Blog # 44 Responses: Job Guarantee and Macro Stability

By L. Randall Wray

There were a number of questions, but commentators dealt with most of them quite well. I’ll organize the questions and responses and then add a few of my own. I suppose the excellent comments show that we’ve made a lot of progress. I’m dropping the names and combining posts. Sorry this is late.

Q: The entire buffer stock argument as set out above and as set out by Bill Mitchell is flawed. JG is no more effective in “restraining market pressures on wages” than is unemployment. I.e. if a country has a given number of JG employees making a given amount of effort to find regular jobs, that has exactly the same “restraining” effect on wages as the same number of UNEMPLOYED individuals making the same effort to find regular jobs. Of course JG can make JG employees more employable, and that in turn would certainly “restrain market pressures on wages”. But that point was not mentioned above and it’s not the basic point in the buffer stock argument.

Responses: NAIRU becomes NAIBER. That’s what Lerner always said. It has roughly the same amount of effectiveness as current unemployment-based policies… but everyone has a job and become far more employable.  A buffer stock of workers is a restraining influence on wages, whether they are unemployed or JG-employed. I can’t see why there would be any difference in the influence. The point is that the JG-employed buffer stock IS just as effective as an unemployed buffer stock, and far more humane and far more beneficial to the economy. People engaged doing something have a lower hiring risk than those not doing a job. Reducing risk reduces costs in the economy.

Wray’s additional responses: The points are well-argued. What the skeptic does not seem to understand is that it takes two to tango: someone who wants a job and an employer willing to hire her. A long-term unemployed potential worker can try as hard as she might, but if employers view long-term unemployed persons as “damaged goods”, they simply will not take the risk. The evidence on this is voluminous. Employers much prefer to hire those who are already employed. Now the only objection is that employers will view JG workers as “damaged goods” simply because they are in the JG program. So this comes down to program design. I resist “means tested programs” for exactly that reason. We want the JG program to be universal—not restricted to poor, low educated, long-term unemployed, and so on. Anyone can participate. Indeed, everyone should be encouraged to participate (it can be part of the normal transition from school to college or work). The projects should be well-designed both in terms of service to the community but also in terms of enhancing skills on the job. There is nothing inherent in a JG program that produces “damaged goods” workers—so the objection to JG as an employable buffer stock that is better than an unemployed buffer stock is simply wrong. The question requires a presumption about program design: that it will produced “damaged goods” workers. There is nothing inherent in a JG that would do so. It is true that a badly designed program could produce damaged workers. But there is no justification for automatically assuming such a program.

Q: ”The greater the costs to them of losing their higher-paying jobs.” Does that then require that the system remove its employment protection programmes so that employers can ‘hire and fire’ at will? Or does it work at a more macro level, where those businesses with, say, unionised high staff costs are vulnerable to failure due to competition from businesses able to hire directly off the JG pool?

Wray’s Response: No we do not need to remove social protection. JG is an add-on. We can discuss later a specific proposal (for specific countries) to eliminate other parts of the social safety net if desired (I don’t favor that—I like more choices, not fewer). Note that the threat of lower wage workers (domestic or foreign) to high paid union workers is always a real threat—JG is not special in that regard. Problems are made worse if business can participate in the JG program, getting the federal government to pay the wages. That is why I do not favor for-profit business participation—because the temptation is too great to get the workers onto the government payroll. If for profit firms are not allowed to participate, then the main threat comes in the public sector: local government uses JG projects to replace existing workers. How can we protect union workers (etc) from the threat of replacement by lower-paid JG workers in public projects? We need to have participation by organized labor in the project approval stage. It is a danger, but it is manageable.

But remember that the JG is an add-on. Right now we have unemployed people desperate to get jobs. And very low wage workers (many even working below minimum wages) desperate to get better wages. Don’t you think they already depress wages and threaten union jobs? Yes they do. The JG program creates an effective minimum wage (anyone can get it) and by gradually raising standards overtime we succeed in eventually achieving a living wage. I do not see how the current system is better than one with a JG.  Yes, attacks on unions could continue to occur with a JG. We need more public policy to “level the playing field” for workers and their unions.

