Sorry for the interruption of the blog. Originally I had planned 52 blogs, one-year’s-worth, although along the way I added a few so that we would have run about 13 months. Here’s why: the blogs came from a book manuscript, the Modern Money Primer. The idea was that you would not only be a test audience, but that your questions and comments would allow me to revise the manuscript as we went along. And that worked. I think the manuscript was much improved because of this blog. You helped write the book.
At the beginning of May, there remained three topics for the blogs: to finish up on the JG, a section on inflation, and a concluding section on the nature of money. Unfortunately, due to family commitments I cannot do all of the remaining blogs. I will do one blog on each of these topics. Today’s blog will complete the series on the JG. And I’ll do two more blogs (one on inflation and one on the nature of money) to complete the promised 52. These will probably not be posted each week—I expect it will take me longer than a week to produce each. But they should be finished during June.
To make a long story short: the book will be released soon. (See here) When I get the publicity materials, I’ll post them on NEP. If you liked the blog, you’ll love the book (if you hated the blog, you’ll hate the book!). The book contains a fair amount of material that is not in the previous blogs, plus the material that I won’t be able to cover in the next few weeks. Further, the organization was revamped and I think improved. Finally, as you’ve probably noticed, when NEP switched blog platforms, the formatting of all the old blogs got messed up. Mitch is trying to fix that but it is too much work for him to manually reformat everything. So for newbies, the book will be much easier to read than it would be to try to read the old blogs.
Finally, let me make one more comment. As you know, I had been accumulating your comments and questions, with a response on Wednesdays. I won’t be able to do that for these final blogs. Further, as you know, I did not want this Primer to become a debate with critics. And I certainly did not want it to become a chat room with more than a hundred comments weekly, most of which are promoting personal websites and idiosyncratic positions on a range of off-topic matters. I’m not opposed to debates or chat rooms. But that was never the purpose of the Primer. Besides, since the manuscript is in production with the publisher, I cannot do any rewriting now—so the main purpose of soliciting your comments no longer applies.
Let us move on to a conclusion of our discussion of the JG. The contentious issue is this: can one adopt MMT while rejecting the JG?
I had made the analogy between disease and unemployment: would any reasonable person who understands the cause of a disease oppose a cure? If you knew that a vaccination can prevent smallpox, would you oppose providing vaccinations (at least to those who want them—I do not want to get into a debate about forcing vaccinations as we have never advocating forcing jobs on those who do not want to work)?
Now I do realize this is not quite a fair comparison because it is possible that there are many cures for the disease of unemployment. MMTers advocate the JG cure. I am open to alternative cures. I just do not hear any coming from the critics.
Some try bait and switch: Let’s give them BIG instead of jobs. That does not cure the disease of unemployment. It is like providing antibiotics instead of vaccinations to fight Polio. They then try to justify this on the argument that if we give people BIG, they can still choose to work if they want to. No, they cannot. There must be jobs. Certainly it is true that giving everyone antibiotics does not prevent them from seeking vaccinations. But the vaccinations need to be available. I’m not going to argue more about this—the argument is just too silly. Yes we can give people BIG but that does not give them jobs. If someone is involuntarily unemployed, she wants a job. BIG will not cure the unemployment disease.
Can we have BIG and JG? Sure. But it is the JG that cures the disease of involuntary unemployment. (Some claim BIG cures the disease of poverty; I doubt that, but it is a different disease.)
Some argue for demand stimulus alone. The theory is that if government spends enough on “general” demand, jobs will trickle down in sufficient numbers that everyone (?) who wants one will get one. When pushed, they will admit that they really do not mean “everyone”. They mean the rate of involuntary unemployment will be reduced “sufficiently”. Sufficiently for whom? Well, for those who get the jobs.
See the Vonnegut quote below. Those who do not get the jobs are not deserving. Better luck next year. Go improve yourself so that you can get a job and some other unlucky shmuck goes jobless. There are always winners and losers—and you happen to be a loser. In your next life, choose better parents. You all know the drill. And, yes, that means people of color will have three times the unemployment rate of the luckier whites (and in most countries, females will have higher rates of joblessness) but that is just the luck of the draw when it comes to job creation through demand stimulus.
Again, this is a bait and switch argument. Aggregate demand stimulus will likely create more jobs. For everyone? No.
Further, it begs the question of what to spend on. Except for random helicopter drops (or tax cuts) all spending (and tax cuts) is targeted. The only question is to whom. It is really strange that many opponents of the JG dislike the targeted nature of the program, yet, they like the targeted nature of Congressionally-approved spending that will go to the usual suspects: big oligopolies that tend to have higher skilled and paid workers and strong pricing power, as well as the much maligned pork barrel roads to nowhere. And, finally, it evades the inflation issue. If jobs do indeed trickle down, it is at least in part because the targeted “general” pump priming pushes up wages and prices in those favored sectors sufficiently that employers look to workers who are less desirable.
Can we have demand stimulus plus a JG? Sure. But it is the JG that cures the disease.
Others protest that the JG creates low-paying jobs that won’t utilize all the skills of the workforce. Hence it does not really resolve all the problems of unemployment and so instead we need a combination of demand stimulus, skills matching services, and retraining. Again, another bait and switch argument.
While demand stimulus plus active labor market policies are desirable, they do not ensure that a sufficient supply of worker-ready jobs is created. As discussed in previous blogs, the JG “takes workers as they are, where they are”. Training programs train workers on the hope that jobs will exist and that employers will hire them. It is faith-based policy.
JG creates jobs for those who want them, then trains workers on the job. If the better, higher-paying jobs do come along, they can move out of the JG. Meanwhile, they’ve got the job and are allowed to contribute to social production.
Some still persist in arguing that the JG is “just” workfare—that it forces people to work. No. It provides a job for those who want one. It hires the involuntarily unemployed. Involuntary describes a situation that one does not want; unemployed means without a job. Involuntarily unemployed people want jobs. The JG offers jobs. No one is required to take one.
JG can be added to any safety nets society wants—whether non-means-tested programs like BIG, or means-tested programs like welfare. That is why I said the JG is a policy “add-on”.
Recall that I began the discussion of the JG with an exposition of Lerner’s functional finance approach to policy and with a discussion of human rights. The first of these builds on the “state money” view that government can afford to buy anything for sale in its own currency. It then derives a policy—that is what government SHOULD DO: spend more if there is unemployment.
The second comes at the topic of unemployment from the human rights angle: the right to a job is one of the internationally recognized human rights. Again, this is about what government SHOULD do: ensure that anyone who wants to work has access to a job. While consistent with Lerner’s proposal it goes further. For Lerner unemployment is an economic waste—since government can “afford” full employment, it should ensure it. From the perspective of human rights, unemployment is evidence of a violation of human rights.
Clearly, this is a violation of a human right by government as no one should expect for-profit firms to ensure this right. Only government can “afford” to ensure this right. Further, it is the position of MMT that imposition of taxes creates a demand for money—from inception, one with a tax liability but without the means to pay it is in some sense “unemployed”, searching for a way to earn the money needed to pay the tax.
Carried to the logical extreme, we can say that unemployment is created by the monetary system (as Paul Davidson always points out, there is no unemployment in a nunnery—economic systems that are not based on money do not have unemployment), a system that from inception was created by government to move resources to the public sector. Thus unemployment is not just a problem to be resolved by government, it is a problem that is created by government. And sovereign government has the key: provide the jobs. Warren Mosler always says the unemployed are already in the public sector—we have to support them and deal with them in some manner—so we might as well let them work for the public sector.
Now, I admit that some other advocates of MMT do not accept the human rights angle. But I do. Still, as I argued before, human rights are aspirational and even rich, developed, and nominally democratic nations persistently violate most of the accepted human rights. In my view, that does not diminish the value of the argument.
In the comments section from Blog 48, someone provided the following statements by MMT advocates:
Bill Mitchell: “The reality is that the JG is a central aspect of MMT because it is much more than a job creation program. It is an essential aspect of the MMT framework for full employment and price stability.”
Pavlina Tcherneva: “The JG is not just an afterthought to MMT but a crucial component that has so far offered the most coherent counter-cyclical economic stabilizing mechanism.”
Neil Wilson: “Discussing MMT without the Job Guarantee is to discuss some other economic theory, and one without any stability anchor to nominal prices.”
The commentator then wrote: “It does appear that Wray is parting ways with his colleagues here. Can someone clarify this contradiction?”
While I find that statement puzzling, let me try to clarify.
MMT has three levels or aspects: description, theory, and policy.
As a description there are actually two levels. First we describe a “pure” or “hypothetical” case that applies to any currency issuer. We begin with the imposition of the tax denominated in the state’s unit of account; the state then spends the currency into existence, moving resources to the public sector; people then can pay their tax. To that we can add private sector “money creation” as a leveraging activity. We discuss interest rate setting and the purpose of government bond sales. We note that no one can pay taxes until government spends currency into existence. And so on. I won’t repeat all the analysis presented in previous blogs.
Then we describe actual practice. This must be case-specific. This is where we bring in a Treasury and a Central Bank since most governments divide responsibilities between the two. We also need to discuss self-imposed constraints (Treasury writes checks on its account at the Central Bank, which is not permitted to buy Treasury bonds. And so on.) In other words, we discuss “how government REALLY spends”, going into all the operational details. This does not change any of the general conclusions from level 1 analysis, but it does respond to the critics.
Next we move to theory. In truth there is no description without theory. I realize that many people, including economists, think that you can describe the “real world” without theory or value judgments. Uncle Milty Friedman was famous for pushing such a view—“normative” versus “positive” economics. This was at best a naïve view—or, more likely, a purposeful deception designed to hide his agenda. It cannot be done. You cannot observe “reality”. To make sense of your observations you must have a theory. You cannot use a word like “money” without having a theory of money. The theory held by most people is, according to MMT, completely inappropriate for the type of economy in which we live. Indeed, this whole Primer really boils down to an argument about the “nature of money”.
That is the topic of the final chapter of the soon-to-be-published book. However, if you look back to MMP #30 you will see how I defined MMT as an integration of several approaches to monetary theory, including Chartalism, Endogenous Money, Monetary Theory of Production, Functional Finance, Sectoral Balances Approach, and Circuit Theory. Personally, I’d also add Minsky’s Financial Instability theory and probably a few other bells and whistles.
Now does every MMTer have to integrate every one of these approaches into her own MMT approach? No, that would be too much to ask. Do I like my own approach better than the approaches taken by others? Yes. Of course, I need to convince others that mine is best. At least until I change my mind.
The third aspect is the policy implications. So far today I’ve been focusing purely on JG as a solution to the unemployment disease. But that is only part of the story. From the beginning, we have argued that the JG is needed to “anchor” prices. The JG is a bufferstock program and like all bufferstocks it can be used to stabilize prices. Further, it helps to resolve that Minsky problem—instability—by helping to stabilize (actually, reducing instability, but stability is destabilizing!) wages, consumption, employment, and aggregate demand.
Inflation is the topic for next time. But very briefly (and really this is just a reprise of the explanation of the bufferstock made in a previous blog), you can use the JG pool as a better wage- and price-stabilizing bufferstock than the “reserve army of the unemployed” can be.
Look at it this way. The great fear of our goldbugs and others who warn about the danger of “fiat money” is that it has no commodity anchor to keep it valuable. Since it is “fiat”, government can print up unlimited amounts, give it away free, and drive its value to zero. Zimbabwe here we come! Tie it to gold and you cannot get inflation—so the story goes.
The goldbugs are not completely crazy. Money does need backing—and an infinite regress, arguing that we accept money and believe in its value because we think others think it is valuable, is not acceptable.
In the MMT view, taxes create a demand for the currency, but currency’s value is determined by what you’ve got to do to get it.
There is a long tradition in economics that adopts a “labor theory of value” approach. As both Marx and Keynes argued, the value of commodities (here I’m using the term broadly to include all things produced for sale for money—not just the “resource” commodities like oil and pork bellies) can be taken to be determined by labor. More specifically, we use labor hours as one of our units of measurement to assess the value of all things produced by (admittedly heterogeneous—thus we need to make quality adjustment)s labor. The other measuring unit is money—the state’s unit of account.
