks and months.

Melanie Stefan, a computational neurobiologist at Edinburgh University, puts it quite clearly in a tweet thread she posted on the ‘A’ level results scandal which has ruined the chances of so many young people.

“Saying the computer got it wrong is doing two things: It makes it sound accidental, as if that was never really the plan. And it makes it sound like some weird computer uprising with no human agency or oversight involved.

Both are untrue. Humans are behind this. Humans made decisions, and in this instance the decision to further disadvantage students from already disadvantaged schools. This is a scandal, and we should be angry”

The fact is that it is humans in the form of politicians, their economic advisers and journalists who have been pumping out the false narratives and apportioning blame, that are in fact responsible for the disaster that neoliberalism and austerity policies have wreaked upon societies across the world.

The current government has done everything it can to avoid scrutiny of its actions and blaming the algorithm is a symptomatic example of its failure to accept responsibility for its policies over the last ten years and their damaging consequences. Others have conveniently become the fall guys for government failure, whether it is ordinary people being characterised as lazy scroungers living off the state, those who have been given the task of implementing government policy or those who speak out against the system. Government has turned its back on democratic accountability, seeking others to blame whilst at the same time encouraging us to turn on each other thus weakening the power we have to force the changes we so desperately need through the ballot box.

As Mary Bousted from the National Education Union commented this week ministers have a duty to parliament to account and be held to account for the policies, decisions and actions of their departments. Instead, they are doing the very opposite.

Our democracy both at the national and local level is under attack, our public and social infrastructure in decay, poverty and inequality rife and growing. Only this week it was suggested that by abolishing 213 smaller councils in England and replacing them with 25 new local authorities could save over £3bn.

In an age where deliberate government-driven austerity has almost brought local authorities to the brink of financial failure, the idea of saving money might seem attractive. However, in reality, it represents a further hollowing out of local democracy and its replacement with an impersonal money saving approach that no longer takes account of local people’s needs or serves their communities with targeted policies.

When the need to cut costs because of an alleged scarcity of money drives policy and replaces the need to meet public purpose and well-being, whether it is at national or local level, then we have been led astray.

When our social security system fails to serve those in most need both in these difficult times and normal times with adequate financial support then it is time to question those who promote such policies on the grounds of unaffordability.

When our public services are squeezed financially or put out to tender or privatised resulting in poorer services then it is time to dissent.

When a county council announces its intention as it did this week to shut most of its children’s centres reducing them from 38 to 17 saying that buildings do not serve communities then it is time to protest. Replacing buildings with outreach workers who will contact families instead makes the future of society start to look bleak as increasing social isolation threatens those very families who depend on these meeting places for comfort, support and conversation to help them through difficult times.

Money, or claimed lack of it, lies behind the dismantlement of those structures which form the backbone of a healthy economy and healthy citizens.

While we allow ourselves to be influenced by the cleverly executed blame game, our society is being deprived of the means to achieve a stable and secure future.

Government is the currency issuer. It makes the decisions. It decides what and who it will spend on. The future will be bleak if we continue to allow our societal voice to be drowned in a sea of naysayers who tell us that money is scarce and that ultimately there is no alternative to fiscal discipline and book balancing and that after the spending must come a reckoning.

The only balancing we have to do is linked to deciding upon how the available resources will be deployed, what should be provided and how it will be distributed. The questions we need to ask as a matter of urgency is what sort of society do we want to live in? Those are political decisions, not monetary ones. And, even if the mountain seems unclimbable, if we want to change things then as Bill Mitchell has said ‘The government is us’. Or it could be if we want it to be.

 

 

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The post While a governmental blame game distracts the public, what democracy we had is being further hollowed out. appeared first on The Gower Initiative for Modern Money Studies.

We pay for it by spending the money

We would like to share an article by GIMMS associate Alan Hutchinson.  This article was posted on his excellent website Matches in the Dark here.

Alan Hutchinson portraitI use this as supporting notes for a talk I give on Modern Monetary Theory (it’s missing the jokes and the audience participation!). By Internet standards it is quite long, but it provides a good overview and should take no more than 30 minutes to read. If you want a quicker read I have something much shorter. This is a living document and will be updated to reflect changes to the talk and changes to economic data.

Let’s start by dispelling a myth: Modern Monetary Theory is not something that a government can choose to adopt. MMT is not something that can be turned on or off. In and of itself, MMT is neither of the Left or of the Right and it is not a policy, although there are policy prescriptions which flow from it. Modern Monetary Theory is simply a description of how the monetary system works — right here, right now.

In providing that description, MMT lifts the veil on a carefully crafted fiction about spending and taxation, one that provides the ideological backing for the form of late capitalism we commonly call ‘neoliberalism’. Unfortunately, that fiction is accepted as a universal truth by almost everyone, irrespective of their political affiliations.

Now, we all have some idea of how money works and lots of opinions about how it should work. I’m going to ask you to temporarily suspend those ideas and opinions while you read this, because MMT turns many of them upside down. Of course, it’s not just MMT that challenges the average person’s economic world-view and many are surprised by facts which are uncontested by mainstream economists. For example, I often start my talks with a question for the audience:

For every £100 the government spends into the economy, how much is returned as tax?

A typical lay audience will answer around £50. As I write this, the government gets back at £98 for every £100 it spends. Much of this article is about why it’s £98 and whether or not this is a Good Thing.

MMT may only just be seeping into the public consciousness, but the Financial Times has been writing about it for several years now and one of their journalists, Izabella Kaminska, has a good way of describing the effect MMT has on our understanding.1 She compares it to viewing an autostereogram — those pictures in the ‘Magic Eye’ books of the 1990s. Autostereograms appear to be nothing more than a random collection of coloured dots, but when you stare at them in just the right way a hidden three-dimensional image appears.2

Even with only a basic understanding of MMT, you will find that everything looks different — you start to see what’s hidden inside all the random noise that accompanies talk about money and the economy.