Q: I understand from a video conference that appears in another blog (Modern Money Mechanics – Fiscal Sustainability Teach-In) that a JG-program was implemented in Argentina. Can you please comment on that experience, or point me in the direction of materials that may shed further related light? This country has one of the highest inflation rates in the world right now, but I have to assume that relates to other macro-economic policies in place, and not the specific JG-program that is the topic of this blog.

Wray’s Response: Go to http://www.levy.org and http://www.cfeps.org for papers I wrote with Pavlina Tcherneva on Jefes. Unfortunately, Argentina has almost phased out the Jefes program, so it cannot act as a buffer stock program. In any event, while it did tremendous good in the first few years, it always deviated in significant ways from our proposal. Still we learn a lot from mistakes. We went several times to Argentina to interview workers, project coordinators, and government officials at all levels. There was a tremendous disconnect between high level officials and managers and workers “on the ground”. The high level officials saw the program as temporary—a crisis response.

In a sense, the program was actually too successful—it helped to promote recovery, and as the private sector began to grow, most of the males got hired out of Jefes (the limited JG program—read the papers for details, it was a means tested program that paid half the poverty line in wages for only half-time work; obviously all those are deviations from our proposal). So the government moved most of the women into welfare and the remaining few men onto unemployment insurance. In other words, it preferred to pay them for NOT working.

So a big lesson I learned from this experience is that you must focus on jobs as a human right—something I have done in this primer. That is also the approach India has taken with its program. That way government cannot take away the program when the economy begins to grow quickly—on the argument it is no longer needed.

In any case, Jefes cannot constrain inflation because it has been mostly dismantled. (Let me also say that I was just in Brazil and heard discussion about the big controversy over inflation data. In the US the mainstream media reports that the Argentine government underreports inflation. But others argue inflation is not as high as reported.  I do not know enough to say anything about this. But as argued earlier in the MMP I do not believe the simplistic stories about inflation, high inflation, and hyperinflation—it is virtually never a simple case of excess demand driving up prices.)

Q:  In that the employability of some categories of JG people IS NOT improve by doing JG work (and the empirical evidence is that in some cases it doesn’t) JG is no more of a buffer stock than is unemployment (which also fails to improve employability). So in this “no improvement” context, claiming that JG introduces an entirely new element to the labour market (i.e. a buffer stock) is just not true. In contrast, to the extent that employability DOES IMPROVE under JG, this a welcome characteristic of JG, but it’s not a characteristic of a typical buffer stock of some physical commodity. If anything, the quality of physical buffer stocks DETERIORATES with time. So what is left of the buffer stock analogy? Not much, far as I can see.

Wray’s Response: This, again, looks like a handwave to me. Present the empirical evidence that working in a JG is not an improvement over unemployment—if any such evidence exists. What I saw in Argentina is that most of the men quickly got hired out of the Jefes program. With regard to the comparison to physical commodities as a buffer stock that “wears out”, that is rather disingenuous. Yes if we store wheat that spoils and gets eaten by rats, it is no longer a buffer stock. That is rather obvious. To act as a bufferstock, you’ve got to keep the wheat in good shape. For labor to act as a bufferstock, it has to be kept in good shape. That is why the JG works so much better than unemployment. You don’t want your bufferstock drunk, engaged in crime, and imprisoned. You want it working.

Q: JG as a title works just fine for a fiscal progressive like me, but maybe there’s a title that would strike a chord with hardworking Americans who hate taxes because they incorrectly think their money is being used for unemployment benefits and the like. The Work-For-Pay Initiative, maybe. EMployment Insurance. If you have homeowners’ insurance, and you lose your home, they get you another one. If you have car insurance, and your car is wrecked, they get you another one. If you had EMployment insurance, and you lose your job, they get you another one.

Wray’s Response: Yes, good ideas. We called it “public service employment”. When we get to the point of writing the Act and implementing the program, we do need a catchy title.

Q: You noted one off inflation from this. I would think this could be significant. You are talking about employing upwards of 20 million people (unemployed/underemployed) most of whom are not today receiving any payments in unemployment benefits. So I’m wondering what the increase in spending will be? It would seem to be in the order of 300 billion a year or so not counting benefits. That is a pretty good stimulus and on the plus side, maybe we can get the economy moving again. But there is a second order effect here. There are millions of jobs out there that pay only minimum wage and your $10 an hour far surpases that. So there will be an added bump as these businesses raise their wages to compete or simply go out of business.