Now, I do not want to get into a debate about labor value theory. My point is much simpler and highly intuitive: if I must work an hour to get something valued at one unit of the money of account it will be more valuable than if I received two money units per hour of work. If money grew on trees (our moms always claimed it does not!) then it would be worth the effort of going out to pick it. Not much, in other words. Clearly, modern money takes very little effort to produce (keystrokes create government IOUs), so the goldbug fear is that its value will fall to nearly zero as we increase the number of keystrokes.
But what if government will only issue $1 in return for 1 hour of hard labor? Will the number of dollars issued make much difference in its valuation?
At UMKC we’ve been running exactly such an experiment, imposing a “Buckaroo” tax on our students for the last dozen years, and paying them 1 Buckaroo for each hour of work at local community service providers. They pay the tax using the Buckaroos they earn. We’ve run budget deficits every year since the program began, fulfilling the net saving desire of students. Our students are fully employed—they choose how much to work and we ensure there is always a job available. The MMT principles have been verified by the program.
Oh, what about inflation? Zero, Zip, Nada. The wage is still exactly 1 Buckaroo = 1 Student Hour of Labor.
We let the exchange rate float to give us complete policy independence. Have all of those budget deficits reduced the Buckaroo exchange value against the Dollar? No—the Buckaroo has appreciated more than the Swiss Franc! According to Warren Mosler, the Buckaroo has been the best investment in the world over the past dozen years (although I have not fact-checked that).
Oh, alright it is a simple little real world experiment, so the results might not scale up to real world currencies, but it does shed some light on the value of a bufferstock to give value to a currency. Tie your currency to labor, and stabilize wages in that currency. That will provide full employment with a greater degree of price stability.
So that is the additional argument for tying the JG to MMT: price stability.
I’ll have more to say about inflation next time. But this is why MMTers believe that the JG is a necessary component of MMT: if you care about inflation, you want a price anchor. So far as I know, no one has come up with a better price anchor than a relatively stable wage unit. The JG provides that.
Let us quickly return to the argument that unemployment serves a useful public purpose, hence, we do not want the JG because it adversely affects incentives. We need the suffering to motivate the lazy.
There is a popular view that adversity is good. As Joe Firestone put it in a comment, many attribute their success to the beatings their fathers gave them: “spare the rod, spoil the child”. The threat of unemployment and deprivation is believed to be an essential motivator.
In truth, modern psychology knows this is false—the best way to produce caring and productive people who will make socially beneficial contributions to society is to provide a caring, nurturing, and secure upbringing. The best way to promote quality work is to create a caring and secure work environment. As I’ll discuss next time, this is all the more important as we transition to the “service economy”.
If you want to produce psychopaths, beat the crap out of them when they are young, convince them that the world is dog-eat-dog, make them fight for every scrap of food, and eliminate all protection in the work place. Make life as precarious as possible, with workers fearing they could be replaced by the unemployed—losing their jobs and joining the ranks of the starving masses. Richly reward the strong and punish the weak. (I think I just described an entire sector of the modern economy, where the psychopaths rise to the top—see below.) That is the idea behind NAIRU, which is so dear to the hearts of most economists.
Here’s the problem. Our society does produce a lot of psychopaths, and their behavior can lead to individual success at least on some measures. The rest of us—the 99% or so—have got to protect ourselves from them. However, their relative success makes that difficult not only because they can obtain positions of great power and influence, but also because we emulate them. In Chapter 24 of the General Theory, Keynes remarked that it is better to allow such psychopaths to inflict cruelty over their balance sheets than on their fellow humans. In other words, let them make money, but don’t let them run the show. As we all remember, he advocated policy measures to ensure full employment, to reduce inequality, and to “euthanize” the rentier class:
“dangerous human proclivities can be canalised into comparatively harmless channels by the existence of opportunities for money-making and private wealth, which, if they cannot be satisfied in this way, may find their outlet in cruelty, the reckless pursuit of personal power and authority, and other forms of self-aggrandisement. It is better that a man should tyrannise over his bank balance than over his fellow-citizens; and whilst the former is sometimes denounced as being but a means to the latter, sometimes at least it is an alternative”. Of course our 1% psychopaths will oppose these policies, since the psychopaths thrive in the current, unequal, environment.
An editorial in the NYTimes put it this way:
“A recent study found that 10 percent of people who work on Wall Street are “clinical psychopaths,” exhibiting a lack of interest in and empathy for others and an “unparalleled capacity for lying, fabrication, and manipulation.” (The proportion at large is 1 percent.) Another study concluded that the rich are more likely to lie, cheat and break the law…. Accounting fraud, tax evasion, toxic dumping, product safety violations, bid rigging, overbilling, perjury. The Walmart bribery scandal, the News Corp. hacking scandal — just open up the business section on an average day. Shafting your workers, hurting your customers, destroying the land. Leaving the public to pick up the tab. These aren’t anomalies; this is how the system works: you get away with what you can and try to weasel out when you get caught.
….while “job creators” may be a new term, the adulation it expresses — and the contempt that it so clearly signals — are not. “Poor Americans are urged to hate themselves,” Kurt Vonnegut wrote in “Slaughterhouse-Five.” And so, “they mock themselves and glorify their betters.” Our most destructive lie, he added, “is that it is very easy for any American to make money.” The lie goes on. The poor are lazy, stupid and evil. The rich are brilliant, courageous and good. They shower their beneficence upon the rest of us.”
Psychopaths on Wall Street are not the 10% anomaly, they are the Gordon Gekko role models. They are the 10% top dogs of the 1% that run the show.
And so it is not surprising that there are individuals who accept MMT as a description yet who adopt the policy recommendation of our successful psychopaths: use unemployment and the threat of poverty as motivation to “pull one up by one’s own bootstraps”. Yet that policy simply perpetuates the production of psychopaths and anti-social behavior more generally. As Keynes put it, such policy stacks the game with more zeroes—increasing insecurity and actually making it harder to achieve success with just normal luck. All pain, no gain.
A psychopath could discover the cause of Polio and yet oppose a policy of vaccination. Indeed, lack of compassion is part of the definition of psychopathology. Surely a psychopathic economist can accept MMT’s explanation of the cause of unemployment and yet reject policy to cure the disease.
So, can you separate the modern theory of the disease cause of Polio from the cure? Yes.
Can you separate the MMT explanation of the cause of unemployment from the policy to cure it? Yes.
Should you? Of course not.
Unemployment is not the disease. Lack of money is the disease. Most people don’t want employment, so they can have the sheer joy of working 8 hours a day. In fact, most people look forward to the weekend, when they don’t have to work.
Offer JG at minimum wage, as has been proposed, and millions of people will not accept it. Why? It’s not jobs they want; it’s money.
But I do understand. The JG backers have devoted their professional lives and reputations to JG, and are unwilling to give up on it now. (Reminds one of the gold bugs, the austerians and the Tea Partiers. Tell them they’re wrong and they get pissed. Come to think of it, so do I.)
There is a better alternative than JG, but I don’t want to anger Randy, whom I respect, so I’ll neither mention it nor give you a link to it.
Rodger Malcolm Mitchell
Right on. People work for money, at least the vast majority do, and most especially those who have no other source of income. The 1% might work for fun, even though they don’t need to. We should not base our policy on them.
There is a good reason for JG rather than BiG, though, since under BiG society loses the output of those who choose leisure over work, at whatever the differential wage is. No doubt someone will cry “slavery” over that.
As for the semantic argument, I understand Randy’s position, but I still think his statement in the previous blog [“Can you have MMT without JG? Yes.”] contradicts the others’ statements about JG: “Central Aspect”, Crucial Component”, “Some other economic theory”. But it’s just semantics. There is a real argument which is more worthy of our discussion.
It seems the conclusion here is: JG is the only viable solution, because BIG is a bad solution.
See anything wrong with that? Is it possible for BIG to be a bad solution and JG also to be a bad solution? My opinion: Yes.
Rodger Malcolm Mitchell
I’m not sure that Big and JG cannot coexist as good solutions. Both are in addition to current policies, not replacements. I would strongly prefer that JG provide more income than unemployment insurance, and BiG slightly less. That way those who are satisfied to live on BiG can do so, and those who want more have JG to give them a leg up on training, help with learning the culture of a working lifestyle, and a chance to build a resume that can get them hired into the private sector, with more opportunities for both monetary and non-monetary rewards.
Of course, it’s also possible that both are bad solutions. No way to tell for sure until they are tried. If JG leads to some economic disaster, I’ll be happy to oppose its continuation.
I agree with you that more deficits are needed. I side with MMT though, on the way to control inflation. (That’s my monetarist leanings – MMT does, it seems to me, acknowledge that the value of a dollar is determined by its supply and demand, like everything else.) That would also be an interesting experiment, and can be undertaken along with JG. Raise the deficit until the JG pool shrinks to 1% (not 0 right away, just for safety’s sake), and try to control inflation with interest rate policy. If it works, great, keep increasing the deficit until nobody wants JG anymore, or until inflation can no longer be controlled with interest rates alone.
It’s also possible that JG and BIG together are a good solution. We need to evaluate JG alone, BIG alone, and JG and BIG together, under different conditions. Since it’s hard to set up experiments, I think some simulation studies using different assumptions are in order.
This may be true Roger. But it’s an empirical question. I think that many people want both of these things, assuming the job is at a living wage w/good fringe benefits. Also, while people may not want 8 hr. per day jobs, they may prefer 6 or five hour a day jobs to no job all. Also, the fact people look forward to the weekend, and also to vacations, doesn’t mean that they also don’t like their jobs. There is such a thing as people liking a well-rounded life with time spent on worthwhile work, family, quiet time at home at home, exercise, and other leisure. There’s no contradiction in people wanting all these things because they think that all, in moderation makes for a happy life.
In any event, I don’t think the empirical evidence is there for any of us to say what people want, but I do think that if people had a JG job they liked on offer at a living wage with good benefits, then we would find out what people like best, especially, if they also had the choice of accepting a BIG, to keep them out alive outside of the formal labor force, if that’s what they preferred.
Next, I don’t the JG at the minimum wage is what is being proposed. instead, the JG at a living wage is the proposal, and then it’s assumed that such a living wage will then become the minimum wage to prevent people from going to the JG.
Finally, you suggest there is a better alternative than the JG. I ask, “for what?” If one’s purpose is to provide a job at a living wage for everyone who wants one, then I think the JG is clearly the best alternative for fulfilling this purpose in a good economy that has produced relatively low US, say 4%, but is still leaving 6 or 7 million people who want jobs unemployed. More plainly, if you want to practically implement the idea that people have the right to a job; then there is no better alternative than the JG.
I hope you are talking about yourself. The rest is not as you describe. It looks like you think you are better that people that doesn’t have a job or thar grew up in a less privilegiated environment. I’m sorry to say that that’s not the truth. Your ego won’t suffer by this comment just because is too big and selfish to consider what other people think.
This is becoming quite enlightening. Anytime I disagree with JG, I immediately receive a series of messages impugning my character. Is that what MMT does to those who disagree? Sounds like what the debt-hawks do.
If you believe JG is the best, final, all-encompassing, perfect answer to lack of income, and there can be no other answers, fine. No need for you to learn anything, further. I won’t even bother to direct you to a web page that offers what I consider to be a better solution.
By the way, has it occurred to you that the lack of jobs may be a symptom of a more fundamental problem, and that perhaps the problem should be cured, and not just the symptom?
Rodger Malcolm Mitchell
I particularly referred not to your desagree with JG, but about your view of (other) people as just working for money and preferring leisure under BIG. I think that view is self-flattering and dismisive of other people. Just because state created money and inflicted on us, we HAVE to work. Maybe we’re forced by this to work at things we don’t like. But most people won’t like just spending time doing nothing. Maybe you just had the luck life (your parents wealth, your own capabilities, or whatever) allowed you to choose a work you like, and that’s good. But from there to dismiss other people as lazy just because they didn’t have same luck is unfair. I think you are criticising JG over the wrong issues. As is well explained on the article, those who doesn’t want to work, still wont work on JG. The programme is aimed at those who do want to work. So that criticism is missing the point. Maybe we can discuss over the wage, I think that JG wage should be a “minimal wage” that allowed people to live as now middle class do: well enough, but not on luxury, nor in poverty.