So, how does MMT help our understanding of economics? How does it help us build a better society? To keep this short, I am going to cover the two most important aspects:

  • First, MMT neuters the standard capitalist retort: How are you going to pay for it? In the new paradigm the question is rendered meaningless because we pay for it by spending the money — it’s as simple as that.
  • Second, MMT shows that unemployment is a choice made entirely and exclusively by the government of the day. The government chooses the unemployment rate.

Once these two points are understood by a (truly) progressive UK government it can set about implementing a radical economic plan, one which is built around first-class public services and a Job Guarantee programme. The Job Guarantee is at the heart of MMT because it does two things: it provides a meaningful job and a true Living Income to anyone who wants one, and it helps to control inflation.

In a nutshell then, MMT sweeps away all the nonsense about there not being enough money and all the nonsense about having to tolerate unemployment in order to keep inflation down.

Modern Monetary Theory is a descriptive endeavour which leads to some quite startling and world-changing prescriptive conclusions. Let’s start with the descriptive component. It details how the monetary system of a nation like the UK has worked since 1971, which was when the 1944 Bretton Woods system of international payments collapsed and the last vestiges of the gold standard were abandoned. To properly understand MMT you need to know a little bit about gold.

Prior to 1971, the UK government’s policy options were constrained by the gold standard. Sterling wasn’t directly convertible into gold, but the value of the pound was fixed against the US dollar and that was convertible. Having to defend the pound in a fixed exchange rate system forced the UK government to adopt policies which were not in the public’s best interest.

In simple terms, the number of pounds in circulation was restricted by the amount of gold and dollar stocks held by the government. The money supply had to be more or less static — if the government spent £100 into the economy, it had to remove £100 through tax or otherwise drain it by issuing bonds. The government appeared to be revenue constrained — an illusion was created that it could only ever get its money from taxes, with any shortfall covered by an action which came to be known as ‘borrowing’.

After 1971, the pound was no longer pegged to the dollar and we entered the current era of free-floating currencies — where the value of the pound is decided on the international markets. Sterling became a fiat currency, one that is not backed by a commodity or tied to a foreign currency. The word ‘fiat’ is Latin for ‘let it be done’ and indicates that the currency is simply legislated into existence. The government says this is the currency and so it becomes the currency.

The policy limitations that resulted from the gold standard and fixed exchange rates no longer applied. With a fiat currency the idea of a ‘run on the pound’ is a meaningless concept and the government no longer has to contend with currency speculators or ‘bond vigilantes’. Nor does it have to worry about ‘propping up the pound’ or, to a large extent, the fact that we import more than we export.

Most importantly, there is absolutely no way the UK government can be forced to default on debt repayments. Default can only be forced on a country which is not sovereign in its currency. That includes all countries which use the euro because they are not monetarily sovereign. In this respect, Germany is no better off than Greece — both can be forced to default. Anyone, be it an economist, a politician or a newspaper columnist, who claims that the UK is at risk of default is talking nonsense.

All the worries about default or a ‘run on the pound’ belong to the 1960s and it’s staggering how they are still indelibly imprinted on the collective mind.3 Not having to deal with all these issues means that the government can use all the economic tools at its disposal to achieve domestic objectives — which should always include full employment.

Moreover, the claim that the government is revenue constrained — that taxes pay for spending — no longer makes any sense. From the government’s perspective, the age of money scarcity ended in 1971 and it’s been like that ever since.

Unfortunately, the illusion of revenue constraint is still with us today and that’s because gold-standard thinking suits the agenda of the rich and powerful. The economic elite — the section of society which we now call the 1% — set and control the dominant narrative in economics, so almost everyone still believes that government can only spend what it taxes or borrows.

I probably have to careful here that I don’t come across as a conspiracy theorist. I am not suggesting that there is a secret cabal busy organising a disinformation campaign to persuade us that tax funds spending. The economic elite believe this nonsense just like everyone else. But because it’s the stuff which justifies the elite’s position in society, it’s the stuff which gets column inches and airtime.

The elite and their political supporters achieve this by framing the debate in terms of simple metaphors related to our everyday lives. In particular, the idea that the government is constrained like a household is propagated by messages like:

“we need to balance the books and that will mean tightening our belts”;

“we must pay our way in the world”;

“Labour maxed out on the credit card.”

Don’t for one minute think that the household budget stories are confined to the political Right. When asked by Martin Wolff of the Financial Times ‘[Do you] share the view that ordinary people do not understand economics?’, John McDonnell answered:

Most ordinary working people know how to budget better than any politician, largely because they are living off low wages and they have to, therefore, make sure they can get to the end of the week. The best budget person I ever met that understood real economics was my mum. My dad would come in, hand her the wages and, because it was that sort of generation, she would look after the household and we would get by.4

Progressives across the political spectrum accept these assertions without challenge and unwittingly reinforce them with talk of increasing taxes on the rich and corporations. It’s a position which supports the status quo and stifles any meaningful debate.

Now, before I go any further, I must stress that although Modern Monetary Theory assists us in understanding the monetary system in any country, the policy prescriptions we come to later only apply to countries which are sovereign in their currency. There are three criteria which define a country with a sovereign currency:

  • it issues its own currency — so no using a foreign currency;
  • its currency floats free on the international markets — so no peg to another currency;
  • and it does not have debts in a foreign currency — so no borrowing from other countries or from the IMF.

MMT prescriptive policies apply to the UK, the United States, Japan and many other countries. The policies would be problematic if applied in Eurozone countries, be it Germany or Greece, because they all use a currency which is, to all intents and purposes, a foreign currency.

Don’t pay any attention to anyone who says:

What about Argentina? They have their own currency and they went bankrupt, didn’t they? What about Zimbabwe? They had their own currency and that didn’t stop all that inflation. And what about the current crisis in Venezuela?

Argentina does have its own currency, as did Zimbabwe when it went into meltdown. But both countries also had masses of foreign debt and at the time of the Argentinian crisis, the peso was pegged to the dollar. As for Venezuela, there is nothing MMT can do to ameliorate the combined effects of governmental incompetence, an economic elite determined to regain control and hostile interference from a powerful foreign entity.