Wray’s Response: These are all implementation details. We will need to take into account political, institutional, and economic realities when we introduce the program. Look at it this way: we can implement a JG program without increasing nominal aggregate demand if desired—set a low wage and remove other parts of the safety net (such as unemployment compensation and welfare) while raising taxes. NOTE THIS IS NOT MY PROPOSAL. I doubt that will be needed. There aren’t any developed capitalist countries that are operating near to capacity. (Indeed, that is why you mention the possibility we will have tens of millions in the JG—the massive excess capacity is just the flip side of the coin.) Outside WWII we’ve never reached capacity in the US.

Think about that: we had to move 50% of all US capacity to the war effort, making stuff to blow up, in order to get to full capacity. It always amazes me how low the expectations of our “free marketeers” are about the ability of capitalism to “deliver the goods”. I think we—and all other developed capitalist economies—operate so far below capacity we will be amazed at the economic growth we are going to get as soon as we create jobs and start thinking about the possibilities.

But let me repeat: JG is an add-on and we still have available all policy tools to constrain aggregate demand should that become necessary: raise taxes, reduce non-JG spending, raise interest rates (Note: in my view that can actually stimulate demand), impose credit controls, manipulate the exchange rate, impose wage and price controls, and stimulate the supply side to keep pace with growth of aggregate demand. All of them still exist. All we do is eliminate unemployment and replace it with a wage stabilizing bufferstock.

Q: JG proposals do include benefits that most minimum-wage jobs do not include. Health care is the biggest, but also child care, usually, and 401(k). Warren Mosler shrugs that off by saying he also proposes federal funding of health care and child care for everyone, not just JG workers. $8/hr with primo benefits would lure lots of workers from the private sector who do not have such benefits now. I think if we tried to do JG now, with 20+ million unemployed and underemployed, it would be a logistical nightmare and the cost would be politically un-doable, even if the JG wage were $10 cash only, no benefits. We first have to have a better fiscal policy (aka “pump-priming”) to get unemployment down to a more normal level, and then JG needs to be phased in so as not to cause too much political shock.

Wray’s response: That doesn’t make much sense to me. The US already devotes twice as much of GDP to healthcare as do similarly rich countries. It is unlikely that we will need more resources in healthcare—rather we need to change how it is provided and paid for. All plausible studies show that it takes far fewer resources if you treat health problems before they become emergencies. And it makes no sense to pay for healthcare through insurance premiums—as I’ve argued elsewhere with Marshall Auerback. But those are not topics for this blog. And if the problem is that the JG will increase aggregate demand too much, then we don’t need fiscal stimulus but rather the fiscal restraint as we implement the JG.

Fiscal stimulus is far more inflationary than the JG because it funnels money to the higher wage and higher price oligopoly sectors in the hopes some jobs might trickle down. As Pavlina Tcherneva argued on NEP’s main page, directed spending is much more effective at job creation and stimulating economic growth rather than inflation. Finally, the actual setting of wages and benefits will require analysis of the institutional, political, and economic situation of each country. The situation is much different in a rich and highly productive country like the US and all European nations versus the situation in a relatively poor and underdeveloped nation that mostly relies on subsistence agriculture. In some cases a phase-in of the program will be desired. We will discuss these issues later.

21 Responses to Blog # 44 Responses: Job Guarantee and Macro Stability

  1. Thank you for a reasoned and thorough discussion of the JG.

    May I add the following:

    As you mentioned, the US only reached full capacity during WWII. Since then, it has operated at various lesser levels. Not mentioned, is the large amount of monies funneled into DOD for the express purpose of increasing demand. The jobs thus created cost millions per job-year. The costs incurred to create employment this way are enormous.

