Unemployment

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Growing discontent as the cost of living rise continues to bite

Published by Anonymous (not verified) on Mon, 27/06/2022 - 12:04am in

Demonstration by workers employed by Mitie on strike at st George's Hospital, Tooting.GMB members employed by Mitie on strike outside St George’s Hospital, Tooting, for better pay and conditions and to be directly employed by the NHS. Photo by Helen O’Connor

“An attitude to life which seeks fulfilment in the single-minded pursuit of wealth – in short, materialism – does not fit into this world, because it contains within itself no limiting principle, while the environment in which it is placed is strictly limited.”

E.F. Schumacher –  Small Is Beautiful: Economics as if People Mattered

 

Anyone remember when Boris Johnson hid in a fridge to avoid being interviewed by Piers Morgan? It’s getting to be a habit. While the country’s economy reels, and people’s lives are wrecked by growing global instability, rising energy and food prices, and the consequences of 12 years of damaging Tory economic policy, Johnson decided to sneak off to Kiev instead of meeting Tory activists in Doncaster, prior to this week’s by-elections in Tiverton and Honiton, and Wakefield. As a Tory MP suggested, “The PM ought to be making every effort to support and respect the people who hold his future in their hands.” Not for the first time, he fell short of the expectation that Ministers should serve the interests of their citizens and not their own.

The by-election results are a testament to people’s growing disaffection, not just with the Prime Minister, but with the Tory government, which has demonstrated time and time again its priorities in terms of in whose interests they govern. Priorities which have impoverished many and enriched the few, and left the public and social infrastructure unable to respond effectively to the economic threats it has faced and continues to face. Thus, in a predictable flurry of tactical voting, Labour lost its deposit in Tiverton and won Wakefield, and the Lib Dems lost their deposit in Wakefield and won on a huge swing in Tiverton.

As positive as this might be viewed, and regardless of whether Johnson does the decent thing and resigns, the country still faces two more years of Tory rule, with all the economic pain that is likely to bring. Leopards don’t change their spots, unless of course it’s in their interests to do so, as is the case with Rishi Sunak’s reported decision this week to restore the pensions triple lock next year. Clearly a bribe to give their retired voting supporters a reason to put yet another x on the voting slip.

Worse, even if there were an election tomorrow there would be little choice on offer between three political contenders still wedded to serving the City and big business, and the neoliberal ideology that has dominated policy for decades.

We have three political parties whose policies are driven by the household budget narratives of government spending, rather than spending in the context of the real resources that the UK government has at its disposal, and which are the real constraints that need to be managed to avoid inflationary pressures. In the light of that framework, these are spending choices which are political and not monetary in themselves, and which determine who gets the pie. And over the last decade and longer, it is very clear who have been the winners and losers.

In this respect, the household budget narrative of how a government spends continues to frame the debate through headlines and articles which analyse the public accounts, and in doing so, keep the false mantra of public unaffordability in the public eye.

This week, Sky News in its headline suggested that the government had been ‘forced to hand over £7.6bn in record payments on public debt after inflation pushed borrowing costs to some of their highest levels on record’, and the same news outlet also reported that the National Debt had grown in April by £18.6bn. The Telegraph also suggested that it would cut the Chancellor’s ‘headroom’ for further spending or cutting taxes.

Just more of the same old nonsense.

The government has not, in fact, been forced to do anything of the sort. These references represent part of the smoke and mirrors that are intended to deceive the public about the nature of how the government spends. The government as the currency issuer is always able to meet any liabilities in its own unit of account which include maturing bonds. Those bonds do not constitute borrowing in any shape or form, any more than taxing creates the funds allowing governments to spend.

When Michael Gove warns ‘tough times’ are ahead and claims that the pressure of the public finances means that government is unable to provide the level of support to people it would like, it is a whopping lie of the first order.

It is vital, therefore, to bring clarity to the public about how government really spends. It boils down to a few simple facts: The government is the currency issuer and has to spend money into existence before it can collect any tax at all, or issue bonds. Contrary to belief, the issuing of these bonds does not constitute borrowing, rather they form a safe savings mechanism for big corporations which allows the Central Bank to manage its target interest rate. Furthermore, the government, as the currency issuer, can always meet those liabilities and any interest accrued upon maturity.

As for the National Debt, that is quite simply all the money the government has ever spent into existence and didn’t tax back. The money that circulated in the economy. Not something that anyone needs to spend time worrying about. People should instead be concerned about a government using the language of taxation and debt to deny them functioning and quality public services. And which, combined with government market-led policies, have been responsible for the low-wage economy and the growth in food banks and homelessness, while at the same time immorally lining the pockets of large corporations and their rich friends.

Sunak is endlessly given a platform by a compliant media to repeat his messages that government, ‘must take a balanced and responsible approach to support now, while also not burdening future generations’, or that it is, ‘making sure every penny of hard-earned taxpayer money is being spent on our world leading public services.’

On that last point, it is ironic that Sunak thinks that his government has created a world-leading public service sector, when it is clear that over the last 12 years it has done the exact opposite. It has devastated them whilst driving its privatising agenda. The state of our NHS is living proof of that, as a Panorama programme earlier in June demonstrated, as an undercover reporter exposed the scandal of a US-owned company, Operose, which is prioritising profit over patient care. With staffing shortages, rising waiting lists, crumbling NHS infrastructure and a demoralised workforce, we are paying a heavy price for government policies and insufficient public sector funding.

If governments seek to be accountable, that should be related to their policies and achievements, or not as the case may be, not whether they have been fiscally responsible.

As for the claimed burden faced by future generations which this blog has spoken about many times, the only debt that will be owed to those future generations will be the one created by government failure to invest in the country’s infrastructure today, to ensure that one can be as productive as possible tomorrow. Instead, based on our current trajectory, the country faces a bleak future based on using the public accounts as the measure of a country’s economic success or failure.

While the Tories bet on continuing to con the public with their talk of the necessity to be fiscally responsible, a couple of weeks ago Labour, in the same vein, took the Tories to task over its own published record on the public finances which showed that Labour presided over nine budget surpluses compared to the five under the conservatives. The data also indicated that the highest peacetime deficit came under the Tories during the pandemic. The report also said that Labour had ‘failed’ to set out how they would pay for their spending measures and attacked the party for its ‘reckless’ approach to the public finances and the third-highest deficit ever recorded after the second world war and the pandemic.

This is yet more of the nonsense which prevails in political circles and is reported by the mainstream media.

Firstly, whilst Labour chases rebuilding its reputation as being fiscally responsible, it, like the Tories, adheres to the false notion that balanced budgets and surpluses are the golden grail of public accounting. It is unfortunate that Labour and the Conservatives choose to conduct a war based on who supposedly has been the most fiscally disciplined, rather than examining the background to those surpluses and basing their critique on that. Surpluses, just as deficits are neither good nor bad in themselves and simply represent government spending and taxation in relation to the economic circumstances that prevail.

We should reject the implied notion that government surpluses create savings that can be used later to fund public expenditure. As Bill Mitchell explains:

A budget surplus exists only because private income or wealth is reduced.’

It is the context of that reduction that is all-important.

The real consideration should be an examination of why there is a surplus or deficit. What were the economic reasons? The pandemic, the global financial crash and now the global uncertainty arising from rising energy and food costs are three examples of why deficits of both political parties increased, to save an ailing economy facing recession and alleviate the associated human consequences. There was no alternative, unless one preferred economic collapse to ensuring that a country could function during difficult times. The point of contention might be who the beneficiaries of the government spending actually were, and the question was it a fair distribution?

Surpluses equally can arise when government fails to spend adequately, thus pushing the non-government sector into increasing its debt burden, which ultimately has an unavoidable consequence as debt levels become unsustainable as they did during the build-up to the Global Financial Crash.

As Bill Mitchell wrote in 2009 and as we are currently experiencing:

“In terms of fiscal policy, there are only real resource restrictions on its capacity to increase spending and hence output and employment. If there are slack resources available to purchase then a fiscal stimulus has the capacity to ensure they are fully employed. While the size of the impact of the financial crisis may be significant, a fiscal injection can be appropriately scaled to meet the challenge. That is, there is no financial crisis so deep that cannot be dealt with by public spending.”

What was true then is true today. So, whilst Labour and the Tories fight their battles on the premise of fiscal discipline, the elephant continues to thrash about in the room. It is worth reiterating that the only measure of a government’s economic success is what it actually did to preserve a functioning economy in good times or bad, and the outcomes of those decisions. Not whether they lowered the deficit, balanced the books or recorded a surplus. Our political parties have it all upside down.

Whilst the endless merry-go-round of public indoctrination and deception by politicians and a compliant mainstream media continues, scarcely a day goes by when that dreaded word inflation is not mentioned to keep the troops fearful and in their place as if they were not already suffering enough. Articles in the mainstream media castigate the Bank of England for not acting sooner to curb it with interest rate rises or suggest that it has to go much further yet.

As people struggle to keep their heads above the water as the rises in the cost of living continue to bite, the government once again shows who in the pecking order are its priorities.

This week the Treasury said that there would be no ‘inflation-busting’ pay rises for the public sector and urged private companies to consider similar pay restraint. At the same time, it defended its above-inflation rise for pensioners and its plans to cut limits on director and non-executive pay, as part of a package of business deregulation. On the last point, have we learned no lessons at all?

Whilst Sunak insists that pay rises for workers should be, ‘proportionate and balanced’, to prevent price pressures getting out of control, at the same time he claimed that the planned increase in state pensions was different because high pensioner incomes do not feed into the cost for businesses creating goods and providing services.