The textbook way to further explain MMT usually involves an analysis of the flow of money between different sectors of the economy. The trouble with this route into MMT, the sectoral balances approach, is that it involves a little bit of double-entry bookkeeping — it’s not difficult, but some people may be put off by some of the terminology.

Here’s another way to get you started which requires no prior knowledge — all you need is an opinion about other peoples’ opinions.

Suppose a poll is carried out tomorrow, with a large and representative sample of the electorate. There are just three questions, the first two of which are very simple. See if you can guess how most people will answer them.

Here’s the first question:

Do you believe that the government deficit should be cleared within the next twenty years?

Given the current hysteria about deficits, I don’t think the answer is in doubt — most people are going to answer ‘yes’.

The thing I find worrying about this question is that a lot of people will answer ‘yes’ when they don’t really know what the deficit is. Moreover, I’m surprised by some of the people who struggle to provide a definition. I know quite a few academics who, with no hint of shame, admit that they don’t know what the deficit is — yet they still hold an opinion about it. For readers who are little bit unsure, the standard definition of the deficit is the difference, over a given period, between what the government spends and what it gets back in tax.

The second question is:

Do you believe that everyone should have the opportunity to save a small amount from their income?

Saving is usually seen as a good thing, so they are probably going to say ‘yes’.

These two answers demonstrate two things: that most people don’t understand how our system of money works; and that they have the ability to hold two contradictory beliefs at the same time.

It is impossible for a country like the UK to eliminate the deficit and still allow the domestic private sector to increase its stock of savings. Believing that the deficit can be cleared while we are still increasing our savings is just Orwellian doublethink.

We can start to understand the connection between the deficit and savings when we answer the third question. It’s a bit more complicated:

Suppose the government pays two people £100 each for some work. One is a window cleaner who is paid the minimum wage. The other is a PR consultant whose salary is £150,000. Now, a proportion of each £100 is going to go back to the government in the form of tax. Does the government get more back in tax from the £100 it paid to the window cleaner or the £100 it paid to the PR consultant?

How are people going to answer this one? It’s certainly a lot less clear-cut than the first two questions, probably because it appears to introduce a political element. It certainly seems more ideological, but it’s really no different from the first two questions. It’s just that most people see the earlier answers as obvious and ‘common sense’.

I find that people answer the third question depending on where they are on the left-right/poor-rich/north-south spectrum. Those at one end of society will say that highly paid consultants, being ‘part of the 1%’, will pay less tax because they can afford fancy accountants. At the other end of society is the argument that window cleaners, being members of the ‘devious lower orders’, will avoid paying tax altogether by insisting on being paid cash-in-hand.

So, what is the real answer? Well, it’s that in the long run there is no difference. The government gets exactly the same amount back in tax from the £100 paid to the window cleaner as it does from the £100 paid to the consultant. Over a sufficiently long period, the government will get back in tax pretty much all that it spends, no matter where it spends it and no matter what the tax rate is.

However, over the short term, there are significant differences as to how the spending affects the economy. Simply put, it’s better to spend the money on window cleaning.

Most people think the idea that government gets back all its spending irrespective of the tax rate is just crazy talk. They think it’s the ramblings of a loon because they have been conditioned to think of government spending and taxation in a way that supports a fundamentally neoliberal agenda. Specifically:

  • they think that tax is a burden placed on the private sector to enable the government to get its spending money;
  • they think that money is taxed only once, reinforcing the burden concept and leading them to focus entirely on the tax that they alone pay;
  • they have no regard for what happens when they spend their income or where it came from in the first place;
  • they don’t realise that all government sector spending initiates a spending chain in the non-government sector;
  • they don’t realise that at each link in that chain some tax is likely to be paid — income tax, national insurance, corporation tax, VAT, stamp duty, import tariffs;
  • and they can’t see that this means that government will always get back almost all that it spends.

To see how this works, let’s look at one of the payments from the question above and analyse the spending chain it creates. I am assuming a simple tax system where all transactions are taxed at 20%.

  • The government pays £100 to a window cleaner;
  • She pays 20% tax on the £100, so £20 goes straight back to government;
  • She spends the remaining £80 at Aldi for a week’s worth of food and essentials for herself and her daughter;
  • Aldi pays 20% tax on the sale and £16 goes back to the government;
  • Aldi uses the remaining £64 to pay someone to run its tills for a day;
  • He pays 20% income tax and government gets £13 back;
  • He is left with £51, which he uses to buy a train ticket to go and see his mum;
  • Virgin Trains pays 20% tax on the ticket price and another £10 goes back to government;
  • Virgin uses the remaining £41 to pay for a window cleaner to clean the windows at one of its stations.

And so it goes on, money moving along a spending chain (which sometimes doubles back on itself).

It is just a simple geometric progression where government spending causes taxation — not the other way around. This is a key point in MMT: the spending comes first and tax is a secondary operation. It’s the spending that makes the tax happen. Government spending bounces around the economy — generating income for households and firms — and a little bit goes back to government at each link in the chain.

If you have difficulty with the concept of spending preceding taxation, just ask yourself this question:

Where does the money to pay taxes come from in the first place?

Money in a modern economy is not something that pre-exists within the economy. It always comes from a higher source. Even in economies where money was based on precious metals, it was usually issued and controlled by a higher source. Consider the Robin Hood legend and money taxes (taxes paid in crops or labour are different). The king decreed that money taxes were to be paid in silver coins and used a Nottingham-based proxy to collect them. Where did those coins come from in the first place? What would happen if the king didn’t tax them back?

Our little model has shown that £100 spent by the government has spread out into the economy, creating £336 in personal and corporate income, and £59 has gone back in tax.

But we’ve only followed the spending chain for a few links. Any mathematician will tell you that, in this idealised model of the economy and with a flat transaction tax set at 20%, the process will continue until the government gets back all £100 and income amounting to £500 has been generated. What’s more, the government will still get £100 back if the tax rate is reduced to 10% or increased to 30% — there will just have to be more links in the chain. In the long run, and in this idealised model, changing the tax rate has no effect on the total tax take.