    It would seem to me that the JG would actually be cheaper to implement than the current barrage of benefits. As an elderly person, I can assure you that each and every program offered me comes complete with a high paid staff whose main function is enforcing arcane entry restrictions. Replacement of these programs with programs universally applicable will dramatically reduce administrative costs. JG certainly should be such a program. Social Security is such a program, but unfortunately, has not kept up with inflation. For example: when I returned home from the war in 1970, gas cost $0.30/gal, a 1 br apt furnished cost me $75/month, my new buick cost me $3000, and Social Security informed me that I’d retire on $500/month. Gas costs $4 / gal, buicks $30,000, apts $1200/ month but Social Security pays me $830/ month. If Social Security paid me $5000/ month, I’d have a very comfortable life, would not need medicaid reimbursement of my Part B medicare premiums, would not need food stamps, not need a subsidized phone, and I’d not need many other “programs for the elderly”. I’d also take vacations, eat out, buy new clothes and otherwise contribute to demand. As it is, I take all my meals at home, I order water mornings at Osorio’s Restaurant (it’s free) when I socialize with my friends, I get most of my groceries from food pantries, (Free), am looking forward to my subsidized phone, and reimbursement of my medicare premiums. I can’t get a loan to buy a car, even if one was affordable, because I earn less than $18,000/yr which seems to be some sort of cutoff. I live on a boat that is 22 years old, which I built, pay no property taxes, no utilities, and no anchoring fees.

    Once you think about it, my situation is that of 75 million citizens of the USA. Our quarter of the population are basically subsisting. True, govt doesn’t pay us very much, but since we are only subsisting, we don’t buy:
    clothes, groceries, internet(I get mine free), meals out(restaurants here we don’t come), durable goods, vacations, services (tax, health clubs, yacht clubs, social clubs, legal), and most everything else.

    So the JG is only part of the demand picture, supporting the elderly is another key item. Look at us as a demand generator, instead of as a liability. Young people need us to generate demand for their goods and services. We come far cheaper than defense jobs, and our demand is for things made by small and local business.

    Then, the final piece of the puzzle must be universal single payer health care. Would the USA adopt the French system, the costs would halve over night. My wife is an MD, I can assure you that MDs are not being paid currently for most of the services they perform. Medicare routinely pays only a small fraction of Medical costs billed by physicians, the bulk of US medical costs are taken up by Insurers, and used to keep them running.

    For example:

    If my wife joins a group of 6 MDs, with her being the Infectious Disease Specialist, another an OB-Gyn, another a surgeon, another 2 family practice, another an oncologist, with each MD supported by 3 PAs, 3 MAs, and 3 RNs, the practice could pay the MDs $500,000 / yr would have annual operating expenses of $6 million for employees, and~ $2 million for everything else = $ 8 million. Given 2000 patients/ MD, each MD team can provide 1 hour MD service, 3 hours PA service, 3 hours RN service, and 3 hours MA admin annually. If each patient visits quarterly, the MD can spend 15 minutes with him after his team spent an hour and a half with him (45 mins each for the PA team and for the RN team). This practice would have 12,000 patients and $500/ year – patient is sufficient to operate it. If this practice had an outpatient surgery center using the latest non-invasive techniques, used generic drugs to the maximum possible, this practice could do every thing necessary for its patients except brain surgery and open heart surgery, but including cancer treatment, If this practice organized a relationship with a hospital and specialists to cover those services it cannot offer, under a contractual relationship, costs would go up to ~ $1,000 / patient – year or $90/ month. This is called concierge medicine. It’s where medicine is going.

    INDY

  2. Golfer1john

    “It makes no sense to pay for health care through insurance premiums”.

    What makes sense to do through insurance premiums is to spread the financial risk of expensive, unexpected, and relatively rare, events. Car insurance spreads the financial risk of a collision among everyone who buys the insurance, instead of having it borne entirely by the relatively few people who have accidents.

    It does make sense to pay for rare and expensive medical treatments through health insurance.

    What doesn’t make sense to pay for through insurance are routine and predictable maintenance costs, like oil changes, tuneups, tire replacement, cold and allergy medicines, immunizations, well-baby care, preventive exams and tests for things like breast or prostate cancer, and periodic physical exams.

    These are normal costs of being alive or owning a car. The difference is that if you can’t afford a car, you won’t have one, whereas if you can’t afford routine medical care there is government assistance.

    The reason we should not use insurance for these things is that it will cost each one of us more in insurance premiums than it would cost for the treatments. If an oil change is $25, you can bet that oil change insurance would be $30, because the insurance company isn’t going to send out bills and cut checks and otherwise administer the program for free. Likewise, when we insure ourselves for a $100 annual physical exam, you can bet we’re paying the insurance company $110 for it. We’re better off paying for it ourselves, and cutting out the middleman.