As Ben Riley-Smith from the Telegraph pointed out, Downing Street’s arguments about pay and inflation now make little sense. It seems yet again that in a low-wage economy in which working people were already struggling, the government are choosing to throw them under the bus yet again to curb inflation at a time when wages are already falling, and demand is sinking as retail figures showed this week. When costs rise, uncertainty rises with it, and then impacts the high street.

There is absolutely no distinction between income increases via pensions or pay all will add to aggregate demand and the capacity to spend. This is a deliberate choice by the government and smacks not of economic common sense but political bias. Long forgotten are the claps for the people who kept the economy functioning during the pandemic.

These inflationary pressures as Martin Lewis the Money Expert suggested, result from supply-led problems, not demand-led ones, and such interest rate rises will feed through into the cost-of-living pressures already being felt by working people.

And as the economist John T Harvey noted in an article in Forbes:

“… it’s abundantly clear that the lion’s share of what we are facing today is being driven by supply-chain issues […] Gas prices are not going up because people had so much money they wanted to do some more joy riding and oil companies couldn’t keep up.  Rather, as with the OPEC oil embargo in 1973, a geopolitical event has created uncertainty and a decrease in supply.  These are the factors responsible for our inflationary woes. […] Nothing in our current scenario suggests that lowering the level of economic activity […] would be helpful.”

And yet, as the TUC noted in an analysis, while bonuses paid to the bankers, insurance brokers and other financial sector employees have reached a record high, the rest of the country struggles with soaring cost of living pressures that are outstripping pay rises. Wealth inequity is built into our economic system and working people pay the price. The rising discontent is currently feeding through into industrial action or threats of industrial action.

So, what should the government’s strategy be? GIMMS Associate Neil Wilson suggests the following :

  • Interest rates should be going down, not up, because taxing young people trying to set up home and giving that to rich people with money is completely the wrong approach.
  • Instead, we need to understand that taxes are there to stop the private sector from hiring people so the public sector can hire them. If we have inflation, then we are undertaxed for the size of government we have.
  • Therefore we reduce the size of government, or we increase taxes on business so they hire fewer people. Employee NI changes should be shifted to Employer’s NI.
  • The number of people on out-of-work benefits is entirely in the gift of private sector businesses. All they have to do is offer sufficiently attractive wages and conditions. In other words, learn to compete and stop offering substandard jobs. Rather than out-of-work benefits we should provide a guaranteed living wage job for all, then it would be even clearer that the problem is with the quality of the private sector job offers, not the willingness of the people to work.
  • Since the inflation problem is a lack of energy, why are we arguing about money rather than talking about measures to use less energy?

Whilst the temptation is increasingly to focus on domestic issues, we ignore at our peril the global context of the effects of the pandemic and the conflict in Ukraine on world economies, not to mention the climate crisis which seems to have taken a back seat, or rather dropped off the agenda.

It is increasingly clear that there will be severe consequences for countries in the global south. Countries that do not enjoy food and energy sovereignty, are loaded with foreign debt, and who have suffered at the hands of the IMF which imposes tough conditions for bailouts, destroying public infrastructure and privatising public assets.

Countries who, on top of this, are also having to deal not only with the shocking rises in the price of food staples like grain and energy, related to the conflict in Ukraine, but also with the costs associated with western manufactured wars and economic exploitation, and human-caused climate warming.

There is not a week that goes by when those consequences are not laid bare. Those of a rotten economic system which favours the global north.

This week the UN warned that only an immediate scaling up of funds and humanitarian relief could save Somalia from famine.

In March and April, a brutal heatwave struck India and Pakistan which killed at least 90 people and led to wheat crop failures, power outages and forest fires.

This month, more than 110 people have died and millions have been stranded as excessive Monsoon rains devastate India and Bangladesh, adding to the damage already caused by unusually heavy rain which lashed north-eastern India and Bangladesh in March.

In Niger, people are on the other hand, praying for rain, as malnourished children die as the global food crisis worsens years of drought, caused by the climate crisis which has led to increasingly unpredictable patterns of rainfall and longer dry seasons.

And in Chile, working people are becoming desperate as a severe drought which is turning a reservoir into a desert has affected copper output, stoked tensions over water use for lithium and farming, as well as fuelling forest fires. Plans are now being drawn up for water rationing.

In the Congo, peat which stores vast amounts of carbon is under threat from climate-induced longer dry seasons, unsustainable farming practices and the possibility of significant oil deposits being exploited close to peatlands, with government already parcelling out blocks of land and seeking potential investors.

These events come as climate talks in Germany between rich and poor countries over funding compensation to deal with climate change caused by the emissions of richer countries, ended in acrimony as the US and EU fail to agree.

As Congo’s Environment Minister pointed out, ‘It’s time we understood that it is in our common interest to conserve [the peatlands]. Because if [the West] doesn’t help support our conservation work, we shall be obliged to use our own natural resources, because we need money simply to live.’

That goes for all countries faced with similar dilemmas, and we are as far away as we have ever been from developing global solutions.

With Sri Lanka’s Prime Minister warning this week that the country is on the point of economic collapse, it exposes the fundamental exploitative and toxic nature of the economic system. A country that has as the economist Fadhel Kaboub tweeted recently, ‘failed to invest in food and energy sovereignty, raced to the bottom chasing low value added export industries, remittances and tourism. All fueled by debt in foreign currency.’

The climate crisis, combined with the toxic economic system which is driving it, is posing an existential threat to humanity. The natural world and its biodiversity is under threat as never before, and yet despite the promises, we are now going backwards.

As Antonio Guterres, the head of the UN, made clear last week, fossil fuel firms ‘have humanity by the throat’, as the industry and its backers pull in record profits as energy prices soar, and governments give the go-ahead for further oil field development or re-opening coal plants as Germany is proposing to do. Suddenly the appetite for addressing the climate emergency has been supplanted by other immediate concerns, rather than the long-term effects of continuing to burn fossil fuels and use up the world’s finite resources to keep a dying economic system alive.

We have choices. They start with unpicking the lies about how the government spends, so the public understands the scam that has been perpetrated over decades by politicians, orthodox economists, and the media.

Change is inevitable. The question is what sort of change do we actually want for our children and what needs to happen to achieve it? We need an urgent challenge to a toxic system. Learning how money works is fundamental to that quest.

 

 

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The Government, like the Pied Piper, marches the nation back to Dickensian Britain

“Please spread the word. We need to end the ‘state is like household’ analogy. The main constraint on govt. spending is the productive capacity and resources in the economy and the risk of inflation – not the size of the budget deficit.”

Josh Ryan-Collins on Twitter

The Pied Piper of Hamelin playing his pipe and leading the children away from the town
The Pied Piper of Hamelin, print, Henry Marsh, after John La Farge (MET, 21.65.4). John La viola, CC0, via Wikimedia Commons

This week, the Chancellor of the Exchequer, after dragging his feet and protesting in his speech to the CBI that, given the external global circumstances driving the cost-of-living increases, ‘there is no measure that any government could take’, has now done an about-turn. After telling the public not so long back that his top priority as the dangers of the pandemic receded was to restore the public finances, the ongoing and worsening supply crisis has finally forced his reluctant hand, albeit as a temporary and inadequate measure as many charities and other anti-poverty groups have already noted in their analyses. He fails, yet again, to get to grips with the underlying structural problems caused by the policy decisions of successive governments. Decisions which have led to a low wage economy, and over decades driven poverty and inequality which has benefited businesses at the expense of working people. Existing problems which have severely exacerbated the current unstable economic situation.

It is, however, once again too little and too late. An afterthought for a man who appeared last week for the first time in the Sunday Times Rich List, who seems to have no concept of the difficulties in ordinary people’s lives. Andrew Harrop, of the Fabian Society, described the Chancellor’s measures as a ‘sticking plaster’. We have had a lot of those over the last decade as government austerity has resulted in the inevitable breakdown of public and social infrastructure, and of society and its values. Half-baked policies have glossed over the growing hardship this government has caused by doing nothing except revel in its rhetoric and smoothing over of the truth with its propaganda.

Societal breakdown is not an unavoidable destination, it is the result of the deliberate failure by the government to enact the policies that would keep its citizens safe and secure in a functioning, fair economy and ensure that in hard times it acts to cushion the blows caused by events out of its control. Furthermore, whilst many, with their hearts probably in the right place, talk about creating a fairer welfare system and higher benefits as a way out of this situation, in the long term that is not the answer, and buys into more dependence on the state, which, frankly, has already done its utmost through reforming the welfare system to punish those citizens who find themselves in involuntary unemployment or precarious employment, or unable to work through illness.

The solution lies in creating a fairer society that is predicated on better wages and terms and conditions of employment, not so-called welfare ‘handouts’ to those who are disparagingly referred to as the ‘deserving poor.’ As Hannah Fearn wrote in the Independent this week: ‘Benefits do not support the poorest to live a self-determining and fulfilled life, but trap them in desperate cycles of poverty.’

It also lies in creating a high-quality public service sector, instead of the diminished one we have today, the implementation of a Job Guarantee to support people, as now in this current economic climate, and for those that cannot work, a properly funded social security system which gives people dignity and sufficient income to live on.

It was shameful to note that in his speech, the Chancellor, announcing his spending measures, said that the government would ‘not sit idly by’. That would be laughable if things were not so serious. For over more than ten years, the Conservative government has ‘sat idly by’, as it cut spending on public and social infrastructure to the bone, on the specious lie of unaffordability, couched in narratives of sound finance. This is therefore not a new phenomenon. The price we have paid for that lie as the pandemic raged has been made very clear. The public infrastructure upon which society relies, both in good and bad times, fell short, from the NHS to social care, education, local government and other vital institutions. Everything that binds society together with a cooperative purpose has been whittled away.