You may ask why we don’t reduce income tax to a flat 5% then. That’s because tax has purposes other than serving as a drain of government spending, the most important being that it allows the government to direct the use of resources — people and stuff — for the benefit of all. Tax takes away some of our purchasing power and in doing so leaves resources unused. The state can then buy those resources and deploy them to further the public purpose.

The real purposes of tax were explained in the 1940s by the US economist and central banker Beardsley Ruml. He saw tax as has having multiple uses, none of which had anything to do with funding spending:

  • to stabilise the currency;
  • to discourage bad practices and encourage good ones;
  • to provide clarity about spending by appearing to allocate tax to specific things;
  • and to ‘express public policy in the distribution of wealth and of income’.

Ruml summed up all this rather succinctly in the title of his article:

Taxes for revenue are obsolete.5

His work led to the MMT concept that taxes drive currency. This is a core concept which answers the question:

Why would anyone accept money that is not backed by gold?

They accept it because it’s the only thing with which they can pay their taxes — and a cosy little cell is always available for anyone who doesn’t pay up. Tax is not designed to give people a nice warm feeling inside when they pay it. Tax is not ‘the price you pay for living in a civilised society’. Tax is coercive. Tax is an expression of raw state power.

For some people, this is where the cognitive dissonance kicks in and they start to feel uncomfortable with MMT. They feel a bit queasy as the truth materialises out of the background noise and they realise that everything they believed about money and the economy isn’t true any more.

But let’s get back to our spending chain. Why does the government only get back £98? Surely if we follow the maths the government will get back all £100. What happened to the other two quid? Well, the bit that the government doesn’t get back is the bit that isn’t spent — twenty-pound notes hidden under a mattress, money in an ISA or retained corporate profits. Anything that isn’t spent is, by definition, our savings and money that is saved breaks the spending chain. Saved money can’t cause any further tax to happen.

Therefore, in any given period the difference between the amount the government sector spends and the amount it gets back in tax is equal pound-for-pound, penny-for-penny to the increase in the savings of the non-government sector.

Hang on a minute! Isn’t the difference between what the government spends and what it receives in tax the definition of the deficit? Of course it is. The thing we call the ‘deficit’ (which is universally perceived as a Bad Thing) is nothing other than an accounting representation of the aggregate increase in savings (which are universally perceived as a Good Thing). The deficit is savings.

It’s not accidental that the public suffers from deficit doublethink and it’s the result of 40 years’ worth of clever PR. Imagine you were a neoliberal strategist, hell-bent on reducing the size and reach of the state. Which term would you use to describe the difference between government spending and tax receipts? Deficit or savings? Terrifying black hole or national nest egg?

MMT goes on to show that net financial assets — which is just a fancy name that economists use for ‘savings’ — cannot come from anywhere other than from government spending. That’s because the real money in the system always comes from government. We’ll look at this in more detail later.

So far, so straightforward. However, there may be a bit of a problem: some of the terminology may be confusing you. I’ve said that the government ‘gets back’ through tax almost all that it spends and this may cause you to think that the money it ‘gets back’ is somehow available to be spent again. It isn’t, and this is where MMT provides a critical insight into the true nature of government spending. All UK government spending is new money which is eventually destroyed by taxation. The government doesn’t really ‘get back’ the money it taxes out of the economy — the money just ceases to exist.

I have also used the term ‘non-government sector’ rather than ‘private sector’. This is deliberate and is essential for an understanding of savings. The thing that MMT calls the non-government sector is made up of the domestic private sector — firms and households here in the UK — together with the foreign sector. When foreigners are paid for the things we import they accrue financial assets denominated in Sterling. When we export things we get some of these financial assets back, but we export less than we import and there is an imbalance in favour of the rest of the world.

It is important that the inclusion of the foreign sector in the non-government sector is understood. A common and invalid criticism of MMT is that it only considers a closed domestic system, without regard for the rest of the world. Any confusion usually arises from a deliberate misinterpretation of the term ‘non-government sector’.

This is where the concept of sectoral balances comes in, the bit that relies on double-entry bookkeeping. The sectoral balances approach says that however we split the economy into chunks — sectors — all those chunks must balance each other. The whole must sum to zero. This is because, just like a company balance sheet, for every asset in the Sterling economy there is always a corresponding liability and for every borrower there is always a lender.

Suppose we split the economy into government and non-government sectors, then if one sector is in surplus the other must be in deficit. The accounting tells us that it cannot be any other way. If the non-government sector is in surplus because of its desire to save, then the government sector must be in deficit. You can’t get away from this fact and no economist or chancellor will dispute it.

Let’s look now at a three sector model, one made up of the government sector, the domestic private sector and the foreign sector. A few years back, before the Coalition took over, the government sector deficit was 10%, i.e. taxes destroyed about £90 for every £100 of government spending and £10 ended up as savings either here or abroad. The savings were split roughly fifty-fifty between us (the domestic private sector) and the rest of the world (the foreign sector). For each £100 the government spent about £5 ended up as financial assets held by UK households and firms, and £5 ended up as financial assets held by foreigners.

But then along came Cameron and Clegg who told us that the deficit was a Bad Thing and had to be eliminated. Hence austerity. But if you eliminate the deficit you also have eliminate someone’s savings and that is precisely what has happened. We are still importing the same amount of stuff as before and the foreign sector is still accruing savings amounting to £5 for every £100 of government spending. That £5 is being paid by £2 government deficit and £3 worth of dissaving by the domestic private sector. We are no longer saving overall. We are running down savings, selling assets or going into debt just to keep the country going. And we haven’t seen this level of dissaving pretty much since records began. It is not sustainable and is precisely the sort of thing that leads to recession.

So, not only does the ‘deficit’ have to cover our desire to save, it also has to cover our desire to import and that is always balanced by the Chinese and German desire to hold Sterling savings.

Now, the operative word that I have just used is ‘desire’ and it blows a big hole in the ideology of austerity. For the last 40 years, governments of all persuasions have told us that the deficit is a Bad Thing and then pretty much ignored it. Since 2010, however, the deficit has become a political weapon and the government has persuaded almost all of us that it must be eliminated.6 The government claims to have the power to rid us of the deficit and they tell us that the form in which that power must be exercised is austerity. It certainly sounds plausible: if the government spends less then surely the deficit will be reduced, won’t it?