    A $1.3 million cancer treatment program is different. You can get insurance for that for $130, because only one in 10,000 people will need it. It’s the kind of rare and expensive event, like an automobile accident, that is the perfect candidate for insurance protection.

    We’ve made an expensive mess of health care costs in the US for a number of reasons, most of which involve the way we buy health insurance and the inappropriate nature of the coverage in most group plans. Tort reform and allowing interstate competition would fix a great deal of the cost problem. Those issues are unique to the US, and account for some portion of the extra cost as a % of GDP. Changing health insurance from a system of mainly prepaid routine health care to a risk-management tool like all other forms of insurance would help reduce its cost greatly as well, although it would not be popular among the health insurance companies.

    • You can accomplish this by a high deductible policy. After some threshold is reached, costs are covered. There are many procedures that are in the hundreds and low thousands of dollars. Most will need coverage for that.

      In the end the only thing that makes sense is Medicare for all, with some payments from everyone. Only the gov can uniformly control costs and stop the tricks insurance companies regularly pull.

      • It’s true that only government can make the insurance companies stop their “tricks”, like raising the premium or dropping you after a claim and before they have finished paying for what you insured yourself for. But lowering the deductible from $5000 to $500 in order to cover most of a procedure costing, say, $2000, is not economical. You’d end up paying an extra $2000 in premiums every year or two to cover a $2000 claim that might happen once every 10 years. If you don’t have $5000 in savings to cover a medical (or other uninsured) emergency, you’ll need Medicaid.

        • “If you don’t have $5000 in savings to cover a medical (or other uninsured) emergency, you’ll need Medicaid.”

          Exceptt there is no guarantee you can get medicaid. And working people can not pay the rates these insurance compnies want. Medicare for all is the best solution IMO.

  3. Off topic, but can/will anyone address the following claim about MMT?
    http://www.zerohedge.com/news/its-latest-nonfarm-payroll-mea-culpa-goldman-stumbles-answer-and-changes-rules-game
    I do not understand the subject matter well enough to know what is wrong with the claims about MMT in this article.

    • I don’t think the claims about MMT have anything to do with MMT because I think Durden knows nothing about MMT. Nor are his comments related to MMT pronouncements. They’re drive-by, completely undocumented by any reference to MMT work that I can see.

    • I dont know about you but I found that completely unreadable.

      • Not quite completely unreadable, but his style of obscure, unexplained references, and insider jargon is annoying, and makes the piece mostly un-understandable. His writing skills are so poor that it is hard to judge his economic skills. I’m no MMT expert, but I agree with Joe that it is a “drive-by” reference, and I can’t recall seeing anything in any MMT writings that would make it true.

        • That article by Durden was just complete and utter garbage. It was simply written in an idiotic attempt to keep the idea going among his gaggle of clueless followers that the USD is about to implode and the whole financial system is going to collapse, bringing about $5,000,000 gold, a new gold standard and the end of hated fiat money. Oh, and MMT is nonsense, by the way. Durden and his bunch are a joke.

  4. Randy, You address the question as to how to stop employers abusing the system. Plus you suggest that private employers should not participate. I’m not sure about the latter and for several reasons.

    First, JG people are inevitably fairly unskilled, and the private sector is better at employing the unskilled than the public sector.

    Second, the evidence is that employability improves more in the case of temporary subsidised PRIVATE SECTOR jobs than in the case of temporary subsidised PUBLIC SECTOR jobs.

    Third, as you rightly point out, confining the system to public sector employers does not remove all abuses. Indeed there was plenty of abuse of CETA by public sector employers. Google “CETA abuse” or see for example these two items:

    http://news.google.com/newspapers?nid=1346&dat=19790525&id=bo0sAAAAIBAJ&sjid=__oDAAAAIBAJ&pg=5429,3885715

    http://news.google.com/newspapers?nid=336&dat=19781020&id=uFdTAAAAIBAJ&sjid=L4UDAAAAIBAJ&pg=5924,5808714

    I’m not of course suggesting that CETA was all that similar to JG. My point is simply that public sector employers are under cost cutting / output maximising pressures which are similar to those prevailing in the private sector. Thus public sector employers will be tempted to abuse ANY employment subsidy.