The emphasis on balanced budgets to serve an ideologically driven agenda that benefits global corporations rather than delivering public purpose, has led to rising poverty and inequality, which have translated into hunger and the growth of food banks as families have struggled to put food on the table and heat their homes. GIMMS has covered these disturbing subjects endlessly in its MMT Lens, week by week, month by month, year by year, since its launch in 2018. The fractures began in earnest a decade ago, with unnecessary austerity, and a false discourse that governments are limited in their spending policy choices by the tax they collect or what they can borrow, which, in turn, according to the orthodoxy, has consequences for future generations in terms of higher tax burdens. An obscene deception in the light of what has followed, and which arose out of a political choice driven by a pernicious economic ideology, and not financial necessity. It is time to hammer home that the line so often used by Sunak and others is false. The future burdens won’t be tax ones, but human and environmental ones created by governments which have failed consistently to invest today to create a truly productive and sustainable future tomorrow.

The global pandemic which affected and is still affecting production, followed by the outbreak of war in Ukraine, have only served to highlight our strategic planning deficiencies and interdependence. Ukraine and Russia play a major role in global food markets (not to mention oil and gas) which, when increasingly combined with the growing consequences of climate change on food production, with India imposing a ban on wheat exports as severe heatwaves have damaged crops, and East Africa in the grip of a relentless drought, only serves to emphasise the real costs for governments which have prioritised keeping the global corporatised economic order functioning, and the capitalist gravy train, predicated on exploitation, rolling. The tsunami of climate change is bearing down upon us, and yet, the government still sees the future as being defined by increasing growth in consumption, regardless of its impact on the planet. We apparently have to make up for the losses of the last two years, even if that means abandoning our climate promises which now seem to have been lost somewhere in the ether.

Instead of focusing on sound, consistent, long-term strategies to secure food and renewable energy domestically, governments have allowed the global corporate juggernaut to dictate the pace, thus securing its power, influence, and wealth. But as we are belatedly discovering, the ‘Just in Time’ world in which we live has distinct disadvantages. Nature, disease, and geopolitics combined, have exposed the weaknesses of a decaying unipolar economic system, which, until recently, has based its ideas on the finite nature of money and persuaded an unaware public that there is no alternative. A system predicated not on cooperation but on dividing people and allowing, by design, an unfair distribution of real wealth and real resources.

The Global Financial Crash in 2008, the Pandemic and current economic uncertainties have changed all that, and governments have been driven, as a result, to ‘re-discover’ the power of the public purse to manage their economies in the face of the prospect of economic decline, although always with a view to constraining that spending at some future point in time, once an emergency is over. There is always a price to pay on this model of how government spends. But just when Sunak thought he could get back to ‘business as usual’, his plans were scuppered once again by the conflict in Ukraine.

Balancing the books is a perennial concern for all governments, sooner or later. The government should be a good manager of the economy by ensuring that the public and social infrastructure meets the needs of the people it serves, from individuals to communities and businesses, and by aiming to balance its spending with the very real resource constraints, which requires strategic planning. Instead, governments, the media and those working in think tanks, endlessly replay their messages of monetary scarcity which have played a cruel and destructive trick on the population. Such deceitful narratives ultimately constrain the actions that are needed to address poverty, inequality, environmental sustainability and planetary health. Should that, of course, be a government objective. However, these narratives are useful for governments who wish to avoid such actions. It doesn’t bode well for the now seemingly defunct concept of levelling up or addressing the climate emergency.

We are led to believe that government spending is constrained by taxation or borrowing, and the media without fail, reinforces those messages, as Larry Elliott did in an article in the Guardian at the end of April. On the one hand, journalists report the state of public services and other vital infrastructure, relate stories about how people are struggling to keep their heads above water and being obliged to use food banks or switch off their heating, and yet, in the next breath, in an astonishing display of cognitive dissonance, give their readers a blow-by-blow account of the state of the public finances, as if somehow it is of vital importance to know how well the Chancellor is delivering his fiscal objectives. Put the fear of God into a nation by focusing its attention, like a magician, on the wrong subject. It seems that they choose not to make a connection between government spending (or the lack of it) and the state of the nation. Those two things are not disparate subjects, they go together.

As the current government, like the Pied Piper, marches the nation back to Dickensian Britain, journalists should at least be challenging the accepted economic dogma which prevails, rather than reinforcing the message that sound finance trumps public purpose. That should be the role of the media. But then, of course, as Upton Sinclair so rightly observed, ‘It is difficult to get a man to understand something when his salary depends upon his not understanding it.

So, given his predilection for household budget accounting, it was not surprising that Rishi Sunak, the arbiter and promoter of sound finance, had to eat his words and do yet another about-turn, by stating that he will be imposing a ‘windfall tax’ on oil and gas companies (well sort of) so he can, as he claims, partly cover his spending pledges. Whilst some Conservatives are critical of the tax, suggesting it will reduce investment and goes against their low tax stance, (at least where the rich corporations are concerned), Labour’s calls over the last few months for a tax on extraordinary profits to help people manage their way through the energy crisis, thus have now been satisfied. Job done. That is, of course, if we believe the notion that has been drilled into the public consciousness that taxes fund government spending.

The government as the currency issuer has the capacity to spend what it needs to, to balance the economy in good times and keep it functioning during economic crises. It doesn’t have to go begging to rich people or large corporations to provide that funding, or impose windfall taxes, and nor does it have to borrow to do the same. That is all part of the smoke and mirrors that have created false narratives. The sequence is spend first, then tax, not the other way around.

The last two decades and more should have proved categorically that household budget economics, in terms of government spending, is a myth. The public is beginning to take note that there is always money to bail out ‘too big to fail’ banks and other large companies, fund wars or address the fallout from pandemics, when it suits the government to do so. As the contradictions become ever clearer, the public are slowly coming to understand the political nature of spending decisions, and that, by the same token, the UK government could, in the same way, create the money to fund public services and vital infrastructure, that poverty and inequality could be addressed to ensure that citizens have dignified and meaningful lives, and that the climate crisis could be tackled through legislation, and targeted spending and taxation policies, to drive change and force businesses to do or die.

As Josh Ryan-Collins, who is an associate professor in economics and finance at the UCL Institute for Innovation and Public Purpose wrote in an article in the New Statesmen this week, ‘Government spending power is limited not by tax revenues or borrowing but by the productive capacity of the UK economy and political will.’

Ryan Collins, promoting a new co-authored working paper, ‘The self-financing state: An institutional analysis‘, published by the UCL Institute for Innovation and Public Purpose (IIPP), which provides an in-depth analysis of the mechanics of the key institutions involved in UK government spending, demonstrates clearly in his article that the ‘British state always creates new money when it spends’. That is fundamental to what comes next.  It is the starting point for change.

The self-financing state: An institutional analysis

This paper is an institutional analysis of government expenditure, revenue collection and debt issuance operations in the United Kingdom.

 

So, while Chancellors, politicians, think tanks and journalists indulge in relaying myths that describe how governments spend, and keep the prevailing economic system functioning in the favour of capital, the reality is somewhat different.

A challenge to that understanding and the economic orthodoxy which drives it, is, however, underway.

The World Economic Forum’s meeting in Davos this week has revealed the growing cracks. The realisation by the wealthy elites that the global economic system, which has created vast wealth for the few, whilst at the same time crippling poverty and inequalities in the distribution of real wealth for many others, is under threat. As working people in the global north wake up to their exploitation and the associated injustices, and those in the Global South begin to reject the economic solutions imposed by the north, under the tutelage of the US, its allies and the institutions which it controls – the IMF, the World Bank and the World Trade Organisation, those that have benefited over decades may, at last, be facing a rude awakening which could force a rethink. Not that one is holding one’s breath! But it should not be surprising that the Establishment which has dictated the rules for decades, feels threatened in this time of flux and uncertainty. Things ‘ain’t what they used to be’ and the certainties are slipping away.

Reuters reported this week that world leaders, financiers and chief executives were leaving Davos with ‘an urgent sense of the need to reboot and redefine globalisation’. Their version of globalisation has, hitherto, not been about real cooperation in the service of humanity, rather it has been the exploitation of human labour and finite resources in the service of greed and profits.  Globalisation has not been about planetary flourishing, it has proved to be the exact opposite, favouring the few, a billionaire class who, as Oxfam pointed out this week, were increasing their fortunes by $1billion every two days. Not because they worked hard but because the system is rigged in their favour. A system which allows them to amass vast resources and pollute the planet with their excesses, while the rest labour in low wage economies as slaves.

Its dominant position has been ably assisted by the notion of monetary scarcity, which has been hugely damaging as countries in the global south have been weighed down by foreign debt and forced to accept punishing bailout regimes, which have, in turn, forced cuts to public spending and decimated public infrastructure. This is the common link between the global north and the global south. The toxic economic system which prevails and leads Sunak to focus on fiscal discipline rather than public purpose.

 

The MMT Podcast with Patricia Pino & Christian Reilly: #131 Fadhel Kaboub: Free Trade Isn’t Free: Food Sovereignty And Why It MattersPatricia and Christian talk to economist and President of the Global Institute For Sustainable Prosperity Professor Fadhel Kaboub about how global food and energy systems have been fostered to benefit the global north at the expense of the global south, and how understanding modern money is vital to…

 

The damage that has been done over decades is incalculable. The events of the past few years have revealed the inherent weaknesses of globalisation and its bedfellow, neoliberalism.

As the effects of climate change, caused by the burning of fossil fuels, combine with the associated loss of biodiversity due to land mismanagement and exploitation, the degradation of soil, resulting from unhealthy farming practices and overuse of herbicides and fertilisers, along with changing global weather patterns, the world faces an uncertain future without adequate urgent action.

