job guarantee

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Video – An economy that guarantees health and wellbeing for all

Published by Anonymous (not verified) on Wed, 21/10/2020 - 10:41am in

Today, on my blog-light day, I have a video of a recent event where I spoke (with other speakers being John Quiggin and Noel Pearson). The event was in conjunction with the Public Health Association of Australia’s annual conference and we are discussing the interface between health and the economy and the right to work and income security. It was an interesting and very civilised discussion. And when you are through watching that, we also have a ‘provocation’ to consider and then some jazz. All the interests of advancing humanity!

Public Health Association, Australia Event – October 14, 2020

Here is the full video of an event I spoke at last Wednesday. The topic was ‘An economy that guarantees health and wellbeing for all: the right to work and income security’.

The speakers were John Quiggin, Noel Pearson and myself. The hosts were Jayne Flanagan and Tim Woodruff.

The event went for nearly 2 hours and was a moderated Q&A style format – that is, no formal presentations.

Each of us had to make an opening statement and then the discussion followed.

Thanks to Jayne and Tim for their efforts in putting this session together.

Royal Society of the Arts

The London-based – Royal Society of the Arts – recently asked me to contribute to their next quarterly journal, which is widely circulated and aims to disseminate new ideas to foster a more equitable future for all of us. It was founded in 1753.

The RSA Journal has been pushing innovation for 150 years.

Given the state of the world and particularly in the arts sector, their next edition will have the focus of economic security and resilience.

Each edition has a one-page ‘provocation’ where the author is required to … well, be provocative and issue a challenge to the reader.

They asked me to write about Modern Monetary Theory (MMT) and I had 520 words to do so.

Thanks to CEO Matthew Taylor for the invitation and Milena Bellow for editorial assistance.

Here is what I wrote:

In 2013, philosopher Daniel Dennett said in reference to religion: “There’s simply no polite way to tell people they’ve dedicated their lives to an illusion.” The same applies to our embrace of mainstream macroeconomics, which, given its appalling predictive performance over many years, falls into the category of religion. For example, since the 1990s, Japan has run large public deficits and accumulated the highest level of public debt in the world (and its central bank has been buying most of this debt). Mainstream economists predicted rising interest rates and bond yields, accelerating inflation and, inevitably, government insolvency. All predictions failed dramatically. Japan has low interest rates, low and negative bond yields, and faces no inflation problem. It enjoys very low unemployment rates, putting most nations to shame.

Similar predictions of disaster were made during the global financial crisis, when many governments followed the Japanese example. But the predictions were grossly inaccurate – because the underlying economic theory is wrong. Austerity-obsessed governments, applying that flawed theory, have forced their nations to endure slower output and productivity growth, degraded public services and infrastructure, elevated and persistent unemployment and underemployment, flat wage growth, and rising poverty rates and inequality. Neoliberalism fails to deliver, and the theories used to justify it are wrong.

An alternative, emerging macroeconomics paradigm – Modern Monetary Theory (MMT) – is attracting attention because it provides for an accurate understanding of real world monetary systems that allows for better policy formulation to meet the social, health and climate challenges before us. A mainstream economics graduate can say nothing sensible about public policy.

MMT teaches us that a household uses its country’s currency and its spending is financially constrained. The government that issues this currency is not so constrained. It can never run out of its own currency and can purchase anything for sale in that currency, including all idle labour. Mass unemployment is always a political choice.

Government spending is only limited by the availability of goods and services. If productive resources are idle, government spending can always bring them back into use, without generating inflation. The role of fiscal policy is to ensure all productive resources are fully employed; to maximise material prosperity within ecological constraints. It is not to achieve some financial outcome (surplus or otherwise). At full employment, any further public spending growth will cause inflation. At that point, a government wishing to increase its resource use has to reduce non-government usage. Taxation achieves this purpose by curtailing private purchasing power. But it is not required to fund public spending.

Why have Japan’s huge deficits, largely funded by central bank money, not been inflationary? Because the government maintains total spending in proportion to available goods and services and the non-government sector chooses to save. Why are bond yields low in the face of large public debt? Because central banks can always control yields through bond purchases. Private markets can never push yields up if the government does not allow them to. MMT is often dismissed as flawed and unrealistic. But mainstream economic theory has shown time and again that it cannot effectively tackle the challenges facing the world today. It is time for a change.

Music – Lou Donaldson – Blues Walk

This is what I have been listening to while working this morning.

It is from – Lou Donaldson – who plays the alto sax and was very important in defining the hard bop and BeBop era, which means Charlie Parker is in his music.

He is thought of as the ‘father of funk’ given his albums of the late 1960s, which are among my favourites and on my often play list.

But this album – Blues Walk – one of my favourites – meaning it never leaves my iPhone collection – was released by Blue Note Records in 1958.

This album features some of the best jazz players:

Only Lou Donaldson and Dave Bailey are still alive. Lou Donaldson stopped playing live in 2016 when he was 90 years of age.

Here is a nice bio from via the National Endowment for the Arts – Lou Donaldson – Saxophonist.

I prefer tenor or baritone sax, but I always loved listening to Lou Donaldson play.

That is enough for today!

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

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/

 

 

Upcoming Event

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GIMMS is delighted to present its second ‘in conversation’ event.

GIMMS’ Associate Member Phil Armstrong whose new book will be published in November (details below) will be talking to Warren Mosler. Warren, who is one of the founding proponents of MMT, has dedicated the last 25 years to bringing that knowledge to a wider audience across the world and authored ‘The Seven Deadly Innocent Frauds of Economic Policy, published in 2010. He also sits on GIMMS advisory board.

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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.

Thursday, 7 September 2017 - 6:21pm

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

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

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

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

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