I don’t believe this; not do I recall any MMTers claiming this. I think what is being claimed is that in the context of other fiscal measures and an effort at economic recovery, the JG is a good answer for reaching FE with price stability.
You speak as if money is an end in itself. People want money because they want to eat, clothe themselves, shelter themselves and their loved ones, etc, etc. They need money to “enjoy” these “luxuries of life” because money (which emerged along with private property) destroyed the kinship relations that existed in primitive (i.e. non-propertied) societies. Capitalist economies require a majority of non-propertied individuals (those that do not own the means of production) to sell labor (power) to a minority class that controls those means. It is impossible for everyone to be a capitalist — capitalists, by definition, hire workers. And, as Randy explained, capitalists do not have an incentive to hire everyone who is ready, willing and able to work. Involuntary unemployment *is* the disease, and selling one’s labor for money is the “cure”. So maybe your enemy is not the JG but the economic system — capitalism — that requires people to work for money in order to get what they really want.
Stephanie, I agree that people want what money can buy. In fact, I agree with the vast majority of what you write about MMT. I even have sent my readers to a speech you recently gave.
The question is whether or not the best solution to lack of money is a government job. I believe it is not, and on my web site, under a January 1, 2012 post titled, “Why Modern Monetary Theory’s Employer of Last Resort is a bad idea” I explain my reasoning.
The one thing MMT prides itself on is that it is not a theory or an hypothesis, but rather a description of reality. But JG is a hypothesis. So when departing from a description of reality to hypothesis, don’t be too locked into only one viable solution.
I’m surprised that every MMTer seems to believe JG is the only solution. I would have expected a bit more creative discussion on this issue.
Rodger Malcolm Mitchell
Who said anything about a government job?
This is the second time in the discussion you’ve mis-stated the MMT question. It is whether or not the best solution to the problem of people who want to work not being able to find work is, in the context of other MMT-inspired fiscal policies to also have a JG program offering a living wage? Randy said he was open to other solutions to this question, but he hadn’t come across any good ones. Neither have I, except the above qualified JG proposal.
Randy just stated above that MMT is multi-layered and includes description, theory, and policy. MMT proposals including the JG are policy proposals that haven’t been tried before. So, of course, they’re hypotheticals. Generally speaking, it would be impossible for MMT to suggest any new policies that weren’t hypothetical. So, are you suggesting that MMT economists shouldn’t propose ne policy ideas?
My position has been misstated so many times, I’ve become weary of trying to clarify it. I feel like I’m on some debt-hawk website, where misstating is the name of the game.
If you want to know what I believe, go to my web site and actually read what I’ve said.
…” the MMT question. It is whether or not the best solution to the problem of people who want to work not being able to find work is, in the context of other MMT-inspired fiscal policies to also have a JG program offering a living wage? Randy said he was open to other solutions to this question..!!!
Justaluckyfool, who has no schlastic background in “Economics”, but has a desire as a fool to ask some foolish questions in hope of getting some profound answers.
What if ,we the people were to “Don’t End The Fed, Amend The Fed” (Google to read more) and have the central bankactually CREATE the loans,rather than Guarantee the loans?
What if? to create more jobs in all levels of pay this agency were to Create low rate loans to All industries. These loans would be really needed right now in the consruction industry.Say $1 trillion at 1% for 6 years with no payment till 1st anniversity date.
Couple that with the purchase of all residential loans being purchase as per “Great News !! Zero Income Taxes..” woul create millions of “ready jobs”
By the way,Didn’t that work for the auto industry?
And what if,personal income taxes were reduced to zero at the same time,oh but then we may have an unintended consequence, we may lose all the “Planned Parenthood” jobs?
I have been begging that anyone challenge or improve my foolish thoughts.
I await your reply.
Please excuse all the typos,I was not able to see what I was typing.
I’m sure Rodger doesn’t believe money is an end in itself. People need money because they want the things money buys them. They work to get money to buy things. That is, as you say, a basic characteristic of a capitalist (monetary) society. If not that, then what? A subsistence economy, without money, where everyone (capable) works because they need to work for their very survival?
It is true, though, that in our system the private sector cannot employ everyone that wants to work (to get money to buy things). That is also a characteristic of a capitalist (monetary) society. That is why government, the sponsor and defender of the system, has the responsibility to fix the unemployment problem, in order to provide income to those who are by the nature of the system deprived of it. Unemployment insurance, as implemented, is only a partial solution, and only works somewhat well as long as there is a small and rotating pool of unemployed.
A major difference between RMM and MMT is that RMM believes inflation can be controlled through the interest rate, even as larger deficits enable the private sector to employ more of those willing to work, although I don’t see him in his linked blog post saying that large enough deficits would get us to FULL employment. It would be interesting for you to discuss with him why anything less than full employment would be considered satisfactory.
I’m not sure “full” employment is a worthwhile goal, if “full” employment means that everyone who wants a job has a job — or is there another definition.
Anyway, unemployment is just a symptom of a deeper problem: A bad economy. It was the economic slump that caused the unemployment, not the other way around. Treating the symptom is a bad way to treat the disease.
Another symptom: Homelessness. Shall we also have HG (Home Guarantee)? And then there’s the symptom: Starvation. Shall we also have FG (Food Guarantee)?
I say treat the disease, not the symptom, for a lasting cure.
Rodger Malcolm Mitchell
That’s the right definition. And a difference between you and Randy. JG supporters want everyone who wants a job to have one. Not 96%, or 98%, but 100%.
Why would that not be a worthy objective, other than that it is not achievable by a strong economy alone?
What about self employment or entrepenurship? A BIG allows those to round out full employment with or without a job gaurantee, because everyone who wants to work can always simply choose to work for themselves instead of someone else (and, more importantly, can thus much better tolerate the false starts and initial failures that usually come with trying to get such an endeavor off the ground)
In fact, the primary complaint about a BIG is not that it doesn’t acheive full emplotment, but that it achieves it by allowing people who don’t want to work to drop out of the labor force rather than it not ensuring that everyone who wants to work can find the kind of work they want.
While the JG theoretically offersa job to everyone that wants one, it doesn’t actively address practical concerns alone, particularly where they affect the cost of living varies, even within the same location (Family size being a big element- does it cover the basic cost of living for just one person? For a family of four? If it’s the former, then a person with a family can’t use it because childcare might cost more than the income it provides) At best, in cases like that it forces more people to work than want or need to be working (taking them away from domestic work, which it doesn’t address at all), at worst, it’s completely worthless to people whose cost of living exceeds the promised pay rate.
I think the best solution would be an active combination of both- a per individual BIG (with parents receiveing grants per child about half of that for an adult) that would support a family enough about the poverty line that hey could choose to engage in an entrepenurial endeavor, and then a JG that pays people in addition to that for community or non-profit work, for full time students, or for internships that offer a defined path to direct employment (no free perpetual interns for private companies that want to try to game the system)
Does it mean that some people will drop completely out an coast along the bottom? Sure, but given current productivity levels and the number of families that are currently forced to have both parents working and contracting out domestic work that they’d rather be doing themselves, it’s actually not a bad thing to be looking to bring the participation rate down to the point that companies looking to hire labor actually need to make an effort to either invest in productive technology or hire peoplw away from what they’d rather be investing their time in. A BIG would also allow the JG to set a much lower baseline income rate, reducing private labor costs at the low end across the board, without actaully detracting from income.
JG supporters intend for it to be a “living wage”. In that sense, the job guarantee is a food and shelter guarantee as well. JG workers will have the means to purchase food and shelter, so it need not be provided separately, or in kind.
I think FE is a worthwhile goal from the viewpoint of those who want to work but can’t find jobs because there aren’t enough of them to go around. It’s also a worthwhile goal for people who realize that the unemployed are in that condition because of deliberate decisions made by others who don’t think it’s worthwhile to get them employed, and who believe that unemployment is unfair because it exists only because of the workings of modern economies.
In other words for people who care about justice and fairness first, it’s an important issue. Maybe there are a lot more of us than we realize, and only less than a majority because so many believe that the Government can’t enable FE through a JG. Anyway, if we keep proposing a JG maybe a majority will realize that UE is one injustice that it’s possible to do without.
Rodger, your comment above would lead someone to believe that a) you hold “most people” in low esteem, or b) that you are perhaps guilty of the same type of “tunnel vision” of which you accuse JG adherents. In reading Dr. Wray’s work, he’s put forward examples like the “Jefes” program in Argentina where workers, when interviewed ,almost universally said that they wanted to earn a living as opposed to just receiving a handout. Do you have any such data to back up your audacious claim? I was so stunned by your utterance that I mentioned it to my spouse. Our discussion led me to wonder if you’re misinterpreting “happy hour” syndrome with a wanton lack of desire to “earn a living”. Yes, many people look forward to the end of the work-day/week, but one can (possibly, but not solely) attribute that more to “what” they may be doing for a living, as opposed to fact that they find themselves having to “do something” for a living. To be blunt, I myself just had the kind of work week that left me “stumbling toward the finish line” as it were, but if someone were to glean from this that I were ready to “do nothing” in exchange for a salary, they’d be grossly mistaken. Dr. Wray has explained many times that the JG is for people who are willing to work; there has never been any indication that the JG wage would be the current minimum wage. In fact there has been a wealth of discussion on here just around what exactly the wage would have to be to entice people both to join and to leave. It’s been stated many times as well that the JG is not mutually exclusive with any of the other current social programs (Unemployment, Welfare, Workfare Benefits etc), so painting JG proponents into a be-all-end-all/all-or-nothing corner also rings untrue. Finally, I’ve seen all and sundry comments on here, and Dr. Wray has never discouraged intelligent discourse. Claiming that you don’t want to anger him is a bit disparaging in the sense that it implies he is dismissive. That Dr. Wray has taken time, not only to compose and post these blog entries, but has also devoted entire blog posts to readers questions and comments speaks volumes to the opposite point of view. Post your opinions in good faith, and be prepared to back up your claims. Cheers.
You and better read his post again, as he was very specific about what he did not want to see in response. Also, I never said people should be given money for not working. I merely said JG is a bad solution to the wrong problem.
On my web site I proposed what I believe to be a far better solution, to which the response was that I am, “a crazy, rightwing, Austrian nutjob.” (Really.) Randy said he didn’t want to see links, but what the heck: Here it is: http://rodgermmitchell.wordpress.com/2012/01/01/why-modern-monetary-theorys-employer-of-last-resort-is-a-bad-idea/
Last time I spoke with Randy, he said the JG should be at minimum wage. It would seem to me that’s not a trivial issue. If it’s above minimum wage, wouldn’t people quit their minimum wage jobs to join JG? If it’s below minimum wage, aren’t we talking starvation wages?
Sorry if I dared to disagree with MMT on this point. Actually I agree with MMT on most things, but do believe there are alternatives to JG and also the treatment of inflation.
It’s not a matter of belief Rodger. It’s a matter of whether the system design will work in reality based on engineering principles.
The approaches you advocate does not work – Interest rates as a management tool causes unemployment.
Here’s a quote from Randy:
The $15.00 per hour figure is nearly $8.00 per hour more than the current minwage. Warren proposes $8.00 per hour. But MMTers are all over the place on this. What everyone does agree on is not that the JG wage will be at or below the minwage; but that if the Jg is implemented then the need for a minimum wage law goes away, because the JG will define the level of the wage floor.
Anyway, I don’t think MMTers are advocating starvation wages. certainly not Randy, Pavlina, or myself.
” . . . The $15.00 per hour figure is nearly $8.00 per hour more than the current minwage. “
Well, that should have an interesting effect on businesses and the economy.
“But MMTers are all over the place on this.”