Ultimately, the UK does not exist in a bubble and must now see its future actions and policy decisions in a global context, but not the one we know. Not a continuation of the status quo which protects a rotten free trade system and sustains the wealth of the few, but an all-encompassing strategy for human and planetary fulfilment. It is not about pulling up the drawbridge. It is about ensuring that nations can help themselves to ride the economic and climate storms ahead, and work cooperatively to trade fairly and sustainably with their global neighbours.

Some might call this an unachievable pipe dream, given the current instability forged out of a toxic economic system and endless wars for global hegemony, and let’s be honest, theft of real resources. But it doesn’t have to be.

Our future depends on real and substantial change, not tinkering around the edges so that the global elites can maintain their power and influence. It begins with a public understanding of how the government spends, to challenge the status quo and set the scene for creating a fairer world, which has both a sustainable and liveable future. The way ahead may be bumpy but that’s no reason not to try.

 

Announcement

The GIMMS book ‘Modern Monetary Theory: Key Insights, Leading Thinkers‘ – Edited by Professor L. Randall Wray and the Gower Initiative for Modern Money Studies, is scheduled to be published by Edward Elgar Publishing in January 2023

For more details, please see the EE website via the link below:

 Key Insights, Leading Thinkers" draft front coverModern Monetary Theory’This is a fascinating, eclectic group of professional papers in which the reader may explore both the first principles of Modern Monetary Theory and many institutional and historical details that lend weight to the conceptual framework. This book is a landmark in the development of MMT, a boon for…

 

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Raising interest rates is like blowing up the garden to weed it

Published by Anonymous (not verified) on Tue, 17/05/2022 - 6:00pm in

By Dirk Ehnts, PhD in Economics, affiliated researcher at the Institute for International Political Economy Berlin

Sten Grahn, Technical Doctor in Production Engineering

Peo Hansen, Professor of Political Science, Linköping University

Jussi Ora, Director of Positive Money and Board Member International Movement for Monetary Reform

and Patrik Witkowsky, Founder of the Centre for Employee Ownership

 

This article was first published in Swedish on May 15, 2022, at Göteborgs-Posten.

The Riksbank (central bank of Sweden) only sets the interest rate. And interest rates have no impact on the energy prices that are driving inflation today. But higher interest rates lead to higher unemployment and lower output – and that can push inflation even higher. But there are other ways to curb inflation, write Dirk Ehnts, Sten Grahn, Peo Hansen, Jussi Ora and Patrik Witkowsky.

Stefan IngvesStefan Ingves, Governor of the Riksbank. IMF Photo/Cory Hancock via Flickr, Creative Commons 2.0 license

The (Swedish) inflation rate in March was 6.1, per cent, compared with 4.5 per cent in February. This is largely due to higher energy costs. The oil price, which was negative in April 2020 when there was a surplus, has risen to around $100 per barrel. Gas prices have also soared.

Is there anything we can do about the price increases? Today, we give responsibility for inflation to the Riksbank, which has an inflation target of 2%. According to accepted economic theory, inflation can be brought down by raising interest rates. As the Riksbank writes on its website: “A rise in interest rates also makes it more expensive for firms to finance investment. As a result, higher interest rates normally curtail investment. If consumption and investment fall, total demand also drops and there will be less activity in the economy. When activity is low, prices and wages usually rise at a more modest rate.”

Blunt tool

However, a slowdown in economic activity also leads to an increase in unemployment. The Riksbank thus fights inflation by increasing unemployment. The idea is that higher unemployment weakens the bargaining position of wage earners, as the threat of unemployment is now more acute.

Raising interest rates is therefore both a blunt and harmful tool. It can be likened to blowing up a bomb in the garden to get rid of the weeds. The job of weakening the economy gets done, but at a very high price. In addition to the economic and social damage done to those who lose their jobs, unemployment further divides society.

A second problem with raising interest rates is that it is unlikely to reduce inflation at all. Energy prices today are largely imported and therefore have nothing to do with Swedish wages. In other words, even if we blow up the garden, it is highly likely that weeds will continue to flourish. Moreover, we can expect higher interest rates to increase business costs. Swedish companies are very indebted today. Therefore, if interest rates rise, companies can raise their prices, and thus inflation, to stabilize the profits they need to pay off their debts.

In other words, even if we blow up the garden, it is highly likely that weeds will continue to thrive.

An interesting example is the situation in the Czech Republic and Slovakia, two countries with similar economies. While the Czech central bank started to raise interest rates last summer from zero to the current five per cent, in the eurozone country of Slovakia the rate has remained at zero. Last summer, inflation was the same in both countries. Today it is higher in the Czech Republic than in Slovakia.

Sweden produces more electricity than we consume, but since Swedish energy operators operate in the integrated European energy market, this means that, under current legislation, they will raise their prices if market prices rise. Our current energy prices, therefore, do not reflect a change in production costs, or in supply and demand in Sweden. Higher energy prices are transmitted via the international energy markets. They create profits for Swedish energy operators as a result of events outside Swedish control.

 

Investments in public transport

So, are there any alternatives to raising interest rates? One option is to subsidize petrol and diesel, as the government did by cutting the fuel tax and paying a transfer to car owners. However, this only adds fuel to the fire by throwing money at it, which will end up as profits for the energy companies.

Another option, which curbs both inflation and climate impact, is to invest heavily in public transport, electric vehicles and other solutions that reduce energy demand. Germany is an interesting example. There, citizens can buy tickets for the national public transport system (everything except long-distance trains) for just 100 crowns (about 8 pounds sterling) a month this summer. This fills empty trains and encourages people to park their cars, reducing energy consumption.

In the longer term, a more strategically robust price stabilization policy is needed. Instead of raising interest rates, we need to transform our energy and transport systems. This means massive public investment in renewable energy, public transport, fossil-free vehicles and energy efficiency. This also includes a major investment in local renewable energy production. To achieve this goal, the fiscal framework needs to be reformed, as it currently hinders public investment, weakens our infrastructure and makes Swedish consumers and industries vulnerable to foreign energy markets.

It is easy to blame the Riksbank for inflation. But this is completely the wrong way to go. Blowing up the garden by raising interest rates is associated with major social costs and it also risks increasing inflation further. The best way to fight inflation is to rebuild and rethink our energy and transport systems.

 

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Journey to the heart of Argentina

Published by Anonymous (not verified) on Mon, 16/05/2022 - 6:00pm in
By Carlos García Hernández

Originally published in Spanish in El Común on 13th May 2022

 

Women and a child walking past ouses in La boca Buenos Aires, ArgentinaImage by Fernando Hidalgo Marchione on Flickr. Creative Commons 2.0 license

Between May 2nd and 5th, 2022, I had the opportunity to join economist Warren Mosler’s visit to Buenos Aires organized by Pymes para el Desarrollo Nacional and Grupo Bolívar.

In this way, the interest in modern monetary theory has allowed Mosler’s analysis to be oriented towards the specific case of Argentina. It has been a fascinating experience that has taken us to the bowels of the country’s economy.

The organizers asked Mosler to focus his proposal on two things: the possibility of achieving full employment without inflation (an economic state I have dubbed the Lerner point) and Argentina’s latest agreement with the International Monetary Fund.

Mosler presented his proposal at several public events, to managers of the Central Bank, to the leaders of the public financial institution Banco Nación, at the University of Moreno, in a visit to the Río Santiago shipyard and on the radio program Teoría Monetaria Moderna Presenta. His conclusion is that Argentina’s problem is primarily of a fiscal nature, since Argentina currently spends 8% of its GDP on interest payments derived from public debt securities and Mosler estimates that this figure will soon rise to 20%. On the other hand, the official unemployment figure is not very high (7%), but youth unemployment is over 30%. In addition, the real unemployment rate is much higher than the official one and poverty reaches 37.3% with a marginal poverty rate of 8.2%. Added to this is the enormous problem of inflation, which currently stands at 55.1% per year, but is expected to exceed 60% by the end of the year.

The specific measures he proposed were threefold: the adoption of floating exchange rates, a permanent 0% interest rate policy, and the implementation of job guarantees based on employment buffer stocks.

The adoption of floating exchange rates is the measure that would make it possible to carry out the other two, since only floating exchange rates allow for permanent full employment policies and 0% interest rates decided by the central bank. Currently, Argentina has a fixed exchange rate of the peso against the dollar. The reason for this is that there is a belief among the leadership and the general population that Argentina’s main problem is external constraint. Therefore, it is believed that the Argentine peso is worthless and that it is necessary to maintain large foreign exchange reserves in order to import and grow. This puts the Argentine economy at the mercy of financial speculators, since Argentina has to defend the exchange rate by buying Argentine pesos through its dollar reserves. The consequence is that Argentina periodically suffers debt crises and the risk of running out of reserves, which drives up interest rates, inflation and unemployment. Mosler’s proposal is to adopt floating exchange rates so as not to have to defend a fixed exchange rate by means of foreign exchange reserves and for the Argentine economy to function exclusively through the national currency. He gives as an example the debt crises of Mexico in 1994 and Russia in 1998. Both countries adopted floating exchange rate policies in the face of explosive debt crises resulting from fixed exchange rates. The consequence was that after the introduction of floating exchange rates, there was a sharp adjustment in which the Mexican peso and the ruble lost 66% and 75% of their exchange value against the dollar respectively. Thereafter, the value of the currencies stabilized and then gradually recovered. According to Mosler, something similar would happen in Argentina because the Argentine economy is similar to that of Russia and Mexico. Currently, the official exchange rate of the Argentine peso is 116.25 pesos per dollar and the exchange rate in the black market (the so-called blue dollar) is 202 pesos per dollar. Therefore, the devaluation resulting from the floating exchange rates would bring the value of the official peso to approximately the value of the blue dollar. After this adjustment, the value of the peso would stabilize and then recover progressively, as occurred with the Mexican peso and the ruble.

