By J.D. ALT
Note: This essay was first posted on realprogressivesusa.com
Now that progressive leaders (Bernie Sanders, Kirsten Gillibrand and Corey Booker) have placed a proposed “Job Guarantee” program onto the mainstream political stage, it is essential they begin explaining the proposal’s underpinning macro-economic logic. Otherwise they lay themselves, and the proposal itself, wide open to scathing public ridicule—as exemplified by a recent Megan McArdle op-ed in the Washington Post (“A federal job for everyone?” April 25, 2018). But what should they be saying by way of explaining?
Perhaps a point-by-point response to Ms. McArdle’s arguments is a way to begin. First, her title itself is an intentionally misleading—and pejorative—portrayal of the proposal. The Job Guarantee (JG) program will use federal dollars to pay wages, but few (if any) of the wage earners would become part of a federal bureaucracy that most Americans believe is already over-bloated and inefficient. Think instead of all the private doctors and nurses paid federal dollars to provide health-care services to Medicaid and Medicare patients; think of all the private enterprise farmers, food-processors and distributors who are paid federal dollars to implement the SNAP (food-stamp) program; think of the millions of private defense contractor employees who build ships, planes, and missiles. Ms. McArdle is being disingenuous in planting the idea that everyone who is paid with federal dollars is a federal employee; it’s an idea that immediately discredits the JG program, and it should be proactively discredited itself.
Second, there is the “cost,” of the program, which Ms. McArdle helpfully calculates (since, as she points out, none of the progressive leaders have offered to do so). This calculated cost of $1-2 trillion dollars per year exceeds, she points out derisively, “our total expenditure on Social Security, with maybe Medicare thrown in for good measure.” In other words, an amount totally ludicrous to even contemplate given the current and projected deficit between federal tax dollars collected and federal dollars spent. Let’s defer a response to this argument for last, simply noting, for the moment, that progressive leaders CANNOT continue to propose programs that required the federal government to spend large quantities of U.S. dollars without explaining why it is both possible and rational for the government to do so.
Third, Ms. McArdle argues that the proposed Job Guarantee program establishes a de-facto minimum wage ($15/hr) which she characterizes as a “highly paid” job that will put small-businesses—whose profit margins depend on unskilled, low-wage ($7/hr?) workers—out of business. Walmart, she argues, can grudgingly compete with the proposed government $15 wage scale, but the mom and pop landscape business cannot: Their employees will all opt to work for the government’s Job Guarantee program instead, leaving mom and pop destitute—except for the fact, she disparagingly notes, mom and pop themselves would be guaranteed the option to join the government’s program as well! Shutting down all the local businesses that depend on low-wage employees, Ms. McArdle declares, would deprive local communities of all the services $7/hr. so usefully provides.
This is a red-herring argument because it has nothing to do, per se, with the proposed Job Guarantee program itself. Instead, it is simply an argument over what the minimum wage should be in America—something that must be debated and decided upon with or without a Job Guarantee. The original and basic concept of a Job Guarantee says only that the JG wage would be set just below the minimum wage, thus enabling private enterprise to hire workers out of the JG program simply by offering the minimum wage.
The important macro-economic concept here is to provide support for private enterprise in two fundamental ways: First, by training and maintaining a “job-ready buffer stock” of labor which is available to private businesses as their needs arise; second by maintaining a strong consumer base (consistently reinforced by the purchasing power of the JG wage-earners themselves) for the goods and services the private economy produces. The fluctuations of the business cycle are thus flattened out—to the benefit of both businesses and family-supporting wage-earners: When the private economy shrinks, laid-off workers transition to the JG program—which enables them to continue to be consumers; when the private economy wants to grow again, the workers haven’t disappeared into a nebulous downward spiral of joblessness (and hopelessness) but are readily available to be hired back by the expanding American enterprise.
