Over the past 11 months, or so, we have examined Modern Money Theory. This is the proper paradigm for analyzing all modern countries that use their own currency.
Some have wondered whether we can separate MMT from the Job Guarantee (JG): can one accept MMT while rejecting the JG?
To be honest, I find this to be a rather strange question. We have a modern theory of Bubonic Plague. Until medical science developed a theory of disease that can be caused by microbes too small to be seen with the naked eye, all sorts of explanations of the cause of the Plague were offered. The most popular was “bad air”. The preventative measures offered (quarantine of affected individuals, evacuation of cities, burning of the property of the deceased), and improvement of public sanitation actually were quite effective—indeed, in the richer countries the plague was almost banished even before the “germ” theory of disease was ever developed. (To be sure, there were false starts—such as killing cats, that had helped keep rats in check!)
We now “know” that the disease is caused by the bite of an infected flea, and that once bitten a victim can be treated with antibiotics. Although the Plague is still contracted occasionally (especially in the American West), it doesn’t lead to a plague because swift treatment prevents a pandemic.
OK, should we separate the theory of Bubonic Plague from the policy response? I think most reasonable people would say there isn’t much reason for developing a theory of disease unless you’re working toward prevention and treatment. I think almost everyone would castigate any researcher who was only interested in uncovering the causes of the Plague, but who then opposed a policy response on the argument that some deaths serve a useful purpose—disciplining the population, weeding out the weak, and serving as cautionary examples for the imprudent.
And, yet, such has been the mainstream economist’s response to the “discovery” by J.M.Keynes in 1936 that unemployment is caused by insufficient demand. We know—beyond any question whatsoever—what causes most unemployment. Indeed, we are more certain of the main cause of unemployment than we are of the main cause of the Black Plague of the mid 1300s (there actually is a bit of a controversy about that—contemporaneous reports of the disease that plagued Europe do not fit what we know about Bubonic Plague, but that is a digression). And so we have developed a whole approach to the policy response to unemployment—the Phillips Curve NAIRU—that actually says it is OK to ignore the disease of unemployment that afflicts somewhere around 200 million people globally even at the peak of the business cycle.
Think about that. Since 1936 we’ve had a large proportion of economists and policy makers who assert that unemployment on a massive scale is good policy—to discipline the workforce, to weed out the weak, and to serve as cautionary examples for the imprudent. All of this is in the name of maintaining price stability.
Now, to be sure, some of these advocates for unemployment believed that there really wasn’t much government could do, anyway. Like a household, government is constrained by its revenue. And so even if it wanted to lower unemployment, it could not “afford” to do so.
That is where Abba Lerner’s functional finance, and our MMT (derived from it) come into play. We know that is false. Anyone who understands modern sovereign currency knows—beyond any doubt whatsoever—that sovereign government can “afford” full employment. It could choose among a number of methods of reaching full employment, but can afford any and all of them. It can “prime the pump”, it can subsidize employment by private employers, or it can operate a JG program.
I want to make clear here that throughout this primer I have included all nations that issue their own currency in my definition of “modern money” or “sovereign currency”. In this I deviate from some other expositions. Some exclude countries that peg or manage their exchange rates. I do not. I see these as positions on a continuum—with a floating rate on one end and a pegged rate on the other. Clearly, the floating rate gives more domestic policy space. And that is the exchange rate system I advocate—although many governments are not in a political situation in which they can float.
However—and this is the important point—pegging or managing an exchange rate is a self-imposed constraint. Any country that issues its own currency can move to a floating rate—technically we know how to do it; politically it can be hard. But it can be done.
And that is what makes a sovereign currency issuer different from a household or firm. The household or firm cannot decide to move to a floating rate. It is a currency user. Its government, however, is a currency issuer—even if it chooses to peg. It can choose to float; the user cannot.
And, so, the currency issuer can ALWAYS afford full employment if it removes self-imposed constraints.
Personally, I think it is absolutely reprehensible that anyone who understands MMT would choose to oppose JG. Once one understands that we do not have to force millions to suffer involuntary unemployment, then the ethically defensible position is narrowed. Unemployment is in that case unnecessary, and anyone who advocates using unemployment as a policy tool must mount a strong argument in defense of maintaining unemployment.