    So the $64k question is: how do we minimise abuse? You suggest “participation by organized labor in the project approval stage”. One problem there is that a significant proportion of the workforce is not unionised or “organised”. Second, while I don’t object to “organised labor” having its say, I don’t see trade unions producing any brilliant solutions here. In fact trade unions often push the interests of insiders at the expense of outsiders – like those trying to get JG type work.

    Getting back to abuse, I think there is a solution of sorts to this problem, as follows. Where an employer (private or public) hires a PRODUCTIVE employee, while pretending the employee is not worth employing without a subsidy, the employer is bluffing. The solution is to call the bluff, and that can be done in various ways.

    One is to limit the TIME for which a given employer can claim the subsidy in respect of a given employee. If the employer GENUINELY THINKS the employee is not much use, the employer will let the employee go at the end of the time limit. And there is not much harm in that: if an employee is not much use at a particular job, there is no harm in their trying something else.

    Alternatively, if the employer KEEPS the employee, then at least the time for which the abuse took place is limited.

    Several refinements could be added to this system. For example, if an employer DOES KEEP an employee after the time limit expires, that is evidence that the employee was worth employing without the subsidy BEFORE the time limit expires, so the employer could be made to repay some of the subsidy.

    Re your final paragraph, you say “Fiscal stimulus is far more inflationary than the JG..” and hence that JG is a more effective job creator than traditional fiscal stimulus. True. However, “job creation” is not the basic economic objective. The basic objective is to maximise output per hour (within environmental constraints), and to provide work for those who want it. I.e. part of the objective is to MINIMISE the amount of work or “job” that needs doing for given output.

    JG is good at creating work, but it does not create highly productive work. So JG’s job creating abilities are not an unalloyed benefit. In contrast, traditional stimulus is good at creating productive jobs, but it is not good at creating relatively unproductive jobs where there is nothing better. And it is obviously better to create a relatively unproductive job, where someone wants to do that job, than to produce no job at all. I.e. the second $64k question is: how do we combine traditional stimulus with JG as to maximise GDP?

    • Geez, Ralph, you have a dim view of the JG and the ability of to manage it. from the public sector. I definitely don’t want the private sector subsidized to create jobe, that is just a direct road to cronyism. And how in the world would you decide which company to subsidize? I don’t even want the public sector creating JG jobs, but I am not against grants.

      I suppose there is always a danger of abuse, but that is solvable.

      Productivity is something we should strive for but the prime objective is jobs, just jobs. It is better than unemployment. So I will stay with that for now.

      • Jonf: I agree.

        I urge Ralph and other anti-govt types to try this little experiment.

        Fill-in the blank:

        ______ workers are: inefficient, lazy, unproductive, unskilled and uneducated, unmotivated, prone to corruption and theft, slackers.

        OK, now I know they want to put “Government” in the blank. But try putting in the name of some ethnic, racial, or gender group. How does it read?

      • Jonf, You ask “how in the world would you decide which company to subsidize?”

        I thought I’d made that fairly clear above. However I could have made it clearer by using twice as many words. But comments on blogs are necessarily ultra-brief.

        Anyway, the way to “decide” is simply to have a set of rules (as set out above) as to when employers can employ JG people, how long for, how big the subsidy is, etc etc. The question as to which employers use the subsidy is TOTALLY IMMATERIAL. As long as the rules are the same for all employers, it doesn’t matter which employers (public or private) use the system.

        There is research which shows that a significant proportion of employers regard ALL EMPLOYMENT SUBSIDIES as a waste of time and pain in the a*se. Thus some employers would have nothing to do with it. So be it. In fact ten or twenty years ago private employers in Britain were so reluctant to take on subsidised labour that the British government spent large amounts on advertising aimed appealing to private employers’ social conscience to get them to take on the labour

        Re your claim that private sector JG leads to cronyism, I know of no evidence of this in the case of Britain’s current “Work Programme” which is private sector JG in all but name. Taking on a few temporary unskilled subsidised employees is not the road to big bucks for any employer, is it?

  5. L. Randall Wray

    Ralph: looks like continued and persistent handwaves to me. More superstition than analysis. Can you try to provide a comment that rises a bit above bias? Try replacing everything you say that is negative about government with some ethnic group? Sounds pretty darned biased, doesn’t it? OK, you’ve got a bias–so does the KKK. Try to rise above it, just a bit.