The fact that Ms. McArdle does not even seem aware of this macro-economic underpinning of the Job Guarantee concept demonstrates how poorly progressive leaders are framing and presenting it. This is something progressives need to proactively fix immediately. Otherwise, they risk losing the battle for public-opinion upon which the JG program will ultimately depend.
Finally, Ms. McArdle asks what all the workers in a Job Guarantee program would actually do? She goes on to suggest there isn’t, in fact, much work they can undertake to accomplish—primarily because most of the work America needs doing requires higher levels of skills and training than the JG workers can be expected to have. This argument misunderstands one of the central premises of the JG program we’ve just discussed—namely that a primary mission of the program is to train workers in the skills the private economy needs. In other words, one of the “jobs” JG workers are paid to undertake and accomplish is to get themselves trained to be useful employees.
Ms. McArdle’s question about what JG workers will do also builds on another sleight-of-hand premise: that the “work” undertaken by a JG worker must produce something tangibly useful to justify its “cost.” But since the goal of the JG program is not to produce “profits,” there is no “cost” to be justified. In addition to acquiring personal and organizational skills and training, it is easy to imagine a comprehensive list of useful—but non-profitable—goods and services that JG workers could provide to local and regional communities. Painstaking and non-partisan registration and confirmation of legal voters is a service that comes to mind. Restoring streams and mountain ecosystems destroyed by coal-mining is another. Planting trees and building contour check-damns on the public—and even private—lands threatened by desertification is another.
In fact, the tasks of recovering from, and rebuilding for, climate change alone are going to be innumerable—and many of these tasks will be of no interest whatsoever to the profit-making motives of private enterprise. But (and this is crucially important) profit-oriented private enterprise will greatly benefit if these tasks are undertaken and accomplished—for no other reason than because the workers (who are paid to accomplish the tasks) will become paying customers of private enterprise.
Now we can return to the crucial question that the progressive leaders dance around as if it were the kiss-of-death—and indeed, as I earlier alluded to, Ms. McArdle does her best to bestow that very kiss not only on the Job Guarantee concept but on the politicians who have had the audacity to propose it: That question is not just how much the program will “cost,” but how is the federal government going to collect enough tax dollars to pay for it?
There are basically two strategies to address this question: The first is to frame the Job Guarantee program as an “investment” that will ultimately pay dividends for the American economy and the American people. A skilled economist could surely do this, and it is the kind of argument that has been made before and accepted, apparently, by the public as legitimate— “trickle-down economics” comes to mind.
The second strategy is more difficult, but will pay bigger dividends, by far, if it can be successfully implemented: Teach the American public how modern, sovereign fiat-money actually works. Because if they learn that, not only does the Job Guarantee program become a logical and viable opportunity, many other public goods and services—which previously no one could imagine how to collect enough tax-dollars to pay for—become viable opportunities as well. Ms. McArdle can call this “socialism”—and consign it, as she does, to the “ash heap of history.” I would call it the modern future of sovereign democracy, assuming sovereign democracy is to have any future at all.
Well said. I’d add that we’re willing to have Federal price supports for corn or cheese, not to mention stocks and bonds (i.e. “Quantitative Easing”)…but not for labor? Really. This commitment to cluelessness truly beggars description.
“Teach the American public how modern, sovereign fiat-money actually works.”
This is a nobel undertaking, but by the time it is successful, we will probably be well into the next century if not beyond. What is needed is a dramatic demonstration to the American public of how modern fiat money is created and employed. At the risk of trying to resurect a declared dead horse, I would remind readers of Joe Firestones’ proposal to mint and deposit high value platinum coins into the Treasury General Fund. This action could be undertaken by executive order under existing law without any action by Congress. President Sanders, Booker, or Gillibrand could dramatically change the public’s perception of how fiat money works by personally appearing at the New York Federal Reserve Bank with a bag containing a few dozen to a few hundred trillion dollar platinum coins and depositing them in the Treasury account, then holding up the receipt to show the American public how modern fiat money works. A dramatic, simple and effective lesson worth far more than any educational endever I can imagine.