We would not accept anything less if one were to argue against treating deadly diseases like the Bubonic Plague or Smallpox—and yet unemployment is, today, without much question an infinitely bigger problem than either of these diseases. Yet, we have most economists—including self-professed progressives—arguing for maintaining millions of people in a condition of involuntary unemployment.
Before turning to the JG, let us quickly review what we understand about modern money systems.
Recall that we first began with the logic of a sovereign currency: government names a unit of account, imposes a tax liability in that unit of account, and issues its own IOU in that same unit in its own spending. Government must spend first before the taxpayers can obtain “that which is necessary to pay taxes”. That is the logic of “taxes drive money”.
Next we use MMT as a description—how modern governments actually tax and spend. This is necessarily more complicated and must be nation-specific. Most nations have a nominal separation of their Treasury and their Central bank; and many impose constraints on each. It is common to prohibit the central bank from directly lending to the treasury; and to require that the treasury write checks on its deposits at the central bank. These self-imposed constraints then give rise to various operating procedures that are designed to allow the treasury to obtain those deposits it needs at the central bank, and minimize disturbances to banking system reserves.
There is no need to repeat all of the analysis here—I merely want to distinguish between explanations that explicate only the logic from those that explain how modern money “really works”, that is, descriptions of the operation of real world sovereign currencies.
Finally, we know that logically government faces no financial constraint, and that it spends first before it taxes or sells bonds. However, government can self-impose constraints on its spending (ie: balanced budget requirements or debt limits), and normally has a budgeting process requiring congressional and presidential approval.
But, logically, it can change those constraints, or even ignore them. Logically, it can “afford” anything for sale in its own currency. The problem is not solvency, but rather inflation and exchange rate depreciation. Too much spending could cause either of these to occur, under some conditions.
Again, this is not the place to explore the conditions in which more government spending would cause inflation or currency depreciation.
The important conclusions are two: a) taxes or other obligations create a demand for the currency; and b) the value of the currency depends on what one must do to obtain it.
As our moms always told us “if only money grew on trees”—then its value would be worth the effort of harvesting it. With a sovereign currency, it really isn’t a matter of “harvesting” but the ease of obtaining it does matter. When the economy goes beyond full employment, continued expansion of the government’s spending is likely to bid up wages and prices.
If government ups its bid for labor from $10 per hour to $20 per hour, it is possible that wages and prices more generally will rise. The “ease” of obtaining currency rises, and we can expect that its value falls. How close this (inverse) relation is will depend on capacity utilization and the institutional setting (pricing power of firms and workers).
And so we return to the JG. As you know by now, we have formulated the JG as a wage-stabilizing buffer stock. With its fixed wage and benefit package, and its infinitely elastic supply of jobs, it creates full employment without chasing bids for workers upward. It “sells” workers at a small markup over the program’s compensation. As a matter of logic, it cannot pressure wages once the compensation level is established as the nation’s base.
It is a “fixed price, floating quantity” model—much like commodity buffer stock schemes. It stabilizes the “price” of labor—the wage. And, yet, the labor is “fully employed” in the sense that anyone willing to work can get a job at the JG wage.
Some advocate demand stimulus over a JG.
OK, explain to me how pumping up the demand for higher skilled and educated workers—setting off a bidding war for them—will cause jobs to trickle down to the less skilled and less educated workers WITHOUT causing wages and prices to rise.
Others prefer a BIG (basic income guarantee—welfare payments to all, payments that are not means tested).
Again, explain to me how this will create jobs for the less skilled and less educated workers WITHOUT causing wages and prices to rise.
(In truth, advocates for both strategies ALWAYS simply change topics—they NEVER address this question. Which, I suppose, is OK, but in that case they cannot legitimately criticize the JG on the argument it will supposedly cause inflation—because their own strategies are far more inflationary, indeed ONLY create jobs for the unemployed by causing wages and prices to rise so that firms will try to substitute into lower skilled and educated workers.)
Some say that the inflationary impact of the JG comes not through the wage but rather through the “demand multiplier” because the new workers can consume. Think about that. This view is even crueler than the view that we need to keep millions of people unemployed to keep prices down. Because this view is that we need to ensure that millions cannot afford to eat, else they’d push up prices.
So it is not just unemployment that these critics want—they want abject poverty! A permanent, starving, underclass is necessary so that the better-off can enjoy lower prices that come from insufficient aggregate demand. That, too, is a reprehensible policy position. (And it is dynamically incoherent—a point I won’t pursue here.)