In response to this proposal, Argentine leaders argue that such a devaluation of approximately 60% would increase the price of imports and that the poorest classes would not even be able to buy food for subsistence. However, Mosler argues that this problem would be solved by means of subsidies in pesos to those who need them and an indexation of salaries that require it. In addition, Mosler also points out that the price of Argentina’s exports would become cheaper and therefore the devaluation would increase the country’s exports. In addition, annual inflation is already at about 60% or so, forcing periodic wage indexations. Therefore, floating exchange rates would require a new and final indexation before entering the period of stability.

This leads us to the second proposal, permanent 0% interest rates and the renunciation of issuing any public debt. Currently, Argentine interest rates are 47%. This reflects a self-defeating attitude similar to that of fixed exchange rates. Argentines believe that without very high interest rates like the current ones, the Argentine peso would lose all its value and therefore high interest rates are the only incentive for the currency markets to accept the peso. This generates a constant flow of pesos directly into the international currency markets where pesos are exchanged for dollars. This dynamic floods the foreign exchange markets with pesos and causes the peso to devalue constantly. This, according to Mosler, is the main source of inflationary pressures in Argentina.

Currently, Argentina spends 8% of its GDP on interest payments, but according to Mosler’s estimates, this figure will soon be 20%, mainly due to interest payments on inflation-linked debt securities, real monetary time bombs that already represent 20% of the total public debt and amount to 70 billion dollars. Mosler proposes to eliminate the issuance of public debt securities, since Argentina is a country that enjoys monetary sovereignty and therefore does not need to either collect taxes or issue debt to finance its public spending. He also urges Argentine policymakers to stop talking only about the primary fiscal deficit (which does not include the interest payments derived from the debt) and suggests that when dealing with the fiscal deficit, they should do so taking into account the enormous and unnecessary amount of pesos that are permanently going to the foreign exchange markets to be exchanged for dollars. In response to the unfounded expressions of fear about the value of the peso, Mosler pointed out that the value of the peso corresponds to the Argentine GDP and to all the products that can be purchased with pesos. To maintain that the peso would lose all its value if interest rates were 0% is as absurd as saying that meat, soybeans, grain, gas, oil, tourism and all the products produced by the Argentine economy would lose all their value. That is simply not going to happen, especially at a time when Argentine exports are reaching record levels. As long as taxes have to be paid in Argentine pesos, the value of the peso will never be zero. Only in an unimaginable case in which no taxes would have to be paid in Argentina would the value of the peso be zero.

With floating exchange rates, interest rates would no longer be determined by the markets, but by the Central Bank. Therefore, once floating exchange rates are adopted, the level of interest rates in Argentina should be 0% and the Argentinian government should renounce the issuance of debt securities.

All of the above brings us to Mosler’s last proposal, job guarantees based on employment buffer stocks. This proposal is only sustainable over time with floating exchange rates that avoid having to adopt fiscal austerity measures to defend fixed exchange rates. In addition, the job guarantee would eliminate any inflationary pressures that may have subsisted from floating exchange rates and the elimination of positive interest rates, since guaranteed labour acts as a wage anchor in both downturns and upturns.

As Mosler tirelessly repeated in his expositions, the price level of an economy, and therefore its level of inflation, can only be explained by the price that the State is willing to pay for the goods and services it needs to supply itself. This especially concerns the price of labour reflected in wages, since the origin of all goods and services is socially embodied human labour. According to Mosler, the wage level is not the cause of inflation in Argentina. Therefore, the State would have no difficulty in setting up a program similar to (but broader than) the so-called Plan Jefes y Jefas, which until a few years ago served as a job guarantee in Argentina. Under this model, anyone who wants and is able to work, but cannot find work in either the private sector or the permanent public sector, should receive a transitional job until he or she can be incorporated into work in the private sector or the permanent public sector. The purpose of the job guarantee is not production per se but to demonstrate the beneficiaries’ work capabilities, since the private sector generally only likes to hire people who are already working. Therefore, guaranteed work should be implemented after the government has decided on the desirable size of the public sector to ensure good quality public services.

The job guarantee wage would become the minimum wage of the economy and would act as an automatic price stabilizer in both expansionary and recessionary economic periods, while eliminating poverty and unemployment.

Before going into the IMF agreement, Mosler also pointed out that in Argentina there is a problem with market regulation. According to Mosler, this is due to a high concentration in strategic productive sectors that leads to oligopolistic practices. His proposal is to regulate these oligopolistic markets to limit their excessive profit margins and avoid speculative practices, especially in the banking and primary sectors.

Finally, he delved into the tempestuous field of the agreement with the IMF. This agreement includes a loan of $45 billion and numerous conditionalities that are very harmful to Argentina, such as the issuance of long-term debt securities and fiscal austerity measures. Mosler proposes to replace this agreement with one that is more beneficial to both Argentina and the IMF. His proposal is to repay the loan through a 3% tax on Argentina’s gross exports. These exports amount to a total value of approximately $100 billion per year. Dedicating 3% of that figure to loan repayment would be beneficial to the IMF because it would ensure that it would receive dollars from the only source of dollar inflows into the country, exports. This means that no currency exchange would have to take place to make payments. Moreover, the IMF would no longer have to worry about imposing any kind of conditionality on Argentine policies. For its part, the Argentine government would be able to exercise its political sovereignty without any constraint from the IMF in the form of conditionalities. Moreover, the 3% tax could be deducted from exporters’ other taxes if it deemed it appropriate, so that there would be no mandatory increase in the tax burden.

I believe that the Argentine government should listen to Mosler’s message and implement the measures he proposes. The achievements of an Argentina with full employment, price stability and well-regulated markets would be beyond imagination. If such a situation were sustained over a prolonged period of time, I am convinced that Argentina could once again become the great world economic power it once was and regain its rightful place of relevance on the international scene.

Euro delendus est

 

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The post Journey to the heart of Argentina appeared first on The Gower Initiative for Modern Money Studies.

The Great Unemployment Fudge

Published by Anonymous (not verified) on Sat, 14/05/2022 - 2:27am in

In the U.S., we are told, the post-World War II period was a golden age of full employment. High wartime government spending had brought to an end the double-digit unemployment and misery of the Depression, and as war gave way to peace, unemployment settled at a non-inflationary level of 3-5%. It's known as the post-war "economic miracle".

But it's a myth. There was never full employment. The low unemployment of the post-war years is a massive statistical fudge. In fact, over five million people lost their jobs immediately after the end of the war, most of whom never worked again. But they were never listed as unemployed - because they were women. 

The Great Unemployment Fudge started in the "Depression of 1946", described by the Cato Institute as "one of the most widely predicted events that never happened in American history". During the war, there was full employment, GDP was roaring and industrial production was at an all-time high. But much of this was devoted to the war effort. Alvin Hansen was one of many economists warning that sudden cessation of wartime production and employment would plunge the economy back into Depression: “The government cannot just disband the Army, close down munitions factories, stop building ships, and remove all economic controls,” he said. Unemployment forecasts for demobilization ranged from 8 million to 20 million.

Understandably, policymakers were very worried. And with reason. Hansen's warning proved prophetic: as the war came to an end, the economy fell into a deep recession. The fall in real GDP in 1945-46 dwarfs both the Great Recession and the Covid-19 recession. Only the Great Depression was worse:

(source: BLS)

BLS figures show that the fall in real GDP was mainly caused by deep cuts to government spending: in 1946, government spending fell by nearly 65%, and by 1948 the government was running a budget surplus.  But private sector consumption and investment increased. There was quite a boom in residential construction. As has happened so often in U.S. history, the housing market pulled the economy out of recession. 

For the Cato Institute, the remarkable rebound in GDP and surprisingly low unemployment proved that worries about government spending cuts re-starting the Depression were unfounded. Blithely assuming away the counterfactual, they claimed that cutting government spending had kickstarted private sector investment and created 4 million new jobs. Unemployment was higher than it had been during the war, of course, but that's because mobilization had artificially depressed unemployment. After demobilization, unemployment rebounded to an average of around 4%: 

It averaged about 4% for the next twenty years. 

But it is extremely odd for unemployment to be so low in a recession of such severity. The Great Recession was in real GDP terms much less severe than the 1945-6 recession, yet unemployment rose to 10%. I wondered if something was artificially depressing the reported unemployment figures for 1945-6. So I went on a hunt. 

I didn't have far to look. This table from a a research paper by the Cato Institute economists Vedder & Galloway - the same people who claimed that the "Depression of 1946" never happened - shows that the increase in joblessness immediately after the war was far higher than the reported unemployment figures. I've highlighted the relevant figures. 

As we might expect in a period of demobililization, armed forces employment fell sharply and civilian employment rose. Federal employment also fell as a result of the government's budget cuts, and non-federal employment rose. This rebalancing from military and government employment to private sector civilian employment shouldn't have caused a fall in the labour force. Yet it did. The first highlighted line shows that between 1945 and 1946, the total labour force shrank by nearly 6 million people. 
It is also evident that despite Cato Institute's gleeful claim that 4 million new jobs were created, job losses during this period were far higher. Total employment fell by 7.27 million. But only 2.5 million people are recorded as unemployed. So nearly 5 million jobless people were not recorded in unemployment figures. 
The detailed figures in this table show us that between 1945 and 1946, nearly three million female civilian employees lost their jobs. As their jobs disappeared, civilian employment among men sharply increased: 
(chart from Evan K. Rose, Cambridge Core)

The fall in women's employment was almost a mirror image of the increase in women's employment as men shifted from civilian employment to the armed forces early in the war. But unlike the men, women did not shift to non-civilian employment. Most of them simply disappeared from the labour force. 
As a result, the labour force participation rate - the proportion of the adult population that is either working or looking for work - fell to less than 60%, a drop of nearly 6% in one year. It did not regain its wartime level until 1981. 