The thing about any job guarantee program is that the would be employee has limited or no choice in what he/she does for earning a living. Without there being some personal feed-back or pleasure in ones work (as so many are already in this state), work ceases to be a pleasure and becomes solely means for a getting a guaranteed income. If they could find the job independently, many more workers would derive at least some satisfaction from their work outputs.
With all of the possible jobs available under a comprehensive JG, why would anyone not have a bunch of choices. I don’t recall reading anything about the JG program assigning jobs regardless of the worker’s desires. That just doesn’t make sense to me.
JD, Timely, and needed. What confidence do you have that they will pay attention to what you have written>
“The original and basic concept of a Job Guarantee says only that the JG wage would be set just below the minimum wage, thus enabling private enterprise to hire workers out of the JG program simply by offering the minimum wage.”
That’s not correct. The JG wage is at the living wage, and private enterprise bids out of that by making a better offer than minimum.
As Nick Hanaeur points out, the parasite economy deprives the real economy of trade by undercutting using cheap labour and stealing demand from the real economy that looks after American workers. The parasites should be eliminated for everybody’s benefit. Mom and Pop can’t make a living off the back of slavery in a modern world.
“The second strategy is more difficult”
It isn’t difficult. You just say you pay for it by spending the money. Then you stop and let that sink in. Let the opponent argue against it. Then you demonstrate that spending is income and it bounces around creating tax for any tax rate until it is gone.
What you do is make your opponent look like an idiot that failed to pass the grade in math and can’t do a simple geometric progression.
Unfortunately, we can’t assume all employers can just raise wages at will, especially in poor rural areas, where $15 is often within striking distance of the median wage for all workers. In those areas, at the very least, the Sanders plan would gut local businesses, forcing even more workers into the guaranteed job program and depriving communities of the services they provide. Though at least the owners of those businesses would have the comfort of knowing that a $15-an-hour job awaited them, too.
This is perhaps the stupidest objection prizewinner. Shows complete and utter lack of economic and business sense. I sometimes wonder – do anti-MMTers live in a monetary economy? Have they ever seen the green stuff? Or do they subsist by catching grubs and vermin or practicing obscure and ancient rituals serving high priests and priestesses and their dark gods in the bureaucracy of an ancient temple? I think it is one of the latter.
So, the Feds come to Poor Rural Community. And start dumping the dollars in for all the hicks to be hired. And all these new dollars which weren’t there before, that people (hint, including the Jimmy Stewart bankers) now know there is guaranteed access to. All these new dollars are going to gut local businesses? No, people are in business to make money. And they’re going to start making a lot more, because there’s more there now that wasn’t there before.
That is what happened in the Great Depression. There was a multiplier effect of increased private employment, businesses getting healthier, caused by New Deal spending. In fact, the multiplier effect could and did even happen before the Federal money was spent. If people knew there was to be a major New Deal project in the area – bankers and businesses were happy to and did spend big bucks in anticipation for the increased demand they knew was coming, and this private spending and hiring speeded the recovery even more.
Maybe she’s crazy like a fox. The smart money would and will start investing heavily in Mayberry, the minute they see a JG was on the way.
Perhaps the greatest impact from a functioning JG program would be a collapse of the crime rate in the nation with citizens having the option of working for a living wage vs engaging in crime.
As a Brit who grew up in the post-war era of widespread public ownership, I’m a little uncomfortable with the tone of the 2nd paragraph, which seems to reinforce the myth of the superiority and efficiency of the private sector over the public sector. I realise that attitudes in the USA are somewhat different, but I doubt whether the private sector there is any better than the private sector here, and the evidence here is that large private sector organisations are riddled with bureaucracy and inefficiency at least as much as the public sector.