All over the place on virtually every detail, but by heaven, they all are sure its right. What’s right? Who knows, but they are absolutely positive that some kind of government employment agency, paying some kind of wage, for some kinds of jobs that somehow will match all kinds of people is good, somehow.
As I’ve said before, JG (like the euro) has taken on a life of its own, requiring endless caveats, fixes and rationales, but to be defended at all cost, whatever it is.
How MMT, which accurately describes the realities of our economy, drifted to JG, truly is sad. Given the massive uncertainty about what the program is, not to mention what the program will do, how can you people be so certain?
Or, you can just attack me for expressing doubt. Whatever.
Rodger Malcolm Mitchell
Rodger Malcolm Mitchell
And I would add Jobs have a social benefit of social interaction and that’s where many people meet their partner for life these days.
I daresay and it is speculation that anyone that just wants money rather than a job has been abused by the current unemployment system and is just jack of it and its there turn to abuse because they have nothing left (extremely low self-esteem) and just want to be able to live. We know what the others with even lower self-esteem do.
Exactly what jobs are you talking about? Would these be minimum wage, burger flipping jobs? Or would they be higher paying, more satisfying jobs? If the former, I suspect many people would not want them. If the later, wouldn’t people quit the former to get the later?
Perhaps I’m one of Romney’s snobs, but I personally would rather spend my valuable time searching for a real job, than accept something where all day I said, “Shall I supersize that?”
You only get those if you’re under 20 today, so that’s a failed anecdotal example. You can’t even get those jobs for trying.
Randy’s been clear that the JG programs would be defined by various stakeholders including JG participants with the goal being to do work that produce value for the community and the country. I think flipping burgers is one of the “real jobs” the private sector has done such a good job creating for the American worker in the past 50 years. It’s not a job the Government should be blamed for.
In fact, I think if a JG wage were instituted at that that $15.00 per hour or more, perhaps MacDonald’s would get busy and invent a machine for flipping burgers so it wouldn’t have to pay people a living wage. That would be progress as long there was a JG to give people more interesting and valuable work to do.
” . . . as long there was a JG to give people more interesting and valuable work to do.”
Right, a government employment agency giving people more interesting and valuable work to do. Dream on.
Note to all those who have disagreed with my comments, Randy said, “I had made the analogy between disease and unemployment: would any reasonable person who understands the cause of a disease oppose a cure? If you knew that a vaccination can prevent smallpox, would you oppose providing vaccinations (at least to those who want them?”
I agree. But the question is: What is the disease? Apparently JG advocates believe unemployment is the disease. I disagree. Unemployment is merely a symptom of a disease. Think about it now, what is the cause of too much unemployment?
Answer: A weak economy. That’s the disease. So to cure the disease, and not just attack the symptom, one must stimulate the economy.
And lest you believe JG is the cure for a bad economy, remember this: Unemployment was at acceptable levels when we fell into the recession. It was the recession that caused the unemployment and not the other way around.
Rodger Malcolm Mitchell
Right, but even before the recession, when unemployment was low, there were people unemployed not because of a recession, but despite the strong economy.
Do you have a solution for them, or are they an acceptable casualty of our system? Is your solution that a high enough deficit would cause them to be employed, and inflation can be controlled by interest rates even at 0% unemployment?
Golfer worries about people who are unemployed, even during a strong economy.
The question becomes, why are these people unemployed if the economy is strong? Remember, contrary to what some MMTers say, unemployment is not the disease; it is the symptom. Mostly it is a symptom of a bad economy, but if the economy is good, then what causes the unemployment?
Identify the disease and treat it, not the symptom.
Rodger Malcolm Mitchell
Because of savings desires, we (collectively) don’t want to consume everything we would produce at full employment. That is why monetary economies have unemployment. It is part of the essence of our system. (And if you want to complicate things with a foreign sector, then think instead in terms of the world economy — a closed system.)
When the economy is strong, and the private sector is producing all it can sell, and there is unemployment, giving Joe more education or whatever he lacks to be employed merely transfers the problem to Mary when Joe is hired and Mary is laid off. It is not an individual, personal problem that there are unemployed people even when the economy is strong. They could all be PhDs and still some would be unemployed.
I think there are many “diseases” to be cured in the economy. I also think the idea of “disease” may be an unfortunate one here, in the sense that it has limited application. It’s pretty clear to me that there many gaps between where the economy is today and where we would like to be or think it ought to be. It’s a “bad economy” alright, but I fear we may not all agree what a good economy is, so I think the idea the “disease” is a “bad economy” isn’t specific enough for me. I do know that we don’t have FE at a living wage with PS right now. I also know that an important aspect of public purpose as I see is it to achieve that goal. So, I favor fiscal policies that will get us to the goal of FE at a living wage with PS.
Sorry, I don’t see why a set of MMT-based policies including FICA tax holiday, State revenue sharing, and a JG wouldn’t stimulate our economy and make it much stronger. Part of that greater strength would be achieving FE at a living wage w/PS, and part of maintaining that strong economy would be always having a JG program as an automatic stabilizer.
Again, forgive me. I never say that JG alone is the cure for a bad economy, and neither does anyone in MMT. All of the MMT economists envision a spectrum of policies including the JG. As I see the JG it puts the final touch on having a good economy, but ensuring that a recovered economy is good for everyone and 7 or 8 million people aren’t left behind without full-time work if that’s what they want. the JG improves the economy and also introduces a force for price stability. But, in addition, it is about equity, fairness, and justice, which in my view are also aspects of “the good economy.”
Finally, maybe the UE levels in the Bush Administration are acceptable to you. But to me they were very far from acceptable. As I recall, U-6 unemployment was at 10%, and even that figure is an underestimate. If one used “disemployment,” blogger Hugh’s measure, we were at roughly 14% during the Bush years. Not a very happy state at all.
Joe, just before the Great Depression, unemployment was about 4.5%, which many economist feel is at the very bottom of the buffer stock a healthy and growing economy should have.
MMT claims the JG. which presumably could approach 0% unemployment, actually does not eliminate the buffer stock economists feel is necessary.
According to JG, those employed by JG still are buffer stock. I disagree.
Rodger Malcolm Mitchell
RMM: “The one thing MMT prides itself on is that it is not a theory or an hypothesis, but rather a description of reality. But JG is a hypothesis. So when departing from a description of reality to hypothesis, don’t be too locked into only one viable solution.”
RW (above in this post): “MMT has three levels or aspects: description, theory, and policy.”
RW goes on to say: “As a description there are actually two levels. First we describe a “pure” or “hypothetical” case that applies to any currency issuer….. Then we describe actual practice. This must be case-specific.”
The MMT JG is both theoretical and prescriptive of policy. A key object of macro theory is resolving the trifecta of production (growth), employment, and price stability because these are major concerns of economic policy and policy makers seek expert guidance in the most efficient and effective policy for resolving that trifecta in the nation’s economy at the time. Whatever the principal issue at the time, whether this is growth, employment or price stability, policy makers have to take all of the them into account or the focus on one may disrupt another.
Again in Randy’s words, MMT is “an integration of several approaches to monetary theory, including Chartalism, Endogenous Money, Monetary Theory of Production, Functional Finance, Sectoral Balances Approach, and Circuit Theory. Personally, I’d also add Minsky’s Financial Instability theory and probably a few other bells and whistles.” The MMT JG as buffer stock of employed and price anchor plays a key role in the macro theory in that MMT is a macro theory that designed to resolve the trifecta of production more efficiently and effective than other macro theories. The macro theory is the rationale on which the policy proposal rest, justifying its selection instead of others less efficient and less effective solutions based on other macro theories, in that it is the only theory on the table at present that resolves the issue of involuntary unemployment and price stability while optimizing production, i.e., performance of the economy without idling resources. Theories that leave a buffer stock of unemployed involve the deadweight cost of idle human resources, i.e., those willing and able to work who cannot find suitable employment since there are no job offers available for them to take.
“Theories that leave a buffer stock of unemployed involve the deadweight cost of idle human resources, i.e., those willing and able to work who cannot find suitable employment since there are no job offers available for them to take.”
If there are no job offers available, what is the reason? Creating make-work doesn’t solve the deadweight cost of idle human resources. It creates more deadweight, in that you now have to hire all those bureaucrats to find jobs for the unemployed.
Again, what is the reason. Treat the disease, not the symptom, for a longer lasting cure.
RMM, do you really think that economic policy is capable of permanently achieving full employment in the sense of (no involuntary unemployment) and price stability (no more than modest inflation that the central bank can live with) solely with stimulus, Rodger, i.e., exactly offsetting saving desire all the time? That seems to be what you are saying. I would say that attributes a level of omniscience and omnipotent to economic policy that it has never exhibited heretofore. Why expect it then?
Tom, I believe you’re missing the point — the same point MMT misses — when you ask whether monetary policy could achieve “no involuntary unemployment.”
The goal of an economics program is not just to employ everyone who wants a job. All communist nations do that quite well. The goal is to solve the many problems in an economy, of which unemployment is but one.
Randy asks, “If you knew that a vaccination can prevent smallpox, would you oppose providing vaccinations?” His analogy assumes unemployment is the disease.
It is not. The disease is a weak economy, and one of the several symptoms is unemployment. Using Randy’s analogy, treating smallpox would involve giving aspirin for fever and aloe for the rash.
I suggest that MMT makes a fatal error when it bases its cure on treating a symptom.
There are other symptoms of a bad economy. Shall we treat those directly, too? How about homelessness? Shall we have HG (Homes Guarantee).
How about the income gap between the 1% and the 99%? Isn’t that a big problem the JG doesn’t even approach? Shall we have a SITNTG (Sufficient Income To Narrow The Gap) guarantee?
I say, treat the disease, which currently is a poor economy. Then, if there remains some unemployment, as well as other symptoms, determine what disease causes them, and treat those diseases, too.
Rodger Malcolm Mitchell
James Galbraith believes the disease is “unsupervised bankers and ambitious economists,” which he wrote in his letter to the Financial Times published May 2, 2012 as “Dr Summers performs a medical miracle.”
This made me recall Rodger’s blog post, “At long last, are we ready to end private banking?”
Rodger, I understand you saying that some voluntary unemployment is acceptable since it is not govt’s role to see to it that everyone has a job offer, even though that means some idle resources, hence waste. If you claim that there can be no idle resources through involuntary unemployment, I take that you have developed a plan for doing this that doesn’t involve a JG. Is that the case?
Voluntary unemployment always is acceptable. I, for one, am voluntarily unemployed. Do you want to force me to work? Sorry to be so wasteful. 🙂
Then you said, “If you claim that there can be no idle resources through involuntary unemployment . . . ” Really Tom, I get so weary of people claiming I said something I never said, and never even hinted at. For some reason, this bog seems to be a magnet for that kind of devious paraphrasing.
I’ll take responsibility for words I actually said. Period.
Rodger Malcolm Mitchell
OK, I see you have responded at your place to move the details of the issue away from here in accord with Randy’s wish to focus on the substance of his post. I am posting a link to your post at Monetary Sovereignty at MNE, too, since I think it is a discussion worth having.