So the surprisingly low unemployment rate in the deep recession of 1945-6 is explained by millions of women leaving the workforce to make way for men returning from the war. 
Did the women want to leave their jobs? Vedder and Galloway say they did:
In particular, millions of women voluntarily decided to withdraw from the labor force and reverted to their traditional roles as mothers, wives, and housekeepers.
This is the heart of the Great Unemployment Fudge. People who voluntarily withdraw from the labour force aren't unemployed. So if women who left their jobs in 1945-6 were simply reverting to being mothers, wives and  (unpaid) housekeepers, they did not need to be included in unemployment statistics. Hey presto, we have an explanation for the remarkably low unemployment in the 1945-6 recession. The GDP fall in 1945-6 was merely the economy readjusting itself to peacetime activity. The "Depression of 1946" really didn't happen. 
But Rose found that far from voluntarily leaving the workforce, women were systematically pushed out to make way for men: 

  • Employers, particularly in manufacturing, were encouraged to replace women with returning veterans, and enthusiastically did so:

    1946 USES report on the airframe industry, for example, notes that employment opportunities were limited “almost entirely to veterans, who receive preference in nearly all plants” (War Manpower Commission 1943–1945, February 1946, p. 13). In 48 large plants with 160,000 total employees, 4,000 veterans were hired in December 1945, despite net employment declines of 2,000 jobs. A similar report on the rubber tires and tubes industry, which had been roughly 20 percent female since it became critical in mid-1944, noted “women to be displaced...many employers have indicated to the USES that they expect to replace most of the women on the production line with men” (War Manpower Commission 1943–1945, January 1946, p. 15).

  • The federal government sharply cut the proportion of women it employed, from 38% during the war to 28% by the end of 1946. Simultaneously, it cut total federal employment by half a million jobs due to budget cuts. This reduction disproportionately fell on women.  
  • Although hundreds of thousands of women applied to the U.S. Employment Service (USES), they were largely ignored by the USES, which prioritised finding employment for veterans. Female placements dropped precipitously as men returned from the war: 


    Furthermore, to prevent women competing with veterans for placements, USES limited placements for women to the kinds of jobs they had done before the war, even though this meant women were less likely to get employment: 

    The USES explained the drops in female placements at the time by noting that “women job seekers have become more sharply limited to the types of jobs which they had held before the war”

  • Some women - notably in cities - were claiming unemployment compensation, which meant they were actively seeking work. Rose says employers actively discriminated against them: 

    Few employers were looking for them, however: 60 to 81 percent of jobs posted in USES offices in these cities specified “men only,” leaving two and half times as many female UC claimants as jobs open for women.

    Rose also says that although the jobs available to unemployed men and women typically paid far below their previous earnings, the wage cuts were deeper for women - 49-53%, as opposed to 34-49% for men. 

  •  Women were "bumped" down into lower-skilled jobs to make way for men in higher-skilled jobs. This happened even in industries which traditionally had large female workforces:

    The USES noted that in the hosiery industry, where two-thirds of employees were female, some women hired to knitting and machine-fixing jobs were “bumped” as veterans returned.

    "Bumping" happened in the jobs market too. Rose observes that for unemployed women who had done semi-skilled clerical work during the war, the chances of finding a similar job after the war were extremely poor.

Faced with discrimination, harsh pay cuts, and unfair job downgrades, many women did indeed opt to leave the workforce. But it is hard to see how dropping out of a labour market that did not want them and was determined to push them out is in any way "voluntary". 
To modern eyes, deliberately pushing women out of the workforce to make way for men appears appalling. But in its time, it was sensible. No-one wanted a return of the unemployment and poverty of the Great Depression. And there were an awful lot of veterans needing jobs. If women had stayed in the workforce, they would have competed directly with those veterans for jobs. At the time, unemployment was considered to be a much bigger problem for man than for a woman, because she was considered only to be working for herself while he was keeping his entire family. So reducing male unemployment had to be the priority, even if it meant large numbers of women remaining jobless for long periods of time. I have no doubt that women were put under considerable social pressure to leave their jobs and return to being housewives and mothers. 

But I have much less sympathy for the blatant misrepresentation of unemployment figures and the poisonous claim that women "voluntarily" left the workforce. Had women still been counted as "available for work" in 1945-6, reported unemployment would have been in double digits - not as high as in the Great Depression at its worst, but certainly of the order of 10-12%, similar to the rates immediately prior to the war. And it would have stayed elevated for a long time. But that would have destroyed the myth of full employment, along with the notion that cutting government spending by 65% in one year can ever kickstart recovery and job creation.

So the Depression of 1946 very much did happen. And its effects were very long-lasting. It wasn't just women who worked during the war who were excluded from the post-war workforce. Women who were children during the war were too, and so were the early "baby boomer" women. Women didn't start to return to the workforce in significant numbers until the second half of the 1960s, and they were still being systematically discriminated against well into the 1970s.
This is by no means the only example in history of a country disguising high unemployment by encouraging some groups of people to leave the workforce. For example, in the early 1980s recession, the U.K. paid older workers, particlarly men, to retire early to make way for younger people. But in no other post-war recession to my knowledge were millions of women systematically pushed out of the workforce without compensation to provide jobs for men. Let us hope this never happens again. 

Crucial chance to lift all Australians up

Published by Anonymous (not verified) on Fri, 06/05/2022 - 6:59pm in

My article on full employment in the Sydney Morning Herald, 1 March 2022

Peter Davidson
Adjunct senior lecturer at the Social Policy Research Centre, UNSW
Sydney Morning Herald, March 1, 2022

The econocrats at Treasury and the Reserve Bank threw everything they could at the deepest recession in living memory when COVID arrived. Higher unemployment payments, wage subsidies, infrastructure investment, interest rate cuts and government bond-buying were all deployed to save jobs and incomes.

Now that they expect unemployment will fall this year to its lowest level in 50 years, they now want to keep it there as long as possible.

A similar thing happened after World War II, when unemployment fell in the war economy and governments decided to use the same economic tools to maintain “full employment” in peacetime. They managed their budgets and interest rates to sustain demand for goods and services so the workforce was fully employed.

It worked: for almost 30 years there was no major downturn and prosperity was widely shared as incomes grew and unemployment remained below 3 per cent.

We turned our backs on full employment in the 1970s, forsaking people to the unemployment queues. High unemployment was rationalised as the unavoidable side effect of the fight against inflation and budget deficits.

We have an opportunity to again put people affected by unemployment and inadequate incomes at the heart of economic policy. Will we commit to full employment, or have we lost our ability to imagine a society where practically everyone seeking employment can have a decent job?

Australia’s unemployment rate has fallen from seven per cent to 4.2 per cent, with 90,000 new workers finding jobs during November last year as our economy bounced back faster than expected.

The pull of “return to normal” is strong. We hear dark warnings from bank economists about an upsurge in inflation, employers about labour shortages, and deficit hawks about ballooning public debt.

So let’s take a moment to imagine full employment.

Most importantly, it would lift a million people on unemployment payments out of poverty. Being excluded from paid work is a tragic human experience. For too long, millions have been held hostage to economic policies that deliberately kept unemployment above 5-6 per cent for fear of a breakout in inflation.

For this sacrifice to the nation, they receive the $45-a-day JobSeeker Payment and live in destitution. We’re so conditioned to high unemployment that people affected are routinely blamed for not trying hard enough. The JobSeeker regime is brutal: life-sustaining payments are automatically suspended for minor infractions like missing a job centre appointment.

It won’t be easy to reduce unemployment further because those still on unemployment payments belong to groups that are regularly screened out of job interviews. Four out of five have been on income support over a year, one in three has a disability and four in 10 are over 45 years old. Each is a person, often losing hope, repeatedly rejected. Yet if there are enough vacancies, and we invest in decent employment services, training and wage subsidies, employers will consider people overlooked in the past.

In a modern economy where a third of workers, mainly women, are employed part-time and a quarter are in casual jobs, full employment means adequate and secure working hours as much as having a job.

Many people in retail, hospitality, caring and labouring jobs struggle to survive on a few days of paid work a week. Many don’t know how much they’ll earn next week or whether they’ll still have a job. Low unemployment alone won’t fix this, but it’s heartening to see underemployment decline as unemployment falls.

Australia used to pride itself as a place without rigid class distinctions, where everyone could make a decent living and be equally valued and respected. Now it’s claimed that people refuse some entry-level jobs because “Australians won’t do them”.

That’s become the excuse for widespread abuse of temporary migrant workers in jobs where minimum wages are honoured in the breach. Full employment can help fix this, provided we don’t rush to fill those jobs again with temporary migrants without robust protections against exploitation.

Along with workplace relations reforms, sustained full employment would help restore decent pay increases for most workers. The last time wages grew at a decent clip (over 4 per cent) was in the boom years before the global financial crisis when unemployment hovered around 4-5 per cent.

Full employment and higher incomes, not budget cuts and high interest rates, are the best solutions to the “cost-of-living” problem.

Lower unemployment, adequate working hours, higher pay, decent income support and more reliable demand for the goods and services our businesses sell – what’s not to like?

There are hurdles to overcome. We need a comprehensive system of workforce planning to ensure vacancies don’t go unfilled and employers have the skilled workers they need.