But we now know that the deficit is actually a measure of our desire to save, our desire to import and the Chinese desire to save in pounds. So, deficits are neither good nor bad. They just show that money is flowing from the government sector to the non-government sector. The government creates the money out of nothing and some of it becomes our savings.

A government surplus shows the opposite — that the state is removing money from the non-government sector and destroying it. If we are going to continue to pay our taxes then, in aggregate, we are going to have to economise. The population as a whole will either have to reduce its spending or run down its existing savings. Imagine what that does to the spending chains and the livelihoods which depend on them.

If the administration doesn’t understand this, or chooses to conceal its understanding for ideological reasons, it is quite likely that the country will be worse off in terms of employment, health, happiness and all the other things that make up our collective well-being.

You can certainly try to debunk the concept of sectoral balances, but be warned: you will first have to disprove the science we call ‘arithmetic’. You will have to show that 2 − 2 ≠ 0. Good luck.

Right, just to make sure you are keeping up, here’s a quick recap of the two main points so far:

  • First, the ‘deficit’ is just another name for the flow of money into savings, both domestic and foreign, that takes place in the Sterling economy over a given period. Oh, and the thing we call the ‘National Debt’ is just an accumulation of previous deficits. The ‘debt’ is just the total stock of money held in savings at any given moment. The deficit and the debt are not things that we — or our grandchildren — ever need to worry about.
  • Second, spending precedes taxation. At the risk of sounding like Doctor Who, we need to reverse the polarity to understand the economy. Government spends new money into the economy and it is gradually destroyed by tax. The spending effectively pays for itself, so the question ‘How are you going to pay for it?’ is meaningless. We pay for it by spending the money.

Now, this bit about the government getting back £90 for every £100 it spends sounds too good to be true, doesn’t it? This seemingly magical rule doesn’t apply to you or me, to the corner shop or to the trans-national corporation. When we spend we get goods and services in return. When government spends it gets goods and services and it ‘gets back’ the money in tax. It’s one of two reasons why the government budget should never be compared to a household budget.

The other reason is that the UK government is the monopoly manufacturer of Sterling. Government is the currency issuer. A household, like everything else in the non-government sector, is a currency user.

I am going to make a quick detour at this point and talk briefly about banking. Some people are concerned about the apparent power that banks have to create money. It’s true that the banks create out of thin air an awful lot of stuff that people like to call ‘money’ and the economy would collapse without it. However, what’s always missing from these worrying analyses of bank lending is that all bank credit sums to zero. Every asset created by the banks always has a corresponding liability and any ‘money’ created when a loan is made is destroyed when the loan is paid off.

In fact, banks don’t create money; banks extend credit. And this means that savings can never come from bank loans. If you believe that net financial assets can come from bank credit then you believe that borrowing £100 from a bank at 6% and putting it in a building society account that pays 2% can be classed as ‘saving’.7

The difference between the money created by government and credit issued by banks becomes apparent if we think of government spending as an ‘interest-free loan’ into the economy. It’s a loan that’s gradually ‘paid off’ by the taxes that are raised at each link in the resulting spending chains. Except that it’s never quite paid off because we choose to save some of it. Try that with a bank loan and see how far you get. You have to pay off a bank loan in full and you have to pay interest. Wouldn’t you rather see poverty reduction enabled by government ‘loans’ than by payday loans?

Which brings us back to government being the only entity which can issue Sterling. To get savings in the system we have to have a special type of money — economists call it high-powered money — which is injected into the system from outside the system. All bank-created money is inside the system, but every penny of government spending is high-powered money.

The upshot of all this is that the UK government never needs to ‘borrow’ and — here’s the important bit — the government can always create as much currency as it needs. That means the government can buy whatever it wants that is for sale and priced in pounds.

At this point in the discussion the mainstream economists, locked into a world-view based on gold standard thinking, will jump in, screaming:

See! These MMT crazies think the government can just keep on printing money until the cows come home. We’ll be ruined by inflation! We’ll end up like Weimar Germany or Zimbabwe! We’ll be issuing trillion pound notes!

Well, no we won’t. All spending, whether by the government or the private sector, carries a risk of inflation, but money alone does not create inflation. The risk depends also on the availability in the economy of real resources — people and stuff. Sure, the UK government can always win a bidding contest with the private sector for any resources that can be bought with pounds, and this may force up the price if the resources are limited and there is significant private sector demand for them. So, yes, the government does need to be mindful of its unique power.

But what if the government were to buy up all the things which nobody else wants? After all, it’s difficult to force up the price of something if there is no demand for it.

Unfortunately, there isn’t enough unwanted stuff in the real economy on which the government can usefully spend its money. There are, however, lots of people who are classed as ‘unwanted’ — millions of them, in fact. By definition, the unemployed and the underemployed are unwanted in that they don’t attract a bid price from the private sector.

This is where the Job Guarantee comes into play. It is a core part of MMT — it’s the prescriptive bit — and it’s important because it helps maintains price stability. It helps control inflation through a constraint on government spending. But it’s not a revenue constraint; it’s a real resource constraint.

The dominant economic models tell us that there is an inverse relationship between inflation and unemployment. Mainstream economists, including all those Nobel laureates, say that attempting to bring unemployment down will always put inflation up. They say that, if we want to keep inflation at bay, it’s necessary to have millions of people unemployed or underemployed or in all those insecure, low paid jobs.

This is the Phillips curve and its cruel companion the Non-Accelerating Inflation Rate of Unemployment (NAIRU), theories which lead to the claim that there is a natural rate of unemployment at which the economy is somehow ‘optimised’. They are nothing more than ways to explain away failed models and ineffective policies.