I’d like to challenge your interpretation of the diseases/symptom analogy. Let’s look at the definitions:
1. A disorder of structure or function in a human, animal, or plant, esp. one that produces specific signs or symptoms or that affects a specific location and is not simply a direct result of physical injury
– bacterial meningitis is a rare disease
– a possible cause of heart disease
2. A particular quality, habit, or disposition regarded as adversely affecting a person or group of people
– departmental administration has often led to the dread disease of departmentalitis
1. A physical or mental feature that is regarded as indicating a condition of disease, particularly such a feature that is apparent to the patient
– dental problems may be a symptom of other illness
2. A sign of the existence of something, esp. of an undesirable situation
– the government was plagued by leaks—a symptom of divisions and poor morale
Abstracting out from the primary meanings, and drawing on the examples given by the secondary meanings, we can see the disease is more of the disposition, and the symptom is more of a sign of the existence of an undesirable situation. In effect, you’ve reversed it. The weak economy can be seen as the result – the sign – if you will that there is an undesirable situation (unemployment) which is the disposition that adversely affects a large group of people. Now, yes, you can say that this “great recession” was not caused by unemployment (true), but one can argue – as William Black might – that it was caused by another disease: accounting control fraud. So if we take the economy as a “body”, you can infer that diseases affect the body in such a way as to have different diseases produce the same symptoms (above: dental problems may be a sign of other illnesses is a great example). If the symptom is a “weak economy” which we can think of as akin to some form of corporal malaise/fatigue, the its potential root causes can be things like unemployment, control fraud, external price shocks (oil), wage deflation etc. And just like a real body, you can have a disease without seeing symptoms, until the disease grows sufficiently. Golfer1 pointed out that even when the economy is (or appears to be) strong, there is still the disease of unemployment lingering beneath. MMT wants to eradicate the disease. So long as symptoms don’t appear on the patient, it would appear you’re fine. What say you of an economy like Germany then, where you have very low unemployment but 20% of the jobs are these mini/midi jobs that pay extremely depressed wages (2Euro/hr) since Germany has no minimum wage? What disease would you identify there, if any? It’s now well known that domestic demand in Germany is falling? Disease or symptom in your estimation? I would identify the ongoing race-to-the-bottom wage deflation as the disease. It’s a disease that is becoming endemic to the EZ as the Austerians try to avoid external devaluation of the Euro by forcing the internal devaluation of wages. The symptom (in Germany and elsewhere) is the weakening domestic economy precipitated by falling domestic demand.
Yes, Marley, that’s the problem with analogies. People begin to argue off point. It was Randy, not I, who used the disease analogy. I just responded to it. The result: I receive a long medical description of “disease.” Yikes!
Given the question of whether unemployment caused the recession or whether the recession caused the unemployment, I think any honest person would agree on the later. Cure the recession and you cure the vast majority (but not all) the unemployment.
There still will remain some unemployment caused by other problems: A bad educational system? Young people needing to leave school to support their families? Previous history of incarceration? Different skill set needed? You name the cause, and that is what needs attention.
As for curing “accounting control fraud,” that might prevent some future recessions, but it probably will not cure this recession.
The very heart of communism was JG, and I believe that was one of its main weaknesses, too. The notion of solving a problem directly, rather than focusing on the underlying causes of the problem, is a naive strategy. If the causes remain, the problem will remain.
Rodger Malcolm Mitchell
Oh, and Marley, you asked, “What say you of an economy like Germany then, where you have very low unemployment but 20% of the jobs are these mini/midi jobs that pay extremely depressed wages since Germany has no minimum wage?
Sounds like Germany has a form of JG. So tell me, exactly what wage will JG pay? Will it be minimum wage, which today is poverty level for most people? Will it be above minimum wage, so people will quite their minimum wage jobs and go to JG? Or will it be below minimum wage — really poverty level.
The question of what wage JG will pay is nontrivial, and I know there has been much argument about this. But without an answer, what is left of JG?
Rodger Malcolm Mitchell
A financial crash created by unregulated plutocrats committing fraud in an international gambling casino?
Randy has answered this obkection many times. It won’t be make work, it will be work the private sector won’t undertake because they don’t think they can make a profit at it at an acceptable risk. That doesn’t mean the work isn’t necessary to do, or very valuable for all of us. The private sector today is a freakin’ mess. It’s being run by people who want to make money by financial manipulation and have any losses they incur bailed out by the Federal Government. These businesses don’t want to and mostly don’t produce social value for the rest of us. What they produce is nominal wealth for the people who run them.
They need to be ended and gotten off the back of the rest of us. We need neither them, nor their representatives in the R and D parties, nor their presidential candidate Mitt Romney.
Sorry. the above screwed up a blockquote.
… and thanks for the response. I think you could coalesce the main points of your argument without necessarily running afoul of “promoting personal websites … ” and such that Dr. Wray bemoans. But the main thing is that much of this has been discussed here before during the earlier portions of the primer. I also saw your response to the Dr. Wray’s previous post (MMP #49), and Mitch Green’s and others’responses, and frankly, I can’t add any more to that argument of gov’t vs “private sector” as better conduit for the JG. If you’ve spoken to Dr. Wray about JG and minimum wage, then I stand corrected. I think at this stage, (for me) one either believes that (a well informed/advised) gov’t is capable of executing a JG -or- one does not.
Ooops… this was meant from RMM above.
RMM: “I agree. But the question is: What is the disease? Apparently JG advocates believe unemployment is the disease. I disagree. Unemployment is merely a symptom of a disease. Think about it now, what is the cause of too much unemployment?
Answer: A weak economy. That’s the disease. So to cure the disease, and not just attack the symptom, one must stimulate the economy.”
That’s what the sectoral balance approach and functional finance aspect of MMT are about. Say that the data and policy are perfect and the economy is operating at full capacity with a offer for everyone. Then the buffer stock of employed under the MMT JG falls to zero. However, it is unreasonable to assume that the data is always that precise and the policy perfectly adjusted to changing conditions in a completely resilient way. As a result, under almost circumstance, there will still some involuntary unemployment for the MMT JG to mop up.
The purpose of the MMT JG is not to stimulate the economy by increasing demand (Warren Mosler); it provides a practical solution to involuntary unemployment along setting with a price anchor (see the post above). It works in conjunction with the rest of MMT. Offsetting demand leakage due to saving desire is the purpose of the sectoral balance approach and functional finance.
If the economy is strong and there still is unemployment, then the question becomes, “What causes that unemployment.”
Remember, unemployment always is a symptom of some underlying cause, some “disease.” So, under the circumstances you describe, we should search for the cause and treat it, rather than treating the effect.
Would the cause be bad education resulting from bad schools, dangerous neighborhood, the need to support siblings, time in jail, etc.
The deeper we reach into causes, the more permanent will be our solution. But let’s face it, stimulating the economy will do the most long-term good, and without the bureaucracy of JG.
Someone asked me what I suggest. Here’s what I suggest: http://rodgermmitchell.wordpress.com/2011/10/07/nine-steps-to-prosperity-a-short-message-to-occupy-wall-street/
RMM and RW both believe more spending is needed. It isn’t clear but RMM doesn’t argue for targeted spending in his piece just pump priming. It is a supposition but I think RMM would also argue for targeted spending as would most of the mainstream schools of thought, so the broad argument is where that spending should be targeted.
In a boom/bust recession cycle, there is always a fiscal lag of policy implementation due to the “black swan” event but with a JG it acts as an automatic stabilizer which provides somewhat of a backstop to the economy before it falls apart completely.
And with that support there, then we can look at ways of supporting other parts of the economy but we should help people first.
We know that top level pump priming runs into supply side issues. We’ve already done that and it doesn’t eliminate poverty.
Why do we always have to eliminate poverty indirectly? The simplest thing that will work is to make sure that those in relative poverty have enough money and enough to do to make sure they are not.
Money isn’t everything. People need to feel they have a purpose, and ‘work’ in its broadest sense helps to do that.
It also helps sell the programme to the rest of the population that is having to ‘work’ for an income.
“Why do we always have to eliminate poverty indirectly? “
Isn’t eliminating poverty indirectly exactly what JG does? Eliminating poverty “directly” would mean giving people money, directly.
As I said earlier, unemployment is not the disease. It is a symptom of the disease. The disease is a bad economy. You can try to cure the symptom, but better yet, why not cure the disease?
The bad economy caused unemployment and not the other way around. Cure the disease and the symptom will disappear.
Yes but you’re wrong Rodger, as people have tried to point out to you lots of times.
People don’t get out of bed in a morning because of money. It’s just a hygiene factor. Psychology and sociology has known that since Taylorism failed in the early 20th century.
Enough money isn’t enough. They need something to do.
The Job Guarantee solves lots of problems in one neat package.
Yes, people need something to do, but working for a boss is not what most people need. The equation of “needing something to do” and “needing a job” is a false one. It’s what the 1% like to sell to the 99% to pacify them.
Those JG jobs, by their very nature, seldom will provide the kind of satisfaction you imply. (“Man, I can hardly wait to go to my minimum wage job as a supermarket bagger, so I can stand for hours, putting stuff in bags, while being ordered around by a loudmouth boss. It’s what I live for.”)
Most workers live for weekends and vacations, not for the daily grind of being a slave to company rules and bosses.
Lottery winners tend to quit their jobs.
I need something to do, but I’d rather be doing what I’m doing now, than working for a living — and I was the owner. Think of what my employees must have felt!
Senexx, actually I do favor targeted spending, perhaps not as narrowly targeted as some would have, but targeted nonetheless: http://rodgermmitchell.wordpress.com/2011/10/07/nine-steps-to-prosperity-a-short-message-to-occupy-wall-street/
I add I do tend to agree with the administrative risks that RMM describes in an implemented JG that it may “create a giant bureaucracy filled with bully straw-bosses” etc.
That is something that hasn’t been discussed much in the JG literature, an implemented version (excluding Argentina and India’s version) and I daresay that is because they will become case specific.
However that is little help to understanding the micro-functionality of an implemented JG.
Other than that I find the logic of a JG impeccable and quite conservative.
“I add I do tend to agree with the administrative risks that RMM describes in an implemented JG that it may “create a giant bureaucracy filled with bully straw-bosses” etc.”
I’ve looked at those objections, and I find them amusing. In my line of work I deal with giant bureaucracies all the time – they are called large private companies. Many American and European companies have a larger ‘GDP’ than many countries, and I can assure you that they operate on a near command economy structure.
There are fairly standard ways to implement the structure that ensures that it is not a bureaucratic mess. Primarily you make sure that the government is only responsible for paying the wages based on a fairly simple qualification structure. Everything else is then de-centralised as far as possible so that local communities direct the work allocation.
Note I use “may” where RMM uses “would”.
Have you written anything on that anywhere? I would like to read it if you have. About the “giant bureaucracies I mean”.
Very well done, Dr. Wray. Most excited for the new book. Excellent work. Thank you very much.
This is a good point that you made: “Say that the data and policy are perfect and the economy is operating at full capacity with a offer for everyone. Then the buffer stock of employed under the MMT JG falls to zero.”
Most critics of the JG (within the modern money paradigm) argue that the JG would be a bureaucratic nightmare. It seems they’re imagining our current 10? 20? million of unemployed doing who knows what and how do we decizide and coordinate??. From that perspective, no wonder the JG seems ridiculous.
But I think RMM falls into a similar trap that MMR does…
Maybe I don’t understand MMT, but my impression is that MMT supports lowering taxes and increasing government spending “like a thermostat” (Mosler). So in a proper MMT world, the JG would probably be fairly small most of the time. Besides, maybe there are people (e.g. the elderly) that would be happy to live on a basic wage and do things for their local community?
I like a lot of RMM’s proposals. But I don’t see why the JG is such a big deal. It seems like it could and would be small with other appropriate macroeconomic policies.
I really like the idea of using targeted deficit spending for public purpose projects. For example, why not blanket the USA in “free” wireless internet? We could treat it like that national highway system. Sure, there are maintenance costs. Big Deal! How nice is it that we can drive across the country and not pay toll booths on every road? Likewise, how nice would it be if anywhere and everywhere we could connect to the internet “free” of charge? Isn’t this inevitable? What are we waiting for?
“For example, why not blanket the USA in “free” wireless internet?”
Nawww, apart from scaring the beejesus out of those who already cringe at the thought of the government “crowding out” the private sector, Dr. Wray has pretty much said that as much as possible, the JG would want to be comprised ot things not currently done by the private sector (see Responses to Blog #43). Wireless companies like Sprint, Verizon & AT&T would probably cry foul to boot… 🙂 but it’s a nice idea!
I didn’t mean blanket the USA in free internet as part of the JG. I meant it as ‘outside’ targeted spending… like when we hire Lockheed to build us missiles. But I see your point. The Telecom giants would fight this with all they’ve got.
I know “conservatives” would freak out on this type of conversation, but I think we need to reconsider what the private sector should and should not be doing and what the public sector should and should not be doing. It’s a slippery sloap toward a really big government. Nevertheless, is there not something wrong with an industry that’s bottom line is dependent on people not being healthy (healthcare)?