Throughout our discussion of JG I have always presented it as an “add-on”. We can retain (and even add) any safety net we want. We can retain (and even add) any other macro-stabilizing policy (monetary or fiscal) we want. They are still policy options once we’ve added the JG. We can have the BIG and we can have the pump-priming—if we find some need for them. Personally, I do not think we’ll need either. But we can implement the JG and see—if we still need to fight inflation or insufficient demand or exchange rate instability, so be it. We have all policy options available.
The only thing we eliminate is use of involuntary unemployment as a policy tool. With the JG as an add-on, we can still use all other policies at our disposal, but in terms of employment all these will do is to change the size of the JG pool: tight policy increases the pool, easy policy reduces it. But through the thick and thin, anyone can have a JG job instead of unemployment.
So, can we have MMT without a JG? Certainly! We already have modern money systems with sovereign currencies and without the JG. MMT is the proper way to analyze these. I believe it is a policy mistake to operate a modern money system without a JG—but that is what almost all countries do. MMT allows us to analyze them, and to offer policy recommendations.
But if we leave out the JG in our recommendations, we are seriously remiss in our advice.
I realize I’ve probably not explored this issue fully; let me see the comments and I’ll decide if we need a Part II.
Personally, I think it is absolutely reprehensible that anyone who understands MMT would choose to oppose JG. It’s more that the opponents don’t really understand MMT, economics, money in the first place, and their opposition demonstrates this. The JG is essentially a logical consequence of any reasonable, common conception of what a monetary economy is for. Any conception that can be or is uttered in public.
Sure, if you are pro-bubonic plague, you don’t want modern plague treatment & prevention, and you will try to extirpate the plague called “modern medicine theory.” And if you don’t like bubonic plague, you are for modern medical treatment & prevention. But the logic is valid & independent of one’s actual position on bubonic plague or unemployment. And the absolute-reprehensibles are vanishingly rare compared to the poor-logicians.
I’d wager that if you shot them with truth serum and asked why they opposed JG, none of them would say that they wanted “to discipline the workforce, to weed out the weak, and to serve as cautionary examples for the imprudent”.
Such rhetoric will not convince anyone to come over to your side. Demonizing your opponent is the tactic of one with no good, rational argument for his position. I wish MMTers would stop saying such things.
And how did I miss this one??!!
“So it is not just unemployment that these critics want—they want abject poverty! A permanent, starving, underclass”
Pretty much what I was saying. But “none” is too strong. They’re rare, but they exist. There are a few absolute-reprehensibles out there. And it is correct logic to conclude that someone opposing the JG & MMT, who does understand them, who is a good logician, is an absolute-reprehensible, a pro-plaguer.
Pete Peterson, probably, is a very important one. Met some fringe of the fringe of “Austrians” in dark corners of the intertubes who do oppose Keynesian/MMT thinking, agreeing that it would & did work but oppose it because it will not “discipline the workforce, to weed out the weak, and to serve as cautionary examples for the imprudent”.” & for which “So it is not just unemployment that these critics want—they want abject poverty! A permanent, starving, underclass” is correct. Not much to argue with them. We agree on the science and logic, just not on what it should be used for.
Hard to believe, but if you’ve met them I’ll change from “none” to “not one in a million”.
But, is it they who must change their minds in order for a JG to be implemented? I think not. It is the vast majority who do not understand MMT and sincerely believe that increased deficits would be harmful. Calling them derogatory names is not likely to influence a positive change in their thinking.
“Again, explain to me how this will create jobs for the less skilled and less educated workers WITHOUT causing wages and prices to rise.”
OK I’ll don my devil’s advocate hat and have a go.
– With JG an individual is required to take a position before they get the money. The output from that position may be minimal or actually negative productivity (they need a ‘helper’ to allow them to achieve anything and the pair output is less than the output of the ‘helper’ on their own). The real value of engaging this level of person (economically) is when they spend their wages – which retains the employment of others. So why not cut out the middleman and just give them the money to spend? If it is considered good for the welfare of the individual to have a job with a helper then that become structural welfare spending – requiring taxation to free the helper in the usual fashion.
– Is there really a difference between the JG and BiG for the majority? On JG you are required to take a job – probably with the voluntary or public sectors. With BiG you are *likely* to take a job with the voluntary or public sectors – because otherwise you’ll be bored out of your skull. So is the compulsion really necessary? Remove the uncertainty of where the next meal comes from by making the compensation a living compensation and perpetual and won’t the ‘Job Guarantee’ come about naturally anyway?