The Job Guarantee shows us that there is another option to using a buffer stock of unemployed people to control inflation: we can use a buffer stock of employed people. It’s not a new idea and was first suggested in 1965 by Hyman Minsky:

Work should be available to all who want work at the national minimum wage. This would be a wage support law, analogous to the price supports for agricultural products. It would replace the minimum wage law; for, if work is available to all at the minimum wage, no labour will be available to private employers at a wage lower than this minimum… To qualify for employment at these terms, all that would be necessary would be to register at the local public employment office.8

The primary aim of the Job Guarantee is to provide useful and meaningful employment in the public sector at a fixed minimum wage to anyone who wants a job and can’t find one in the private sector — or, for that matter, doesn’t want to work in the private sector. Although the wage is fixed, it will be a socially inclusive wage set at the level society thinks is a fair and reasonable minimum for someone working full time. It should be a Living Income, not a Basic Income. I suggest that it should be at least £19,500 — that’s £10 per hour for a 37½ hour week — along with comprehensive rights and benefits, including paid holidays, paid maternity or paternity leave, union membership and ongoing training. There should also be the freedom to choose the number of hours worked each week, so people can allocate their time to other things too.

The Job Guarantee is not Workfare. Nor is it a job creation scheme which the government turns on and off depending on how an unaccountable committee interprets the ‘health’ of the economy. The level at which the programme runs depends entirely on demand from the people. If you want a Job Guarantee job, then it’s your right to have one and it’s up to the administrators to find one that suits you.

Crucially, that right extends to anyone who is currently in work and this puts very strong pressure on the private sector. If firms want to employ people then they are going to have to offer better pay and conditions than the Job Guarantee. In effect, the government, through the Job Guarantee, is using market forces to coerce the private sector into treating its workers fairly and responsibly.

But at the same time as providing work, the Job Guarantee also acts as a balance to the ups and downs of the business cycle. The Job Guarantee is a public sector auto-stabiliser, a counter-cyclical mechanism that evens out boom and bust in the private sector and anchors inflation.

Here’s how it works. When the private sector suffers a downturn there will be redundancies and anyone who loses their job can choose to take up a job offer from the Job Guarantee. This causes a significant and immediate increase in government spending into the economy, ensuring that the spending chains and all the other incomes dependent on them are maintained. The Job Guarantee keeps the economy going and stops a slide into recession. Just as important is the maintenance of our collective well-being by providing everyone with something useful to do.

Conversely, when business is booming, the Job Guarantee programme contracts as people are attracted away from it and into private sector jobs. As the programme scales down, government spending is automatically reduced, the economy doesn’t overheat and the risk of inflation subsides.

It’s a simple, elegant mechanism and because it’s automatic there’s no need for a bunch of technocrats to decide how much government spends into the economy. Moreover, it shows that recessions are discretionary. Just like unemployment, going into recession is a choice made entirely and exclusively by the government of the day. Remember, if the private sector is somehow unable or unwilling to provide full employment, then there is still one sector left which is always able and should be willing.

Under extreme conditions, the automatic stabilisation effect of the Job Guarantee may be insufficient and the government may need to raise taxes or reduce spending in order to prevent inflation. The first step should always be to raise taxes on the rich and if this causes redundancies then the Job Guarantee is always there to pick up the people who lose their jobs. The Job Guarantee curbs inflation by moving workers from an inflating sector to a fixed wage sector.

There is much, much more to say about the Job Guarantee, but I need to bring this piece to a close. However, I urge you to keep thinking about it. Try to make a mental list of all the jobs that we don’t do now, but which we could do under the Job Guarantee — all those nice-to-have jobs which would generally make the UK a better place.

Then there are all those unpaid jobs that we already do, work we take for granted which should be recognised. The Job Guarantee will change the definition of ‘work’, so the jobs don’t have to be profit-making or ‘productive’ in a private sector sense — anything that furthers the public purpose will do.

Look closely at the apparent randomness around you and, just like an autostereogram, those jobs will snap into focus. You will realise that there is always plenty to do and that should make you suspicious of the claim that, in the future, there won’t be enough work to go around. We can never, ever run out of useful jobs to do.

So, what’s next? Well, two things for starters. First, we have to explain the difference between ‘sound’ finance and functional finance. Sound finance is the myth that government budgets are the same as household budgets or, if you are a mainstream economist, that there exists a Government Budget Constraint. Functional finance acknowledges the power of sovereign currency and stresses that it is the job of government to use that power for the good of the people, particularly by ensuring full employment. It’s an idea posited in 1943 by Abba Lerner, the Russian-born British economist. Unfortunately, at the Bretton Woods conference in the following year the US ‘encouraged’ us to return to the gold standard.

Second, we need to start altering the discourse and the first candidates for change should be the phrases ‘taxpayers’ money’ and ‘government borrowing’. Taxpayers are not and never have been the source of currency. Similarly, government doesn’t borrow when it issues bonds; instead, it provides a safe place for us to store our savings.

We should also be careful about talking about the government ‘investing’ in the economy. All the talk of government ‘investing’ in the economy is a prime example of working within a neoliberal framing — trying to package up spending in a way that is supposed to look responsible, making it look as if government is some sort of business. We should be honest and tell everyone that the government just needs to start buying up all those unused resources — the ones without jobs. When anyone says ‘How are you going to pay for it?’ we tell them. The debate needs to switch from money to resources if a progressive agenda is to prevail.

Then, armed with the knowledge that a fiat currency provides the government with the ability to provide jobs for all, we need to question capitalist power relations — all that conventional wisdom about relying on the rich for their tax money, pampering the corporations because they alone create jobs, regarding the financial sector as an engine of growth, and believing that national governments are constrained by globalisation.

All that nonsense is just that: nonsense.

 

1.

It’s interesting how the Financial Times was covering MMT six years ago, but The Guardian is only just starting to catch up. See Why MMT is like an autostereogram, Izabella Kaminska, 22 February 2012, FT Alphaville.

2.

See Magic Eye, Wikipedia

3.

It’s worth noting that from 1990 to 1992 we returned to a pegged currency system when the UK became part of the European Exchange Rate Mechanism. The ERM was a precursor to the euro and required that the UK maintain the value of the pound within a narrow band. It didn’t go at all well, created a recession, and ended in an ignominious and very costly exit from the ERM on ‘Black Wednesday’. Still, a few speculators made billions out of it, so it wasn’t all bad.