Governments would have to work with employers and unions to avert any future wage-price spiral without recourse to high interest rates. We’ll have to dampen speculation in assets like housing and shares. We’ll need productivity-enhancing public and private investment.

The first, vital step is to reject harsh austerity policies. The budget deficit is declining as unemployment falls and spending cuts would jeopardise this. Public debt is sustainable as long as output, incomes and jobs grow faster than the interest payments, as they did in the post-war period.

The real budget challenge for future governments is to raise the revenue we need to close yawning gaps in essential services like health and aged care and income support safety nets.

In the pandemic, millions of us felt the fear of losing our job. For years before that, our incomes barely kept up with inflation. We owe it to ourselves to seize this opportunity to restore full employment.

Dr Peter Davidson is adjunct senior lecturer at the Social Policy Research Centre, UNSW, and principal adviser at the Australian Council of Social Service.

How Have the Euro Area and U.S. Labor Market Recoveries Differed?

Published by Anonymous (not verified) on Fri, 08/04/2022 - 3:25am in

 Paris outdoor cafe with waiter

The initial phase of the pandemic saw the euro area and U.S unemployment rates behave quite differently, with the rate for the United States rising much more dramatically than the euro area rate.  Two years on, the rates for both regions are back near pre-pandemic levels. A key difference, though, is that U.S. employment levels were down by 3.0 million jobs in 2021:Q4 relative to pre-pandemic levels, while the number of euro area jobs was up 600,000. A look at employment by industry shows that both regions had large shortfalls in the accommodation and food services industries, as expected. A key difference is the government sector, with the number of those jobs in the euro area up by 1.5 million, while the government sector in the United States shed 600,000.

The Two Labor Markets in the Pandemic’s First Wave

There was a striking difference in the responses of labor market indicators during the pandemic’s first wave. In the United States, the unemployment rate surged from 3.5 percent in February 2020 to 14.7 percent in April, while the euro area rate stayed near 7.5 percent rate through May and then only rose to a peak of 8.6 percent in August. A similar divergence was evident in employment data, with the number of U.S. jobs falling 12 percent from 2019:Q4 to 2020:Q2, while euro area employment only fell 3 percent over that period.

The relative stability in the euro area unemployment rate and employment levels was by design. The region relied on job retention schemes to mitigate job losses in order to maintain the bonds between workers and employers. In broad strokes, these country programs encouraged firms to keep their workers in place, with the governments helping pay part of the wage bill and the employees accepting a cut in hours and compensation. The European Central Bank estimates that almost 20 percent of jobs in the euro area were supported by job retention programs in April 2020. So, while U.S. hours worked fell 13 percent from 2019:Q4 to 2020:Q2, euro area hours worked fell by a larger 17 percent. Euro area hours recovered quickly to be only 5 percent below 2019:Q4 levels by 2020:Q3, but the schemes made hours worked a shock absorber that moderated employment losses at the pandemic’s onset.

The Lingering U.S. Employment Shortfall

Two years into the pandemic, unemployment rates in both regions are near pre-pandemic levels, as seen in the charts below. Employment data, though, tell a different story, with the U.S. level down 2 percent in 2021:Q4 relative to 2019:Q4, while euro area employment was slightly higher. The difference is even more pronounced if one takes into account that U.S. output in 2021:Q4 was up 3 percent from the 2019:Q4 level while euro area output was just back to where it was before the pandemic.

Unemployment Rates Are Back to Pre-Pandemic Levels


Source: Bureau of Labor Statistics via Haver Analytics.

The Employment Recovery Has Been Slower in the United States

Source: Bureau of Labor Statistics via Haver Analytics.

As for why the unemployment rate and employment levels have been giving different signals about the state of the two labor markets, remember that the unemployment rate can fall either because of an increase in employment or because fewer unemployed workers are actively looking for a job. The similarity of the unemployment rate measures reflects a compensating divergence in labor force participation rates (LFPR). Specifically, the U.S. LFPR in 2021:Q4 was down 1.3 percentage points from 2019:Q4, masking the employment shortfall, while the euro area LFPR was back to near its pre-pandemic level.

One possible explanation for the U.S. shortfall in employment and labor force participation is that the euro area’s job retention schemes did well at maintaining the relationships between workers and their employers. As a consequence, euro area had an easier time building employment back to pre-pandemic levels. This hypothesis makes sense on the face of it, but a look at employment by industry shows there were also particular industries that account for much of employment shortfall in the United States.

Looking at Employment Shortfalls by Industry

One can break down the U.S. 3.0 million jobs shortfall in 2021:Q4 relative to 2019:Q4 and the euro area’s 600,000 increase by industry. In the United States, much of the shortfall has been in three sectors, with employment in accommodation and food services down 1.5 million, local government employment down 600,000, and employment in nursing/elderly care facilities down 400,000. To put these losses in perspective, accommodation and food services accounted for a 10 percent share of jobs before the pandemic, local government had a 10 percent share, and residential/nursing care had a 2 percent share, meaning that 22 percent of the job market accounted for almost 85 percent of the U.S. job shortfall.

It is not surprising that the euro area accommodation and food services sector also suffered steep job losses. Euro area data, only available through 2021:Q3, has this sector’s employment down 620,000 from two years prior, or a 7 percent decline. The shortfall is more modest than the U.S. experience, with jobs down 10 percent over this period.

There is one sector, though, where the difference is quite palpable. The number of jobs in the euro area’s public sector (public administration, education, and social work) increased during the pandemic, as seen in the chart below, and while government jobs in the United States fell. Specifically, the number of euro area jobs increased by 1.3 million from 2019:Q4 to 2021:Q4, while in the United States, government employment (U.S. federal, state, and local) had a 600,000 shortfall, with essentially all of that due to cuts in local government employment. Adding health care and social assistance, which is largely supplied by governments in the euro area, to the U.S. public sector data increases the U.S. comparable job losses to 1 million, with much of the additional lost jobs in the residential/nursing care sector.   

There Has Been a Stark Difference in Public Sector Employment

Source: Bureau of Labor Statistics via Haver Analytics.
Note: “Comparable U.S.” sums losses in the government, private education, and health services sectors.

One key factor to note is that education plays a large part in the divergence. A more detailed breakdown in the euro area is only available through 2021:Q3, but education jobs in the euro area were 320,000 above the level two years prior, while U.S. local government education jobs (teachers, administrators, and support staff) were down 370,000 in 2021:Q4 relative to 2019:Q4.

Labor Supply or Labor Demand?

It is difficult to pin down is how much the U.S. jobs shortfall is due to firms not wanting to hire back to pre-pandemic levels (owing to depressed demand or local government budget constraints, for example) and how much is due to reluctant workers discouraged by low wages, poor working conditions, or pandemic fears. One crude measure of worker reluctance is the change in job openings relative to pre-pandemic levels. The logic is that higher openings relative to the job shortfall suggest that workers are reluctant to take jobs in that particular industry. Alternatively, a low number of job openings relative to the shortfall suggest the demand for workers is relatively weak. 

There were 100,000 more openings in state and local government education in 2021:Q4 than there were 2019:Q4 (a fourth of the employment shortfall), while openings in accommodation and food services were up 750,000 (one-half of the shortfall). This analysis would put weak labor demand as a more important driver behind the government employment shortfall and worker reluctance as an important factor behind the accommodation and food services shortfall.

The discussion of how the U.S. recovery has lagged that in the euro area should not distract from the remarkable rebounds in employment in both regions. It is encouraging that U.S. employment continued to increase in early 2022 and it will be interesting to see how much local governments replenish their education staffs in the near term. There is no assurance, though, that industry shares of overall employment will go back to where they were in 2019 given the disruptive nature of the pandemic.

Thomas Klitgaard is a vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

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

“Inflation is bad. But mass unemployment would have been worse.”

Published by Anonymous (not verified) on Thu, 25/11/2021 - 1:26pm in

(Lauren Melodia and I had an op-ed in the Nov. 21 Washington Post, challenging the idea that today’s inflation means that the stimulus measures of the past year and half were too large. I’m posting it here as well.)

As we think about rising prices today, it’s important not to lose sight of where we were not so long ago. In the spring of 2020, much of the economy abruptly shut down. Schools and child-care centers closed. Air travel fell below 100,000 people a day, compared with 2.5 million daily passengers in a normal year. No one was staying in hotels or going to the gym. About 1.4 million small businesses shut their doors in the second quarter of the year.

More than 20 million Americans lost their jobs in the early days of the pandemic, and there was a very real possibility that many would face hunger, eviction and poverty. Many economists predicted a deep downturn comparable to the Great Recession that followed the financial crisis of 2007-08, if not the Great Depression of the 1930s.

Even at the start of this year, as Congress was debating the American Rescue Plan, it was far from clear that we were out of danger. In January, there were 10 million fewer jobs than a year earlier. Covid-related deaths were running at 30,000 per week — the highest rate at any point in the pandemic. No one knew how fast vaccines could be rolled out. There was still a real risk that the economy could tip into depression.

Thanks to stimulus measures, including the $2.2 trillion Cares Act, signed by President Donald Trump in March 2020, and the $1.9 trillion American Rescue Plan, signed by President Biden in March 2021, that didn’t happen. People who lost their jobs in restaurants, airports, hotels and elsewhere continued to pay their rent and put food on the table.

For much of 2020 and 2021, all the uncertainty — and the risks associated with vacationing, dining out and so on — meant households held back on spending, and savings piled up. Now, with the economy reopening and the worst of the pandemic (let’s hope) behind us, people are rushing to make use of those savings. Unfortunately, businesses can’t adjust production as fast as people can spend money, resulting in the inflation we’re seeing now: Prices rose 0.9 percent from September to October 2021 and are up 6.2 percent since October 2020.