What about Education and Energy? Would households and businesses not be interested in solar farms that provided free electricity for the entire country? What household or business wouldn’t want to eliminate energy as a cost? (besides energy companies!)
I think these conversatons need to be had. Is capitalism the end all be all? Or is it merely a transitory stage? Where are we going?
Ahhhhh ok… got it, JK. Follow your line of thought. I too think of medicine and medical research as such an area! Exactly – does the private sector really have an incentive to find the cure for diseases? I’m not afraid of that slippery slope as I think that big gov’t does not necessarily mean inefficient gov’t. But I concur about “having the conversations” as well.
“Nevertheless, is there not something wrong with an industry that’s bottom line is dependent on people not being healthy (healthcare)?”
Seems to me that during my working career a sea change occurred in health care, or at least in health insurance. Preventive care that used to be considered one’s own responsibility (always cost less than the deductible) now mostly has first dollar coverage. At least the insurers, if not the doctors themselves, have demonstrated an interest in having healthy clients, not sickly ones.
It seems to me that since they are capitalists, they must do this because they believe that their healthy clients are MORE profitable than their sickly ones, so that their bottom line not only does not depend on people not being healthy, it suffers from it.
You need to differentiate…
For health insurance companies, of course they want healthier customers. Their “cost” is paying for healthcare for sick people.
But for doctors, pharmaceutical companies, etc… they don’t make money on healthy customers. Right? Are there not conflicts of interest?
JK “For example, why not blanket the USA in “free” wireless internet?”
Things like that are no-brainers for a lot of reasons, but that would mean ending the oligopoly of providers that now control access and derive handsome rents for the service. They might have something to say about this and they do employ lobbyists and massively contribute to politicians. Same with single-payer health care. The list is long.
The fact is that if this were done there would be much less poverty and unemployment in the first place, as studies show. But that is “against free market principles,” with which propaganda Americans are bombarded 24/7.
If not the current ISPs, who is going to provide all this “free” wireless internet access? Nobody else has the capability, and nobody is going to do it “for free”. The proposal, I think, is for government to pay them to do it, and individual users would have access “for free”. Just like Starbucks and McDonald’s are already doing it for their customers. AT&T doesn’t do it for nothing, they are being paid by Starbucks and McDonald’s.
I envision a scenario like this: a town decides (perhaps using a Federal grant) to provide wireless hot spots. They put a contract out to bid among the oligopolistic service providers, who compete for it on price and quality of service. Absent some sort of corruption, it should be quite the “free market” solution, if you consider the town as customer and not the citizen.
Sure. Like I said, it’d be similar to how the U.S. Government purchases missles. Private companies do the work, and get paid, for a public purpose. The necessary infrastructure would then be publicly owned… just like the national highway system. All of the construction and maintenance costs are subsidized, but the work is done by private companies and/or private citizens. At least that how I imagine it.
JG is attractive because it offers a permanent solution to this world’s longstanding unemployment problem. After JG, we would never again have to worry about an unemployment crisis.
Also a good idea is bottom-up Keynesian stimulus, such as the elimination of the payroll tax.
The ultimate goal is to eliminate poverty. In 2000, when US unemployment was at four percent, the poverty rate was still above ten percent.
One more defense of a BIG over a JG:
Take a BIG that’s structured like the negative income tax, or administered through refundable tax credits or something. Something that guarantees an income at a certain level, and slowly diminishes the subsidy as income from other sources is earned. You’ve got the same automatic stabilizer/counter-cyclical mechanism as the JG, with easier administration, and the same stimulation to aggregate demand.
BIG doesn’t create jobs like a JG, it’s true, at least not directly, but it does create jobs downstream, as their ability to demand goods and services causes businessmen to hire more to meet that demand. Moreover, they will be able to self-employ, spend some time working on that crazy idea of theirs in their basement, and maybe end up selling it and benefiting everybody. PCs were invented by garage-tinkerers, as well as many other modern appliances and technology. A JG wouldn’t give people the option to be garage-tinkerers, but a BIG would.
And there’s two more issues with JG jobs. The first is discrimination against JG employees, employers will still rather hire employees coming from similar firms, rather than from the generic public employment pool, and other private sector employees will tend to despise the public sector employees much the way they despise welfare recipients now. The evidence for this is the discrimination that occurred against employees of the WPA and the CCCP. Rather than being the boost to the employability and morale of the JG job-holder, it will simply replace the “last-place in life” attitude that unemployment currently enjoys. Public sector JG jobs will inevitably compete with work done by private contractors and the labor unions that supply labor for those jobs, breeding unnecessary economic enmity of union workers against JG workers, and government administrators against unions.
The second is the quality of JG jobs. It’s a complete guess that the skills and social circles a JG job permits a worker to keep and hone will be those valuable to the economy at large. Getting a JG job may well hinder an employee’s ability to get a job in the private sector over someone coming off a stretch of being unemployed, if the jobs and training offered aren’t competently managed. In other words, holding a reserve pool of the employed as a buffer stock only works as a price stabilizer if the quality of that buffer stock can be maintained. But the issue of maintaining that stock is hand-waved by advocates for a JG.
A BIG bypasses all of those issues. Your neighbors won’t know that you’ll be getting a BIG check, but it’ll be pretty obvious you’re in the JG when you’re out in your JG uniform picking up trash on the sides of the highways or weeding public flowerbeds. If you want to re-enter the private employment game, but lack the necessary skills, you can use part of your BIG to pay for your re-education and to introduce yourself to employers in the fields where you want a job. You’ll be far more likely to pick the kinds of skills and develop the kinds of social circles that will keep you competitive for a job doing that, than by spending your time out of the private labor sector picking weeds or delivering meals to old ladies.
The nod to the gold bugs is most troubling to me, in that I was under the impression that one of the advantages of a fiat monetary system is that the value of fiat money, when competently administered through the lending system, is based on the value of all commodities simultaneously, so that the economy as a whole is better equipped to ride out supply shocks that might occur in any individual commodity. Tying the value of money to the value of previously unemployed labor just makes the rate of inflation more susceptible to the rate of growth in the population, and I fail to see how that’s wise or desirable.
It also troubles me how the defense of the JG all too often buys into the premise that you’re only doing something valuable if you’re earning a paycheck for it. In my opinion, this comes from reifying the economic distinction between production and consumption, a distinction made for purposes of analysis, but which does not really exist. Every act of production consumes some other resources in that act, and every act of consuming produces something that eventually makes its way, possibly through numerous chains of consuming/producing without any money changing hands, back to the market. The JG ideology tells the worker “You may not consume until you produce.” In reality, and especially at the macro-level of abstraction in which MMT specifies its theories, there is no justification for forcing that distinction on the worker. His consumption, which his unemployment denies to him, is productive, he gets to live to offer his work for sale the next day or improves the quality of the work he can do, and the same thing goes for the people from whom he buys his food and shelter, and the production the JG makes him do to enable his personal consumption, entails consumption of its own and produces things which may be better gotten in other ways.
“You’ve got the same automatic stabilizer/counter-cyclical mechanism as the JG, with easier administration, and the same stimulation to aggregate demand.”
And a 70% marginal tax rate at the low end via the clawback. Hardly progressive.
We have a tax credit system in the UK, and still have Five million without work who want it.
‘Negative income tax’ doesn’t work.
I fail to see where I mentioned anything about a 70% marginal tax rate at the low end, or anything about a “clawback.” We have a tax credit system in the US too, it’s called the Earned Income Tax Credit. But that credit’s not nearly big enough or broad enough to be any kind of income guarantee. I’d be nice, if when responding to someone’s post, you’d actually address what’s in the post, instead of arguing against something that is, at best, only marginally relevant.
“and slowly diminishes the subsidy as income from other sources is earned.”
That’s where you mentioned the 70% marginal tax rate and the clawback.
So I was nice.
Again, that 70% is your number, and is nowhere implied in anything I wrote. Neither does that imply any kind of “marginal tax rate.” An income guarantee that has the income subsidy diminish as income from other sources is earned or grown is better than a Job Guarantee, because the Job Guarantee only protects those who are unemployed, not those who are underemployed. A BIG like the one I described protects both.
“but it’ll be pretty obvious you’re in the JG when you’re out in your JG uniform picking up trash on the sides of the highways or weeding public flowerbeds.”
Once again a huge assumption about the ‘chain gang’ implementation style.
All logical fallacies. It is *easy* to design a JG distribution system that works just nicely.
That’s hand-waving the maintenance of the buffer stock. If it’s so easy, describe in detail how it can be done, and explain why other government job programs like the WPA and the CCCP did suffer such discrimination. It’s easy to describe how the buffer stock of the unemployed can be maintained with a BIG. With a JG, everything depends on the organization and administration of the JG program. Adequately organizing and administering such a system with the maintenance of the buffer stock in mind as well as maintaining aggregate demand and counter-cyclicity is neither easy nor cheap.
Without some kind of equivalent to the Job Guarantee, MMT as now developed in the gang8 discussion (from research into the conclusions of notable economists since the early 19th century) would be aimless and ineffectual.
“If jobs do indeed trickle down, it is at least in part because the targeted ‘general’ pump priming pushes up wages and prices in those favored sectors sufficiently that employers look to workers who are less desirable.” – Dr. Wray
So even before full employment, government spending causes targeted inflation?
Not just “government spending” per se, but government spending in the traditional “pump priming” or “aggregate demand management” approach, as also argued by Pavlina Tcherneva here: http://www.levyinstitute.org/pubs/wp_650.pdf
Maybe I am over simplifying, I see it this way:
1. Any macro model/theory worth its salt must have a comprehensive view of labor and employment.
2. People who unable to work or cannot find work should not lose access to basic human needs (food, shelter, etc.), as long as the economy can still produce the goods to satisfy those needs
3. There are always some human needs that cannot be monetized sufficiently to generate profit. Some of which change over time.
4. In the modern state, we exercise our collective will via the government apparatus (for better or worse).
5. As long as there is productive work available (e.g., things that need to be done, but are not getting done) and the private sector is unwilling to fulfill those needs, then the government must step in and lead the way.
6. The government does not necessarily need to execute the work, but it must finance the work effort and be ultimately responsible for the success and quality of the work.
7. Much of this work is service-related, which is more labor resource intensive than natural resource intensive. With the exception of infrastructure-related projects, public works do not place significant pressures on the real economy, hence are not inflationary.
8. The incremental public cost of a job over an unemployment benefit is not very important. What is important is that the job be productive, e.g., deliver what it is intended to do.
9. As manufacturing becomes more and more automated, there is an increased need to maintain existing and develop new skills throughout one’s work career. Service-related work requires organizational and communications capabilities that need continual attention to stay productive and competitive.
10. The choice is between having unemployed, unproductive and excluded people who want to contribute vs. producing, participating members of society.
Arguing the details prior to agreement on general principles is a waste of time.
“Arguing the details prior to agreement on general principles is a waste of time.”
It’s a distraction. The argument is about macro theory and policy options that follow from it. After that policy formulations need to be developed for specific cases, such as the US and UK, where political systems and economic conditions are somewhat different, and strategies and tactics developed for implementation.
Arguing about tactics while the debate is at the theoretical and general policy level is silly.
The general principle of addressing a symptom rather than the underlying problem is wrong. And the details (i.e., exactly what salary, exactly what jobs, exactly what locations, who supervises, etc., etc., etc.) are weak.
I’ll be interested in see how all that is resolved. My concern however, is that JG has evolved from a solution to a problem, and now has a life of its own, to be defended, fixed, defended again, fixed again — rather than starting from the real problem: How to make the economy better for everyone.
In this, JG reminds me of the euro, another “solution” that is defended, fixed, defended again and fixed again, that also has acquired a life of its own.
Rodger Malcolm Mitchell
Ordinary macro theory says we have to have bufferstock of unemployed people as a price achor.
MMT proposes to replace unemployed people bufferstock with employed people bufferstock.
RMM, are you now arguing we don’t need to have any short of bufferstock?
MMT claims those employed under JG actually are the same as unemployed with regard to buffer stock. So, they say, it’s O.K. to have that kind of 100% employment.