Has their been any studies of ‘living on the dole’ where the dole system in place encourages (or at least doesn’t actively discourage) voluntary working that show people prefer to stop at home watching TV?
– Is there really any ‘efficient’ economic value in the JG work? Aren’t they the equivalent of digging holes and filling them back in again? Aren’t we better off just offering contracts to the private sector to buy bread and housing directly and distributing that to the poor – like alms. If you give them money, won’t the feckless just buy booze and drugs?
“Have there been any studies” which show that “the dole system” encourages people to “stop at home and watch TV?” The answer is “probably well over a hundred”. I did 5 minutes Googling and came up with the following.
To be exact, these studies don’t show that people specifically prefer watching TV to working, given the option, but they do show that unemployment benefits induce people to be more selective about what job they will accept – no big surprise.
Neil: all you did was to change the topic. You have not got anyone employed–all you did was to give them money. They are still unemployed unless they can ramp up inflation so that employers will try to substitute into cheaper labor.
Please try to separate the question about WHETHER people ought to just sit home and watch TV all day, hoping mom will bring down a TV dinner, FROM the topic at hand: how to get a job to everyone who wants to work.
I think part of the issue is a conflation of meanings with the idea of unemployment and underemployment. In the most general sense, a person who is unemployed is a person who wants or needs an income and lacks the means to obtain it. An underemployed person is someone who want or needs more income and lacks the means to obtain it. Jobs are the typical way a person who lacks sufficient property and assets to make money from renting them to producers or consumers to be able to get the income the require. But the job itself is only a means to an end. The issue isn’t that people want to do something productive, and because of arbitrary capital constraints, find themselves unable to. It’s that people want an income, and because of arbitrary financial constraints, find themselves unable to secure one.
And I fail to see how a basic income guarantee would be any more inflationary than a basic job guarantee. Both increase aggregate demand to the same degree, as long as the income guarantee subsidy is the same as the job guarantee wage. And if the jobs in question are net negatively productive, then the job guarantee would be more inflationary than an income guarantee.
One can make a case that in the long-run the JG is less inflationary as it expands productive capacity through improvement and maintenance of human capital.
“the topic at hand: How to get a job to everyone who wants to work?”
The choice lies between getting the job to them by socially-engineering that as an outcome (by targeted intervention by government – eg JG), and leaving it to the – more-or-less haphazard – workings of the economy. One trouble with the latter is that various agents (especially plutocracy-dominated government) do not allow the economy to work haphazardly. They constantly intervene, but only in that way which benefits financiers, which robs everyone else.
Many – not necessarily only the neo-cons – might prefer that forcing government to stop intervening (ie allowing the economy to work “naturally” – I’m not talking about removing barriers to criminal or near-criminal behaviour) ought to genuinely be tried first, and that only if that is seen to “fail” (a subjective judgment, perfection being unattainable) ought socially-engineered government intervention (eg the JG) be tried.
The point being that government intervention into the working of an economy is per se mistrusted, whatever the initial intentions, if for no other reason than that even when these are good it inevitably degrades into introducing (unintended, undesirable and unforeseeable) distortions and unfairnesses of its own.
And also because politicians’ (and economists’) credibility is at such a low ebb.
The government IS part of the economy. You can no more stop it from “intervening” in the economy than you could stop car companies from “intervening”. “How much should government do” is the basic debate, MMT or no.
The justification for JG is the idea that in a monetary economy such as the US, it is not possible to have 100% full employment (with reasonable price stability) because of “leakages” that leave a portion of potential output unproduced, and a portion of the workforce unemployed. No amount of traditional intervention or restraint can change that.
If you think 4% or so unemployment is OK, then you don’t need a JG. Proper government fiscal policy (with or without corruption and cronyism) can achieve that, and is part of government’s responsibility as the monopoly currency issuer.
The “leakages” are a fact of life, as you imply.
Yes, it seems to me that 4% unemployment (given state-provided unemployment insurance) is “acceptable”, though something nearer 3% would be more “desirable”. Just gut-feeling of course. I therefore don’t see “justification” for the JG, no, and I would expect its unintended side-effects to be malign (gut-feeling again), under those circumstances.