    CETA was a program targeted to the long term unemployed. JG is not targeted at all. However, for your entertainment, I am an economist today ONLY because I was one of those long term and useless unemployed, who got hired into CETA, not able to find any kind of job in the private sector. I learned how to spec garbage trucks, and then designed the curbside recycling program for my (very large) county–and the program still exists today 30 some years later. In your view, that is of course a total waste of resources, not efficient, just pure waste.
    All of your statements are (at best) suitable for the private for-profit firm; they are absolutely inapplicable for any kind of social analysis that goes beyond that.
    And to your final question about traditional stimulus. In my view it is pure fantasy. There is no such thing. All government spending is targeted, only the target changes. The traditional target is to the “already well-off”, which is why it always generates wage inflation long before full employment. The JG targets the unemployed. Jeez, I wonder which one will lower unemployment and poverty? Job creation is not the basic objective? Right–sounds like a very nice quote from the top 1%. Just ask the bottom 99% if jobs would be an important objective.

    • Prof Wray: To what specific incidents are you referring when you say that traditional stimulus always generates wage inflation long before full employment? I ask because the MMT mantra seems to be that inflation, at least since 1971 in the US, has been due exclusively to oil price increases, not due to any excess demand situation. It seems to me that traditional stimulus in 1983 and 2002-3 resulted in good economic growth and increases in employment, with declining inflation rates, or at least not troublesome increases in inflation. Full employment was not achieved, of course, in the same sense that JG would achieve it by definition, but was it not good government fiscal policy at the time? You’re not advocating fiscal austerity in combination with JG, are you?

    • Randy, Re your claim that my points are based “more superstition than analysis”, a blog comment is not the place for a long detailed ANALYSIS. But if you want to read the DETAILED ANALYSIS that lies behind my various points, see here:

      http://mpra.ub.uni-muenchen.de/19094/

      Next, where on Earth do you get the idea that I am biased against government? Bias consists of holding a view for no good reason or without citing evidence. I simply made the point that abuse of employment subsidies is far from absent in the public sector. And I backed that claim by referring to the EVIDENCE in the case of CETA.

      I notice that you don’t cite any empirical evidence on that point to counter MY empirical evidence. So who is biased?

      Next you suggest that I replace the word “government” in my argument with some ethnic group. Your point being that the argument would then become obviously biased. OK: try this for size.

      I say cows have lower I.Q.s than indigenous European humans. But if I replace the word “cows” with “Arabs” or “blacks” that is totally un-P.C. and unacceptable. Therefor – conclusion – cows have the same I.Q.s as European human beings. I’d call that an absolutely brilliant bit of logic. What do you reckon?

      Hope you are enjoying the less than 100% polite language. I don’t care for descending to this level, but when in Rome do as Romans do, and all that.

      Next, you make the bizarre claim that I think “curbside recycling” (and presumably by implication all public sector output) “is a total waste of resources, not efficient, just pure waste.” I said NOTHING of the sort and I suggested nothing of the sort.

      Indeed, in the work of mine referred to above, I SPECIFICALLY ASSUME that the marginal product of labour in public and private sectors ARE THE SAME!!!!!

      Re your final paragraph, there are a large number of points set out or implied there: too many for me to answer on a blog comment. Your points are actually very similar to points made in a paper by Pavlina Tcherneva. I’ll probably deal with her points on my own blog in the next week or so.

      • Ralph: Your reference for “proof” of your statements is to your own unpublished paper. It just repeats the claims you’ve made here that I do not find convincing.

        Have you ever heard the advice: when deep in a hole, stop digging? Comparing govt workers to cows is no better! –)

        Ok, now seriously, you sure fooled me–it looks to me like you are anti-govt because almost every post repeats the drumbeat against govt. I am not the only one who was fooled, as you can tell by responses by others. In any event, I am willing to admit that I often do not understand what point you are trying to make, and a lot of this looks like flack to me.
        For example, you claim JG cannot be like a bufferstock, because commodity bufferstocks wear out. I then explain that is precisely the point: you must keep bufferstocks in good shape, which is what the JG does for workers. If your wheat stock spoils, it is no good as a buffer stock. Unemployed labor is not a good bufferstock because it, too “wears out”.
        So do you then respond: “Oh, right, I should have thought that through for 15 seconds before posting; sorry I will try to think before writing next time.” ???? No. You just go forward with another string of not-thought-out criticisms of the JG.
        So what am I to think? Looking more and more like flack?
        A serious and helpful comment would be along the lines of: Ok here is a potential problem with govt direct job creation…..and here is how I think you might formulate the program to get around that problem…….