4.

See Economics 101, 27 July 2018, BBC Radio 4.

5.

Taxes for revenue are obsolete, Beardsley Ruml, January 1946, American Affairs.

6.

Even the Labour Party is in on the act: ‘Our manifesto is fully costed, with all current spending paid for out of taxation or redirected revenue streams. Our public services must rest on the foundation of sound finances. Labour will, therefore, set the target of eliminating the government’s deficit on day-to-day spending within five years.’ Balancing the Books, Labour Party Manifesto, 2017, The Labour Party.

7.

Strictly speaking, it is possible to get net saving between different entities within the non-government sector using bank credit, but it’s not possible either at the individual level or at the aggregate level.

8.

Poverty in America, Hyman P. Minsky (Margaret S Gordon, editor), 1965, Chandler Publishing. Reprinted in Ending Poverty: Jobs, Not Welfare, Hyman P. Minsky, 2013, Levy Economics Institute of Bard College.

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The post We pay for it by spending the money appeared first on The Gower Initiative for Modern Money Studies.

Tracing the roots of progressive views on the duty to work – Part 3

Published by Anonymous (not verified) on Thu, 20/08/2020 - 1:36pm in

This is the third part in my historical excursion tracing where progressive forces adopted the idea that it was fair and reasonable for individuals who sought income support from the state to contribute to the collective well-being through work if they could. As I noted in Part 1, the series could have easily been sub-titled: How the middle-class Left abandoned the class fundamentals, became obsessed with individualism, and steadily descended into political obscurity, so much so, that the parties they now dominate, are largely unelectable! Somewhere along the way in history, elements of the Left have departed from the collective vision that bound social classes with different interests and education levels into a ‘working class’ force. In this Part, we disabuse readers of the notion that the ‘duty to work’ concept was somehow an artifact of authoritarian regimes like the USSR. In fact, we find well articulated statements in official documents in most Western democracies.

The earlier parts in this series are:

1. Tracing the roots of progressive views on the duty to work – Part 1 (August 4, 2020).

2. Tracing the roots of progressive views on the duty to work – Part 2 (August 11, 2020).

I thought the responses to my first were very illustrative of the modern state of so-called progressive thinking, which is a separate research program in itself.

Regular readers will know that I have long been interested and researching the question as to how the neoliberal paradigm has dominated for so long and why the progressive position in politics has failed to articulate a powerful and successful challenge to it.

Thomas Fazi and I also articulate our ideas on those questions in our book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017).

It is clear that the Left side of politics, the traditional social democratic forces, have largely abandoned the contest with conservatives over macroeconomics, and, have instead, sought to differentiate themselves from the conservatives by identifying identity issues, in which they define what they perceive as the modern progressive view.

So questions of ‘right to work’ and the state’s responsibility in ensuring that there are sufficient jobs and the partner expectation, ‘the duty to work’, both of which were the cornerstones of progressive thinking and practice in the Post World War 2, have been abandoned in any meaningful way.

There is no Left commitment to the practicalities of ensuring a ‘right to work’, and, as a consequence of the human damage that has followed the mass unemployment and underemployment that has become the hallmark of the neoliberal period, these politicians get diverted into proposals like basic income guarantees and all sorts of justifications of why we should be relaxed about proposals that allow individuals to receive state income support when they are clearly able to work.

It has become a gospel of progressives that this is somehow a basis for a coherent and connected society. That some people who can work will be able to ‘express themselves’ without having to work but still receive sufficient income, while enjoying the products and services created by others who are working.

The willingness to promote the ‘individual’ over the collective is, of course, another hallmark of the neoliberal era, and progressives, in their willingness to abandon economic class as an vehicle for understanding the social location, have aided that culture of the self over responsibilities to be a societal member.

Further, one of the reasons that this positioning by the traditional progressive political parties have made them largely unelectable (with exceptions) is that the views do not resonate with the mainstream view among workers, who still consider that people who can work should do so.

I am working on a research project at present where we hope to generate the evidence to support that conjecture.

But there is a disjuncture or dislocation between the views found in traditional working class communities and the views that are expressed by educated, urban middle class (I use the term in the social sense) who have largely benefited from globalisation and neoliberalism.

The Brexit vote and the Yellow vest movement are two manifestations of that dislocation.

My earlier parts started with the concept of a duty to work as espoused by Marx in the – Critique of the Gotha Programme 1875 – which was one of Karl Marx’s last important works.

We then followed the historical train to consider how his views had been implemented and as a result we ended up in the USSR, where the concepts of a ‘right to work’ and a ‘duty to work’ were well articulated.

I found it extraordinary how much angst that exercise caused. All the ‘Reds under the Bed’ paranoia came to the fore.

Apparently, I was portraying the Job Guarantee as a path to socialism – then Stalin gulag-style oppression. These claims were pathetic. Sorry.

The fact is that progressive intellectual history is replete with similar debates about the necessity for the state to ensure there is sufficient work for all, and, in return, the citizens had a responsibility to contribute to society, through work, if they were able to.

Otherwise, citizens who were not able to work, would be supported in a material sense by the state.

That sort of duality defined the progressive Post World War 2 period.

It had nothing to do with being an exclusive ‘socialist’ ideal. It was the core ‘bread-and-butter’ social democratic tradition in Western democracies.

That is how we chose to define good societies and these ideals were found in official documents from most nations – such as the nation-building strategies outlined in the – 1945 White Paper on Full Employment – published by the Australian government – and in constitutions of various Western, non-Socialist countries.

The – Preamble to the Constitution of 27 October 1946 – which defined the foundation of the Fourth French Republic (it was the result of a constitutional referendum held on October 13, 1946) is illustrative of Rousseau’s concept of – General Will.

If you study the historical period you will appreciate that France was in turmoil at the end of the War and de Gaulle had a task in normalising France after the disgraceful Vichy period.

There was a huge debate about the way in which a return to constituent government could be accomplished.

Those debates are very interesting but tangential to my objective here.