It would be nice if there were a way to avoid economic catastrophe during the year-plus of pandemic restrictions while also avoiding rising prices today. But in the real world, there probably wasn’t. The pandemic imposed costs on the economy that had to be paid one way or another.

Think of it this way. When a restaurant shuts down for public health reasons, two things happen: Its services are not available for purchase, and the people who work there lose their incomes. If the government does nothing, aggregate demand and supply will remain in rough balance, but the displaced workers will be unable to pay their bills. Alternatively, the government can step in to maintain the incomes of the displaced workers. In this case, the spending that consumers might have done in restaurants will spill over into the rest of the economy — if not right away, then eventually. In a sense, the rising costs we’re seeing today are a result of economic production that didn’t happen last year.

In economics textbooks, the level of demand that brings the economy to full employment will also cause stable inflation — an assumption labeled “the divine coincidence.” But here on Earth, things don’t always work out so neatly. The level of spending required to replace incomes lost in the pandemic, combined with the disruptions to production and trade, meant there was no way to get an adequate recovery without some increase in inflation, especially given the bumps on the road to controlling the coronavirus. As the spread of the delta variant and some Americans’ resistance to getting a vaccine have held back spending on services, demand has spilled over into goods. And as it turns out, our global supply chains are unable to handle a rapid rise in demand for goods — especially because many manufacturers had expected a deep downturn and planned accordingly.

Today’s inflation has surprised many people, including us. We had been more worried about sustained high unemployment. One of us even gave a talk a year ago called “The Coronavirus Recession Is Just Beginning.” We were wrong about that. But then, so was almost everyone. In the summer of 2020, the Congressional Budget Office was predicting that the unemployment rate in late 2021 would be 8 percent; in fact, it has fallen to 4.6 percent. Many private forecasters were similarly gloomy. Under the circumstances, policymakers were absolutely right to prioritize payments to families.

The economist Larry Summers has been making the case since February that the government’s stimulus programs were larger than required and ran the risk of “inflationary pressures of a kind we have not seen in a generation.” Fiscal conservatives are claiming that Summers has been vindicated because inflation is higher than most supporters of the most recent relief package expected. But the economic data doesn’t match the scenario he described.

Summers predicted that the cumulative stimulus impact would be larger than the country’s output gap — the difference between actual and potential gross domestic product. Today, despite the stimulus, both real and nominal GDP remain significantly below the pre-pandemic trend. So unless you think the economy was operating above potential before the pandemic, there’s no reason to think it is above potential now. To the extent that domestic conditions are contributing to inflation, it’s not because spending has surpassed the economy’s capacity but because there has been a rapid shift in demand from services to goods.

In any case, most of the inflation we’re seeing is due not to domestic conditions but to the worldwide spike in food, energy and shipping costs. Perhaps we could have had inflation of 5 percent instead of 6 percent if the stimulus had been smaller. The cost of that trade-off would have been material hardship for millions of families and the risk of tipping the economy into a downturn. And that, fundamentally, is why today’s inflation is not a sign that the stimulus was too large: It has to be weighed against the risks on the other side.

After 2007, the United States experienced many years of high unemployment and depressed growth, thanks in large part to a stimulus that most now agree was too small. Policymakers belatedly learned that lesson, and as a result, the United States is making a rapid recovery from the most severe economic disruption in modern history. Yes, inflation is a real problem that needs to be addressed. In a recent Roosevelt Institute brief, we suggested that rather than raise interest rates, the best way to control inflation is to address supply constraints in the sectors where prices are climbing. But as bad as inflation is, mass unemployment is much worse. Given the alternatives, policymakers made the right choice.

“Earnings Shocks and Stabilization During COVID-19”

Published by Anonymous (not verified) on Fri, 29/10/2021 - 5:58am in

The other day, I put up a post arguing, on the basis of my analysis of the income data in the Current Population Survey, that the economic disruptions from the pandemic had not led to any reduction in real income for the lowest-income families. This is the opposite of the Great Recession, and presumably earlier recessions, where the biggest income losses were at the bottom. The difference, I suggested, was the much stronger fiscal response this time compared with previous downturns. 

My numbers were rough — tho I think informative — estimates based on a data set that is mainly intended for other purposes. Today I want to call attention to an important paper that reaches similar conclusions on the basis of far better data.

The paper is “Earnings Shocks and Stabilization During COVID-19” by Jeff Larrimore, Jacob Mortenson and David Splinter.1 If you’re following these debates, it’s a must-read.

The question they ask is slightly different from the one I did. Rather than look at the average change in income at each point in the distribution, they ask what fraction of workers experienced large declines in their incomes. Specifically they ask, for each point at the distribution of earnings in a given year, what fraction of workers had earnings at least 10 percent lower a year later? They include people whose earnings were zero in the second year (which means the results are not distorted by compositional effects), and do the exercise both with and without unemployment insurance and — for the most recent period — stimulus payments. They use individual tax records from the IRS, which means their sample is much larger and their data much more accurate than the usual survey-based sources.

What they find, first of all, is that earnings are quite volatile — more than 25 percent of workers experience a fall in earnings of 10 percent or more in a typical year, with a similar share experiencing a 10 percent or more increase. Looking at earnings alone, the fraction of workers experiencing large falls in income rose to about 30 percent in both 2009 and 2020; the fraction experiencing large increases fell somewhat in 2009, but not in 2019. See their Figure 1 below.

Turning to distribution, if we look at earnings alone, large falls were more concentrated at the bottom in 2020 than in 2009. This is shown in their Figure 2.  (Note that while the percentiles are based on earnings plus UI benefits, the  vertical axis shows the share with large falls in earnings alone.)  This pattern is consistent with the concentration of pandemic-related job losses in low-wage sectors. 

But when you add unemployment insurance in, the picture reverses. Now, across almost the whole lower half of the distribution, large falls in earnings were actually less common in 2020 than in 2019. And when you add in stimulus payments, it’s even more dramatic. Households in the bottom 20 percent of the distribution were barely half as likely to experience a larger fall in income in the crisis year of 2020 as in they were in the normal year of 2019.

The key results are summarized in their Table 1, below. It’s true that the proportion of low-wage households that experienced large falls in earnings during 2020 was greater than the proportion of high-wage households. But that’s true in every year — low incomes are just much more volatile than high ones. What’s different is how much the gap closed. Even counting the stimulus payments, households in the top fifth of earnings were somewhat more likely to experience a large fall in earnings in 2020 than in 2019. But in the bottom fifth, the share experiencing large falls in income fell from 43 percent to 27 percent. Nothing like this happened in 2009 — then, the frequency of large falls in income rose by the same amount (about 6 points) across the distribution. 

One thing this exercise confirms is that the more favorable experience low-income households in the pandemic downturn was entirely due to much stronger income-support programs. Earnings themselves fell even more disproportionately at the bottom than in the last recession. In the absence of the CARES Act, income inequality would have widened sharply rather than narrowed.

The one significant limitation of this study is that tax data is only released well after the end of the year it covers. So at this point, it can only tell us what happened in 2020, not in 2021. It’s hard to guess if this pattern will continue in 2021. (It might make a difference whether the child tax credit payments are counted.) But whether or not it does, doesn’t affect the results for 2020.

While the US experienced the most rapid fall in economic activity in history, low-wage workers experienced much less instability in their incomes than in a “good” year. This seems like a very important fact to me, one that should be getting much more attention than it is.

It didn’t have to turnout that way. In most economic crises, it very much doesn’t. People who are saying that the economy is over stimulated are implicitly saying that protecting low-wage workers from the crisis was a mistake. When the restaurant workers should have been left to fend for themselves. That way, they wouldn’t have any savings now  and wouldn’t be buying so much stuff. When production is severely curtailed, it’s impossible to maintain people’s incomes without creating excess demand somewhere else. But that’s a topic for another post. 

The point I want to make — and this is me speaking here, not the authors of the paper — is that the protection that working people enjoyed from big falls in income in 2020 should be the new benchmark for social insurance. Because the other thing that comes out clearly from these numbers is the utter inadequacy of the pre-pandemic safety net.  In 2019, only 9 percent of workers with large falls in earnings received UI benefits, and among those who did, the typical benefit was less than a third of their previous earnings. You can see the result of this in the table — for 2009 and 2019, the fraction of each group experiencing large  falls in earnings hardly changes when UI is included. Before 2020, there was essentially no insurance against large falls in earnings.

To be sure, the tax data doesn’t tell us how many of those with big falls in earnings lost their jobs and how many voluntarily quit. But the fact that someone leaves their job voluntarily doesn’t mean they shouldn’t be protected from the loss of income. Social Security is,  in a sense, a form of (much more robust) unemployment insurance for a major category of voluntary quits. The paid family and medical leave that, it seems, will not be in this year’s reconciliation bill but that Democrats still hope to pass, is another.

Back in the spring, people like Jason Furman were arguing that if we had a strong recovery in the labor market then we would no longer need the $400/week pandemic unemployment assistance. But this implicitly assumes that we didn’t need something like PUA already in 2019.

I’d like to hear Jason, or anyone, make a positive argument that before the pandemic, US workers enjoyed the right level of protection against job loss. In a good year in the US economy, 40 percent of low-wage workers experience a fall in earnings of 10 percent or more. Is that the right number? Is that getting us the socially optimal number of evictions and kids going to bed hungry? Is that what policy should be trying to get us back to? I’d like to hear why. 

the recession’s likely long-term impact on homelessness

Published by Anonymous (not verified) on Fri, 11/12/2020 - 2:59am in

I’ve just written a report for Employment and Social Development Canada on the current recession’s likely long-term impact on homelessness in Canada. An overview of the report can be found here.

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