  6. No Golfer that is not what I said. I said we do not need fiscal austerity with a JG implementation precisely because we are no where near to full capacity. We can do both–more total government spending plus a JG. My point is that “traditional” govt spending targets high paid workers in oligopololy sectors with pricing power. That is why policy is always “stop-go”. We always lose the will to “pump up” aggregate demand long before we approach anything like a tight labor market. So I was making two related points: there is no such thing as “general spending”–it is always targeted. Second, it has usually been targeted to the “top” which is a very ineffective way to produce jobs.

    • Maybe I’m confused about what you mean by “spending”. I guess for most of the goods government buys, like fighter planes and such, the money ends up in the pockets of people like highly-paid machinists and engineers at Boeing. And the money for services it buys goes to federal workers, highly-paid bureaucrats and the like. But 1/3 of the budget goes to Social Security and Medicare, which could be called “targeted”, but not toward higher incomes. And another big chunk goes to the States in revenue sharing, which is not especially “targeted”, and the last big chunk is targeted specifically to low-income citizens in programs like Medicaid, food stamps and WIC. Seems to me that most of the budget is untargeted or targeted to low-income people. Do transfer payments not count as “spending”?

      Rather than buying more stuff like fighter planes, what if government expanded the deficit by lowering the payroll tax, or increasing revenue sharing to the states (two of Warren Mosler’s proposals)? Would you consider that “targeted”? True, the payroll tax would go only to working people, but that’s 74% or so of the working age population, a pretty broad group. Certainly a broader group than “the 1%”.

      You have made two statements that seem to me to be mutually exclusive:

      1. “All government spending is targeted, only the target changes. The traditional target is to the “already well-off”, which is why it always generates wage inflation long before full employment.”

      2. “We always lose the will to “pump up” aggregate demand long before we approach anything like a tight labor market.”

      If we always lose the will too soon, how does it always generate inflation? And what about the MMT belief (Mosler, et. al.) that what inflation we do have is caused not by tight supplies of anything, but by cartel manipulation of oil prices?

      It seems to me that (even if we have not reached it since WWII) there must exist a NAIRU or Phillips Curve effect that would drive inflation to high levels before any sort of labor buffer stock would be totally depleted, even if no government spending were targeted, or it was all targeted away from high-income workers, simply because the skills of the buffer stock do not perfectly match the skills that are most in demand in the economy. Shortages of specific skills and the products they produce would raise wages and prices in several sectors even while others have ample supply. With a JG-employed buffer stock, this is still possible but since unemployment is already (by definition) 0% with 4% of the labor force in JG, there is no reason for further stimulus, and indeed that (4%) might be a reasonable point at which we should think about backing off the deficit throttle a little bit. Maybe 3% or even 2% if JG creates more stability.

  7. “if the problem is that the JG will increase aggregate demand too much, then we don’t need fiscal stimulus but rather the fiscal restraint as we implement the JG.”

    From my point of view we are pretty far from even dreaming of too much AD. I mean the problem is we have way too little. Everyone seems so stuck in the 70s still. In our entire history we have seen one time of signifiacnt peacetime inflation yet eveyrone worries about its spectre rising at any moment. If anything I wonder if JG by itself will do enough to raise AD. An $8 hourly wage that doesnt rise with the rate of inflation is pretty deflationary. I see it at least when I read Pavlina’s paper as being a little overly anti-infaltionary.

    http://www.levyinstitute.org/pubs/wp_706.pdf is the paper I have in mind

    I basically follow you on the idea that capitalist economies have a lot of slack in them and have a lot more potential than we could dream, but I don’t want to worry about inflation as it has been so rear-the 70s. One time. That’s it. Even Minskky argued that it was only the inflationary bias that helped us avoid a depression in 1975. While he said it was a “blessing and a curse” the deflationary policies we have followed since the early 80s are just a curse.

    I myself have long desired to bring back FDR’s PWA in some form but permanent for boom times as well as busts so I largely follow you on all this.