I believe there needs to be some unemployment. In previous years, 6% was seen as an economically, healthy level.
I don’t defend JG.
Pingback: –Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. « #Monetary Sovereignty – Mitchell
I’ve been quoting that same NYT editorial (about 10% of those on Wall Street being psychopaths), but if you check that link now, you’ll see that the editorial was changed after objections from the study authors and there is a retraction of sorts at the end of it. It no longer makes that 10% claim and instead says:
“A 2010 study found that 4 percent of a sample of corporate managers met a clinical threshold for being labeled psychopaths, compared with 1 percent for the population at large. (However, the sample was not representative, as the study’s authors have noted.)”
Pingback: Randy Wray: MMT Without the JG? « naked capitalism
I’ve said it this way:
With the ability to create tax liabilities and associated savongs desires comes the responsibility to provide the means of paying those taxes and net saving.
Agreed Warren. A healthy economy is the means. See: http://research.stlouisfed.org/fredgraph.png?g=7yR
I may be wrong, but I don’t think he had that in mind exactly.
In The Parable of the Talents, a Talent is, according to legend a sort of money equal to 6000 days of a man’s labor. A lifetime ( 16 1/2 years at 365 days per year) . What a pefect example of a non inflationary fiat money.
Re. the Talent as “non-inflationary” money, it doesn’t take into consideration increases in productivity. Far from being an inflation prevention, the Talent would be a guarantee of inflation.
If the number of Talents remains constant and increased productivity increases the amount of goods produced by Labor – Talents become more valuable – the same number of Talents chasing more stuff. That is Deflationary.
If Talents are “fixed” to a certain number of hours of labor, then it’s not a fiat currency. Fiat currencies “float” against commodities, including labor. But you’re right in that all fixed currencies eventually become deflationary, as the production of whatever commodity your currency is fixed to fails to keep pace with the growth of the economy overall. But deflation is not better than inflation, it is markedly worse.
You are absolutely right, deflation is much worst than inflation. I was responding to the comment that a Talent, as decsribed in the Parable, was inflationary because labor productivity increases were expected. Thanks for your post.
I am late getting into this discussion, but I hope, not too late. First I think both sides need to step back and take a long breath. There seems to be more defending a POV than adding value. For sure RMM’s difficulties in implementing JG are valid from the position of the government providing jobs. But what if the government creates the conditions that encourage private enterprise to create the jobs? Can we suggest creative ways to do that? I think yes.
Then maybe we should back up and consider some other aspects of the argument. Rather than arguing theory, maybe some empirical issues should be considered. Lets start with RMM’s position on causes, and let me specify that I am addressing the USA economy –
“Given the question of whether unemployment caused the recession or whether the recession caused the unemployment, I think any honest person would agree on the later. Cure the recession and you cure the vast majority (but not all) the unemployment.
I like to think of myself as an honest and objective thinker, and I would have to go more for the former. I would also disagree with RMM on the reasons that unemployment has been growing. Because I hate typing, and don’t know how to include charts in this kind of posting, I will risk oversimplifying here, and request a degree of understanding.
Over the long reach of history, economic progress has been driven by technology (why do economists ignore technology and exclude intellectual capital from their formulations?), and as a general rule advancing technology always created more jobs than it destroyed. This was great in a single country or region. But what happens when technology enables the creation of jobs in the hitherto poor region, thus destroying jobs in the hitherto rich region. With outsourcing and offshoring that process has been happening to the US economy for at least a few decades. Add to that mechanization and automation which might not destroy more jobs, but likely shift employment from higher to lower paying jobs. And then, over at least the last 10 years, add the impact of Artificial Intelligence (AI), and digitization which I will call “intellimation”. Intellimation destroys more jobs than it creates.
So, to no small degree, the long arc of technology history caused a significant part of the specifically USA unemployment, not the recession.
MMT basically makes the premise that government spending creates demand, and increasing demand leads to economic growth driven by private sector growth to satisfy demand, and when private sector demand growth falters, government must step in again to stimulate demand. Again that is only part of the story. From the early 1980s the growing unemployment I have posited was masked by demand that was growing at an unsustainable rate, through growing private sector debt creating demand. We can see the effect here http://research.stlouisfed.org/fred2/series/GDPC1 . Linear GDP growth ca 1950 to 1982, then linear growth at a steeper slope ca 1982 to 1995, then a still steeper slope 1995 to 2007 (the bubble economy), and then back to the 1982 to 1995 growth curve and trend. Note that the early impact of the recession was a sharp decline in consumer debt (and demand), but consumer sector debt is growing again, as is the economy at the ’82 to ‘95 slope. The bubble economy coincided with 2 surges in private sector debt chasing wealth, first with the dotcom bubble, then the housing bubble. Bubbles burst. So – the economy caused the unemployment?
Not so fast. There was another element – demographics. From the early ‘90s we had the boomer generation (a roughly 92 million person cohort) entering their peak spending years, coinciding with the GenX generation (a 70 million? Cohort) entering the job market. Voila – high demand, low labor availability and low unemployment. And all of that coinciding with the 2 phase debt driven bubble.
Now we have GenX entering their peak spending years, Boomers well past theirs and retiring, and the Millenials (a 95 million cohort) entering the job market. Voila – lower demand coinciding with increased labor supply providing high unemployment, a problem for at least the next decade.
So what causes unemployment? Three factors – technology destroying jobs through outsourcing, offshoring, automation and intellimation (a process that has been ongoing for decades, masked by other elements), demographics changing the demand/labor availability relationship dramatically, and debt driven economics.
What then will cure unemployment? We have to be a lot more imaginative than either RMM or MMT.
Can we deemphasize theory and look at the specific empirical conditions as they change over time?
” . . . what if the government creates the conditions that encourage private enterprise to create the jobs?”
Exactly what I have proposed in my nine-step suggestion: http://rodgermmitchell.wordpress.com/2011/10/07/nine-steps-to-prosperity-a-short-message-to-occupy-wall-street/.
Rodger Malcolm Mitchell
Roger I agree fully with the thrust of your (Obama’s) speech, even if I’m somewhat uncomfortable with some of the details. My discomfort might be a holdover from my neo-classical economics beliefs from before I discovered MMT and your blog, but even allowing for that I think some of the points could stand a little refinement.
My major problem is one that I have always had with MMT and have not yet seen discussed (I sure haven’t read everything written so may have missed it), and that is this proposal: “The federal government will help the states – which by the way, do not have the unlimited ability to pay bills –get out of their financial problems”. If the federal government bails out the states, in effect they do have unlimited ability to pay bills, or to behave irresponsibly. How does MMT deal with that “moral hazard”?
Even with less than a fiscal union why could the ECB not bail out the problem Euro nations right now?
More than half the states already have a positive balance of payments vs the federal government. It’s just not enough. And, of course, many states actually have a negative balance of payments, which is ridiculous. My recommendation was that the federal government give each state a fixed amount (perhaps $5,000) per person each year, not an unlimited checkbook.
Had the eurozone been constructed properly, EU would be giving (not lending) euros to each euro nation. I predicted the current disaster way back in 2005.
Rodger Malcolm Mitchell
But the states are not now able to know they can be bailed out. You have not addressed the questions.
Challenge, Improve, use as your guide.
Thank you, RMM
“Had the eurozone been constructed properly, EU would be giving (not lending) euros to each euro nation. I predicted the current disaster way back in 2005.
…My recommendation was that the federal government give each state a fixed amount (perhaps $5,000) per person each year…”
justaluckyfool (google) will now include the following:
We must stop this double taxation: paying a personal income tax to our government, paying
a tax to private banks called interest. Interest is revenue raised that if paid to the only agency that would be allowed to issue currency, if would be part of the income (revenue) that could be RE DISTRIBUTED back to the states of the union on a per capita basis for the general welfare. Note: this re distribution is not just a whim as it is a necessity in order for the mathamatical
ability for repayment of the loans (issuance of new currency.
I would like to add some comments to the above.
Let’s look at this curve http://research.stlouisfed.org/fred2/series/UNRATE. A straight trend line pretty nearly runs through unemployment bottoms ca 1954, 1968, 1989 and a shoulder about 1994 that looks like it was trying to form a bottom before the bubble and demographic impacts fully kicked in. That trend line suggests that structural unemployment is now near 8%. I have seen an estimate that I can’t find now that jobs unfilled due to geographic and skills mismatch are only about 3 million. If that is the case, we are at “full employment” with above 8% unemployment. We can ignore the bottoms ca 2000 and 2007 as anomalous products of the economic bubbles coincident with an unusual demographic driver.
Also think about the GDP curve I linked. GDP grows linearly, not exponentially as economists think. A fixed increment of GDP growth on a lower base is a much higher % than the same increment on a higher base. Current GDP growth is not anemic, its better than should be expected.
Economists seem to build unconscious boxes for themselves, and then have difficulty thinking outside the box. They also look at pieces of the puzzle in isolation, rather than trying to look at the picture holistically. When invoking history they tend to look at specific short periods, rather than looking at the flow of events over extended times. Consider the great majority that compare the last 3 years with the 1995 to 2007 period and find the current situation wanting, without reflecting that the 1995 to 2007 period was a completely anomalous trend driven by unsustainable debt growth, strange demographics and bubbles.
To illustrate, MMT talks about JG as if it were the only game in town, although theirn rhetoric sometimes hints that it is the last resort. RMM points out correctly that JG can never overcome geographic and skills mismatches, even with a huge bureaucracy in the broad sense of guaranteed employment at low wages. But as I said, what if the government enables employment rather than providing jobs? Think about NASA’s early mission and it’s impact as a job creator for the private sector. Think about addressing our energy challenge by subsidizing renewable infrastructure, and home, transportation, office and factory energy efficiency. Think about hiring the private sector outright to build out 21st century infrastructure. I’m sure the list can be made quite a bit longer. The JG can be implemented as a last resort for the remaining unemployed, probably with little mismatch. MMT is satisfied and RMM’s objections largely go away.
Think outside the box. Think holistically. Think system dynamics.
Sounds like you have misunderstood what JG proposal is all about. It is not meant to be a tool to solve present unemployment crisis. Primary tool for that purpose would be aggregate demand management, as you said, various government spending programs would go long way towards that goal.
Purpose of the JG would be to replace unemployded people bufferstock in the good times – when unemployment is, say 5.5%, with slightly smaller employed people buffestock, maybe 2-3%? Over this there would be still some unemployment of people who would spend their time looking for work in hopes of better job opportunities.
These bufferstocks are required to achieve price stability, says standard macroecnomic theory as well as MMT.
So the real question is which is better, employed-people buffestock or unemployed people bufferstock?
Isn’t it really an attempt to :
“For the solution:”We cannot solve our problems with the same thinking we used when we created them”.Albert Einstein
Perhaps the answer lies in how you redistribute the wealth of a nation; not in how you make it.
Take the time to read and challenge as to improve,
(Google-“justaluckyfool”)”Great News, Zero Income Taxes Solves Worldwide Crisis”
How American capitalism went wrong and how we can solve it.
More importantly ; ISN”T JG really about , “… establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity…”
Got it, PZ.
Jobs under JG are different from real jobs. While real jobs are not part of buffer stock, JG jobs are part of buffer stock. In that sense, JG jobs are non-jobs, and the reason for giving people these non-jobs is so they can have “something to do” and have “job satisfaction” and “be productive.”
It gets crazier and crazier, with each defense of JG. Are you too young to remember Rube Goldberg and his machines?
You did not aswer the question: which is better, employed-people buffestock or unemployed people bufferstock?
Is it better that people do something than that they do nothing?
What does anybody gain if they live in idleness?
See Conyers’ HR870 – A real JG Bill in the US Congress – a direct modification of FDR’s WPA – of course the jobs are real, and there is a real need for the JG – FDR’s WPA produced real jobs See the WPA Story
See also The WPA and America
Conyers’ HR870 page
Thomas HR 870 Bill Status
Here’s a brief excerpt from: http://rodgermmitchell.wordpress.com/2012/06/02/you-cant-fire-me-im-on-jg/
“‘Bufferstock’ is a supply of people who are available to take jobs. It’s important, because if there is no bufferstock, employers can’t find people to hire, so must compete with other employers by offering higher and higher salaries, which leads to inflation.