The historical study by Jon Cowans – French Public Opinion and the Founding of the Fourth Republic – (published in French Historical Studies, Vol 17, No. 1, 62-95 – link is for JSTOR subscribers through your library) – makes it clear that public opinion at the time was definitely in favour of the new constitution.

There was disputes about the role of the presidency etc, but Article 5 reflected the strong public sentiment of the time:

Chacun a le devoir de travailler et le droit d’obtenir un emploi. Nul ne peut être lésé, dans son travail ou son emploi, en raison de ses origines, de ses opinions ou de ses croyances.

Which in English reads:

Each person has the duty to work and the right to employment. No person may suffer prejudice in his work or employment by virtue of his origins, opinions or beliefs.

The Preamble was subsequently incorporated in the – Constitution française du 4 octobre 1958 – which was adopted on October 4, 1958 and became the Constitution of the Fifth Republic (English version)

Further, consistent with the idea that if you were unable to work for any reason, then the state would provide material support, Article 11 reads:

Elle garantit à tous, notamment à l’enfant, à la mère et aux vieux travailleurs, la protection de la santé, la sécurité matérielle, le repos et les loisirs. Tout être humain qui, en raison de son âge, de son état physique ou mental, de la situation économique, se trouve dans l’incapacité de travailler a le droit d’obtenir de la collectivité des moyens convenables d’existence.

English:

It shall guarantee to all, notably to children, mothers and elderly workers, protection of their health, material security, rest and leisure. All people who, by virtue of their age, physical or mental condition, or economic situation, are incapable of working, shall have to the right to receive suitable means of existence from society.

The progressives did not challenge these aspects of the Constitution.

A similar evolution of thinking is embodied in the – La Costituzione – of Italy, which by the way is one of the most progressive of its type (pity it is not followed).

Article 4 defines the ‘right to work’ and the ‘duty to work’ expectations of the Republic:

La Repubblica riconosce a tutti i cittadini il diritto al lavoro e promuove le condizioni che rendano effettivo questo diritto.

Ogni cittadino ha il dovere di svolgere, secondo le proprie possibilità e la propria scelta, un’attività o una funzione che concorra al progresso materiale o spirituale della società.

Which in English reads:

The Republic recognises the right of all citizens to work and promotes those conditions which render this right effective.

Every citizen has the duty, according to personal potential and individual choice, to perform an activity or a function that contributes to the material or spiritual progress of society.

Now the ‘right to work’ is not the same as a ‘duty to work’.

The former reflected the longstanding progressive view that full employment was a legitimate goal for any nation state and that the government should use its capacity to ensure there is work for all.

So, there had to be a buffer of sorts to ensure that fluctuations in ‘market’ work (private sector decision-making) did not compromise the capacity of workers to work.

History tells us that the former has not been respected by the Italian government nor the European Union.

In part, this failure reflects the tension within this neoliberal era between the economic responsibilities of the state to provide sufficient work (the pre-neoliberal construction) and the later views that emphasised the role of government as being limited to making the ‘market’ work better, which we can translate to mean producing the conditions that allow profits to boom, without respect for the labour market consequences.

Despite all the talk in the European Union about ‘social Europe’, the balance has shifted sharply over the last three decades towards the second construction of the role of the state, and as a consequence, the ‘right to work’ lacks any intent or weight.

The second sentence in Article 4 relates to the ‘duty of work’ statement in the Italian Constitution.

The interesting aspect of this clause is that it defines ‘work’ more generally than we would associate with traditional notions of the ‘right to work’.

It is also clear that the evolution of the European Union has made it difficult for the Italian government, even if it had the will, to fulfill its constitutional responsibilities to the Italian people and has split the historical logic that is embodied in Article 4, that being:

1. All citizens should be able to work and the state was historically seen as ensuring there were sufficient jobs.

2. In return, citizens were responsible for contributing effort by way of work, if they could, to advance the commonwealth of the nation.

The neoliberal period compromised the second expectation because it denied the capacity of the state to achieve the first requirement.

It is also clear in the Italian constitution that anyone who could not work would receive adequate material support from the state.

While Article 4 does not really bind the state to guaranteeing sufficient employment, even though that is how such an article has been interpreted, Article 38 does impose direct responsibilities on the state:

Ogni cittadino inabile al lavoro e sprovvisto dei mezzi necessari per vivere ha diritto al mantenimento e all’assistenza sociale.

Which in English reads:

Every citizen unable to work and without the necessary means of subsistence is entitled to welfare support.

Taken together, these articles reflect the overwhelming social democratic consensus that prevailed in the Post World War 2 period.

I could relate many more official statements across many nations to the same effect.

The concept of the ‘right to work’ and the ‘duty to work’ were ground into human aspiration and were very clearly embedded in progressive thinking.

They may be foreign to Americans, which does not provide any specific statement about expectations in this regard, but for most Western democracies, these concepts were unexceptional.

However, the concept of a ‘work ethic’ was not foreign to the Americans.

There is an interesting strand of debate within the philosphical literature about liberty.

So-called ‘defenders of freedom’ abhor the ‘duty to work’ concept even if it provides benefits to society in general.

They claim that it is “artificial rather than natural” and “must be subordinate to the demands of liberty” (see Lawrence Becker provides an excellent discussion of these points in his 1980 journal article – The Obligation to Work – library subscription needed)- published in Ethics (Vol. 91, No. 1, pp.35-49).)

But as Lawrence Becker notes (p.39):

This is a simple non sequitur. It must be granted that nonvoluntary obligations to pay taxes and to do socially useful work are artificial, that is, that their moral basis lies in the ongoing human artifacts known as social institutions rather than in an imaginary state of nature. But it does not follow that their justification is any more difficult than the justification of the (equal) right to liberty or that they must be subordinate to liberty.

That is, the concept of liberty is a ‘social institution’ rather than a state of nature.

And the claim that it is more just for a person to refuse to work when they can, yet live of the work of others, than the requirement that everyone contributes to the commonwealth of society if they can is also spurious.

Conclusion

We will take up that strand of argument in Part 4.

In Part 4, we will discuss the concept of reciprocity, scaling of policy, the concept of the maverick and concepts of justice and coercion.

That is enough for today!

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

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