And even after Thatcher’s privatisations and the Tory-lite years of Blairism, people here are still not so against the public sector as this article suggests Americans are. Perhaps that’s partly after seeing what a mess private banks made of the economy, and the daily problems of our privatised fragmented railway system, for example. Most people here support the NHS and want it to remain firmly in public hands (although Tories have been trying to privatise it by stealth for years).
The sheer beauty of the JG is that an individual can move to anyplace they choose and know they will have a job. Think about what that would mean to intercity youths.
Glad J.D, seems to be keeping this web site going. And appreciate his layman’s point of view’s. But where’d all the economist’s go? No one seems to contribute anymore. At the Billy blog, he’s going at it regularly. Thank you though J.D.. Your like the distiller of the heady brew that is true those cats create that a very ordinary bloke like me can figure. Still, are they too busy to make any further points? Have they said all they care to say? Just curious. And one other thing. Will the democrats even allow progressive type candidates to run. Will it take a go fund me account(s) to give any a chance to run independently.
Richard, thanks for your sentiments and comments. I agree: Where did they all go? I know the founders of NEP have move on to other teaching positions and venues. More power to them. But they left behind a UMKC economics department steeped in MMT, right? Why are the students and new faculty of that department conspicuously not participating here? I would be interested to know the answer.
I think there is much more to research in MMT than what I have learned about MMT here and from other sources. There is room for many more postings and discussions. For instance, I think the current standard explanations of MMT depend too heavily on a quasi-static model based on static accounting. I would like to see more discussion of the insights that Steve Keen has developed using a completely dynamic model. Either Steve Keen’s model shows the problems with the MMT quasi-static model or it doesn’t. Either way, it merits a lot of discussion.
I like this article much better than the one called “Framing The Progressive Platform” also written by J. D. Alt. In fact, I almost didn’t read this one because I thought it was just a rehash of the other one. When I posted a reference to the current article on my blog, I went out of my way to tell people this is a different article.
SHAMELESS SELF-PROMOTION ALERT —
Thanks, J.D. In Howard Sherman’s and my text: Principles of Macro-economics, Activist vs. Austerity Policies, we end the book (which is a typical Principles text but with a progressive slant — emphasizing inequality and instability in American capitalism following Howard’s decades long appreciation of the empirical business cycle analyses of Wesley Clair Mitchell —) with a series of proposals for a full employment economy. The first edition is still out there but Routledge is bringing out a second edition in time for consideration for Fall adoptions. (The new Chapter 26 is our effort to put a jobs guarantee into a set of structural reforms.)
Bill Mitchell often mentions the inflation control that is built into the JG, i.e if some fiscal or monetary action is undertaken in order to reduce inflation in some sector of the economy) then the workers that are made unemployed from the inflating sector are transferred to the fixed price JG sector hence putting a ceiling on inflation
Odd that you use the canard that the federal workforce is bloated as truism (and reason for lite-brained folk to sneer at Jobs Guarantee). In the late 60’s there were about 185 million Americans, and about 2.8 million federal workers. Now there are about 330 million Americans, and about 2.8 million federal workers. We collectively are getting far less service from our national government because it has vastly fewer workers per capita than it used to.
Do not fall for the bloat quote.
My next essay will be another attempt at the second strategy. I have to keep trying. The more I write, the more I realize how TRUE modern fiat money is. What amazes me is that the mainstream thinkers refuse to even consider or discuss the idea of something that firmly exists right under their noses. What are they afraid of? If all these MMT ideas are blatantly incorrect, why not just shoot them out of the sky? ANSWER: because, based on factual logic, they can’t.
What amazes me is that I have been unable to get any key MMT proponent to address the issue that I raise about the time factor in private sector created money. I am a proponent of MMT myself, but I think the MMT story of accounting sector balance as irrefutable proof of something goes a step too far. Maybe the people who do not accept MMT either understand this issue, or they sense it. If MMT proponents want to convince more people, I am suggesting that they would address the issue that I raise. Will anybody do so on a thread in New Economic Perspectives? Or will the conversation continue as if I had never raised a question.