“But the notion of JG jobs being bufferstock requires that something about JG jobs must be less satisfactory than the jobs being offered by private industry – else people wouldn’t want to move from JG. Bufferstock requires that the JG jobs pay less than minimum wage, or in some other way, be less appealing to the JG jobholders.
“But those low pay, less appealing jobs already exist – by the millions. So how does JG provide an improvement over the current situation? It doesn’t. It guarantees the same jobs the unemployed already have demonstrated they don’t want.”
And by the way, how does a Jobs Guarantee fire someone? The vast majority of unemployed already have been fired, and JG guarantees them a job. If an employer has no ability to fire people, how does it control poor workers? I wrote and article on my site, “You can’t fire me; I’m on JG.” Read the whole thing for a more complete answer to your question.
Rodger Malcolm Mitchell
Your question deals with theory. I am interested in how MMT addresses the real empirical problem of increasing population and decreasing jobs. Intellimation has not yet really begun to bite, and it can destroy jobs that require good educations. I have seen a lot of emphasis and discussion on JG, that you suggest is a relatively marginal issue, and no discussion of the real factors underlying growing unemployment and how to deal wit them.
One more point. Given current technology is globalization still an important goal for the USA. What can government spending do to repatriate jobs? That could be another MMT goal.
I don’t like the “beggar thy neighbor” school of economics. No need to “repatriate” jobs. Just change the U.S. economy to provide net income for all, as I outline at: http://rodgermmitchell.wordpress.com/2011/10/07/nine-steps-to-prosperity-a-short-message-to-occupy-wall-street/
Rodger Malcolm Mitchell
Doesn’t this just change the relative position of the peoples status rather than increase their value ?
Also with a personal income tax in place, “He who giveth,taketh away.”
“1. Eliminate FICA (Click here)——-YES
2. Medicare — parts A, B & D — for everyone—-YES
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)….Of No Value, would just increase relative price and not value.
4. Long-term nursing care for everyone…YES
5. Free education (including post-grad) for everyone…YES
6. Salary for attending school (Click here)…YES
7. Eliminate corporate taxes…ONLY IF THERE IS ” other means to control the quality and quantity of currencyraise
8. Increase the standard income tax deduction annually…Why ? An income tax is unfair. Eliminate it and “find other means to control the quality and quantity of the currency.” Justaluckyfool,foolishly believes that would be using “the most powerful force in the universe” for the betterment of the people.
9. Increase federal spending on the myriad initiatives that benefit America.YES-YES.
Humorous comment from the original JG post: “The goldbugs are not completely crazy. Money does need backing—and an infinite regress, arguing that we accept money and believe in its value because we think others think it is valuable, is not acceptable.”
Er, excuse me, but isn’t that “infinite regress” exactly what the value of gold is based on — it has value because we think others think it is value.
I’ve read your comments here on Randy’s blog in regard to the JG as well as the article you wrote and referenced on the same subject. I attempted to write a response and post it in the comment section of your aforementioned article, but two days later after posting my comments, nothing has shown up. So, I thought I would post my commentary here, despite it being a less than ideal alternative. While I believe the ensuing comments are perfectly on subject, they aren’t per se in keeping with Randy’s wishes (thus why I tried to post at your site to begin with). There is a chat forum here at this site, so we can always carry over any resulting conversation to that section, where our comments might be better suited.
In your article, you wrote, “Rather than attacking unemployment directly, by offering government, make-work jobs, I suggest the government stimulate the overall economy (via increased federal deficits), enabling the private sector to offer more jobs. A stimulated private sector will provide more meaningful and economically beneficial jobs than will a government bureaucracy offering jobs to anyone who wants one.”
There is a question begged here–will the pump priming (PP) you support be a sufficient condition to achieve full employment (FE) without sacrificing price stability (PS)? If PP is, there would be no need for a JG. Now, in fairness to Randy, he realizes this. However, he doesn’t believe PP in fact is a sufficient condition to reach FE without sacrificing PS (at least he believes it is unlikely PP will achieve FE without unacceptable inflation levels; he’s stated as much in earlier primer posts on the JG). IME Randy believes there is disequilibrium within the Fed’s dual mandate–FE and PS are inherently unstable–that getting close to one requires sacrificing the other. Given this, it seems sensible to use PP to bring us as close to FE as it can without forgoing PS, while also proposing a JG to provide the remaining unemployed who want to work with an opportunity they otherwise will not and cannot have.
Above you wrote, “…unemployment is just a symptom of a deeper problem: A bad economy… Treating the symptom is a bad way to treat the disease… I say treat the disease, not the symptom, for a lasting cure.” Ignoring the rather vague and question begging, obfuscatory nature of identifying the cause as “a bad economy”, it is worth noting a “bad economy” is arguably itself a symptom of an underlying problem related to human nature. Humans are morally and rationally flawed. Until we have significant bio-reengineering capability–recombinant DNA on a very successful scale such that we can change human genetics with a net result of more intelligent, rational, and moral members of society–all of our solutions are symptom treating. I mean, if you really want to get to the root of the matter, what would be more successful?
Short of redesigning humans, UE is most often a symptom of insufficient demand, which itself is most often a symptom of insufficient means to create demand–i.e. money–in the possession of spenders. Increase the income of people who will largely spend it, demand will increase, employment will increase. The disease, in other words, is principally insufficient income to generate the level of demand needed to support FE. You’ve proposed pump priming as the cure to the insufficient income disease, which brings us back to the beginning of my post to a consideration of whether PP is a sufficient condition to remove all involuntary UE.
It is worth noting that if we agree insufficient income is the principal economic cause of involuntary UE (it being the main reason for our “bad economy”), too much is being made ado about disease versus symptom treatment. Randy’s comments are on disease treatment, he just believes PP is not a medication which is a sufficient condition to cure the disease, rather a JG is needed in addition for a complete prescription.
Sorry, your comments didn’t make my blog. I’m not sure what happened. Very strange. You can try again, if you wish.
In any event, I do not consider “full employment” (definition needed) to be a worthwhile goal in of itself, and I do not believe the MMT plan (whatever it may be) is productive. I’ve given my reasons throughout this blog.
Without going into detail, I object to five myths inherent in JG:
1. People will accept any job to get off unemployment rolls
2. The government is capable of matching people to jobs
3. Exact wage levels are just a side issue, and not a key to JG
4. JG jobs provide a “bufferstock” of potential employees.
and of course
5. People want to be employees more than something more fundamental.
Rodger Malcolm Mitchell
Have any of you looked at Conyers HR-870? That is the closest thing to a JG that I have seen as yet!
See here and here
Took a cursory look. Seems like a solid effort on his part, but I can only imagine the cries from a certain side of the aisle with respect to the “Wall Street Tax” that is slated to fund it. With the likes of Tim Geithner around, chances of such an initiative being implemented are slim to none. You need to “get the fox out of the hen house” first. Thanks for the heads up!
RE : RR v. RMM
Is is common practice to make statements that may not be true and sure them as if verified facts ?
“… he doesn’t believe PP in fact is a sufficient condition to reach FE without sacrificing PS (at least he believes it is unlikely PP will achieve FE without unacceptable inflation levels; he’s stated as much in earlier primer posts on the JG..”
Since when is a belief a fact?
Didn’t the Feds pump billions (PP) into the auto industry and create jobs and GDP , while at the same time not sacrifice price sability? Is this a fact contrary to “belief?
WHAT IF ? The Feds were to outright purchase (PP) ALL residential loans for some $15-$20 trillion and modify them at 2% for 36 years, what do you think that would do for price stability (PS) and JG ?
“The most powerful force in the universe is compound interest” – Albert Einstein
Great News!!Zero Income Taxes Solves Worldwide Economic Crises !
For the solution:”We cannot solve our problems with the same thinking we used when we created them”.Albert Einstein
Perhaps the answer lies in how you redistribute the wealth of a nation; not in how you acquire it.
Google “justaluckyfool” or “Great News !! Zero Income Taxes”
Challenge It, Improve It, then make it your guide.
Since when is a belief a fact?
Since anytime a belief is true. A fact is just a true proposition. A belief is a proposition which is thought to be true (whether that acceptance is correct or not). Beliefs can be true or they can be false, but when a belief is true, it is also a fact. This shouldn’t be controversial. Do you believe the world is round? Is that belief true? Then that belief is a true proposition, i.e. a fact.
This really isn’t the forum for a discussion on the correspondence theory of truth and related concepts/language. You might find this book enlightening:
Pingback: –“You can’t fire me. I’m on JG” « #Monetary Sovereignty – Mitchell
Thank you for your reply,
Did I get it right ?
“when a belief is true, it is also a fact.”
Then “he believes it is unlikely ” Where is the misdirection ?
Fact -he believes it is unlikely
fact-it is unlikely ?
Let’s rather get back on target.
Justafoolish question, Can A PP create jobs allow for PS and growth ?
What would you say occured as a result of the auto bailout ?
And what do you “believe” would occur IF , PP were used ($10 trillion ) to purchase all residential loans and then modify them at 2% for 36 years with an ASSUMABLE mortgage ?
Justaluckyfool “believes” , that PP would create PS in the housing market and over 4 million jobs , increase GDP and raise revenue, which will allow quality and quantity control of the currency?
Now how foolish would it be not to at least read such a foolish statement and not challenge it?Google …”justaluckyfool” for details, or “Great News !! Zero Income Taxes Solves Worldwide Crises””
THEN CHALLENGE AND IMPROVE, BECOME JUSTALUCKYFOOL-“anyone that attempts to predict the future is a fool, if by chance correct; then justaluckyfool, albeit still a fool.”
Let me say I am for the JG in the way the RW (and Bill for that matter) describes it. I understand the issue of non-jobs i.e. jobs created simply to provide “work” as an indirect means of aquiring money. No one wants that (I think) and sure everyone wants a fullfiling job with a decent living wage, even (for a while) a wage which will “do”.
But the civil servants being made redudant by the (UK) goverment, right now, by and large do have important, fullfiling jobs. Redudnacy simply means them being paid by a different part of the govemerent for doing nothing. They didn’t have “non jobs” they had real jobs that were suddenly declared redudant. Our society elevates jobs to a position where they define who we are (“What do you do?” “I am a [insert your job title here]”).
The JG, given the right jobs (that the private sector does not wish to do) will work, it underpins profits, it puts a floor under prices and it provides, when the private sector cannot, one of the main things that society demands; jobs.
I am interested in economics and reading as much as I can about all schools, (already knew largely about Keynes so been reading Monetarism and especiallu Austrians and MMT). Can’t say I agree with any all the way, but all also make good points. So I’m pretty much just researching right now.
Much of this MMT makes sense in theory and I see many of the criticism I’ve read are misunderstandings of what is said here, but I have one big question.
I’ve heard repeatedly that printing money/expansionary policies will not impact inflation, unless we’re near full employment.
But if we had a Guaranteed Job program wouldn’t that put us at full employment? Especially if (as you seem to advocate) welfare was reduced or ended in exchange for working, surely near everyone would work. Thus creating full employment and the inflation you say would happen at that stage?
Brian, inflation is caused when demand for something exceeds the current productive capacity for it and producers are unable (or perhaps unwilling for economic or other reasons) to expand their capacity. Typically, if producers believe that increased demand will be sustained into the future, they will go ahead and add capacity. If everyone is employed by the private sector, then the marginal cost of additional labor will be greater than current labor costs (because of competition for scarce labor) and those costs are passed along as higher product prices (i.e. you get inflation). When people are employed by a JG, it is assumed that they would gladly accept higher-paying private-sector employment, just as they would if they were unemployed. So the marginal labor costs for private-sector employers are NOT greater when they hire someone away from a JG program since they are not competing with other private-sector employers. If there were a JG program in place, then I expect that the MMT theorists would change from saying that inflation is a risk when we’re near full employment to saying that inflation is a risk when the JG labor pool becomes very small.