‘You can no more stop it (government) from “intervening” in the economy than you could stop car companies from “intervening”’.
I think we’re at cross-purposes: the kind of intervention by government analogous to that of car-companies (which isn’t what I meant by the term “intervention”) might be government procurement, for example. The kind I meant was (for example) the deliberate policy-aim by government of introducing tax-breaks favouring the richest (or the poorest, come to that) for socio-political ends. A JG would be another example.
The case can be made that there is no such thing as a “fair” tax. If I tax you at 35% rather than 39%, (or 75% rather than 95%) is that a “tax break” that you should not get? If everyone pays $1000 tax, even those without enough income to live on, is that “fair”? Shouldn’t we tax only those who can truly afford it? But then if we levy no tax,or less tax, on people who make less than some smallish income, is that an undeserved “tax break”?
You seem to consider taxes an “intervention” in the economy. Taxing is the essence of what government (uniquely) does to the economy, isn’t it? Everyone spends, but only government can tax. How could it stop taxing, and still survive? And no matter what tax structure you choose, there will always be “tax breaks” in it: some people taxed more or less than others, judged by the various measures of the tax burden.
Since we agree that the private sector cannot employ the last 3% or so at an acceptable cost, why do you feel that it is better for them to be paid to be idle than to be paid for working? (Have you read Randy’s thoughts about the non-economic reasons why JG is better than unemployment?)
And if the government implemented a policy that resulted in full employment with price stability, would not the public trust of government be restored, at least somewhat? If not by JG, then how could that be done? What other economic goals do you think government should strive for instead?
That last idea, where the guarantee is in real terms rather than monetary based on some rich person’s idea of what the poor charitable needs are, we could call the ‘Patronisation Guarantee’.
I am about to post two links, I do not agree with them. They are supposedly an argument against the permanency of the JG.
From my point of view, it is a misunderstanding or lack of comprehension of how automatic stabilizers work and how a surplus could work with a JG.
I have just read some more by the same author on the same topic and the more I read, it is just a fallacy of composition issue.
As Stephanie Kelton puts it:
Sales create Jobs;
Income creates Sales;
Spending creates Income.
I really cannot see the point of contention. Is it me seeing a fallacy of composition (as I see it everywhere these days) or am I just using confirmation bias?
Now a question of my own, I will ask it again later if it is not appropriate now.
Say a JG is put in place and then we begin to have continuing ongoing high inflation or accelerating inflation, as MMT advocates we can recognise part of that is price adjustments to the JG but politically the rest of the inflation will be blamed on the JG whether it is the JG’s fault or not. So would we not have to constantly monitor the actual causes of inflation so we can strike out publicly to defend the JG? What is the simplest and most effective way to do that?
Or what if for the time being we cannot pinpoint the cause of said inflation?
I think he must be hallucinating. What he describes is not much like what I understand the JG to be, based on what has been written here and by Mosler. The problems he imagines are due to his misunderstanding.
As for inflation, it is not necessary to know the cause, and perhaps not possible with complete certainty. It’s not even possible to measure it with complete certainty. All you need to know is what to do about it: raise taxes, or raise interest rates, to stifle private demand. Some of it, the tax increases, are automatic (and the Fed has been very dependable this way). In all past booms, the automatic adjusters and the Fed response have been quite sufficient to turn the economy around, so unless we make a radical change to the tax structure or get a new Fed, that will likely continue to be the case.
Warren Mosler will point out that the government is a net payer of interest, so that raising rates raises interest income in the private economy. That’s true on an accounting basis, but there are many payers of interest in the private economy, whose spending will react sharply to a rate increase, and the receivers of interest are generally total savers, not spenders (e.g., pension funds, etc.) whose behavior is generally insensitive to rates, except perhaps to save even more as rates go up. The effect on spending by private sector borrowers would, I think, at least compensate for the additional income to private sector savers. And our experience is that when the Fed raises rates, the economy contracts, and when they lower rates it expands (until they hit zero).
Would MMT still be in favour of (some) public infrastructure investment? Under my understanding, this would potentially be yes.
– Of course, the money for this is not funded by taxes or bonds – got that out of the way
– It would pay a wage to those it employed
– It would provide revenue to companies
– It can be productive in terms of leading to an increase of real goods and services in the future e.g. a road that cuts travelling time between two towns can encourage new business investment in these towns
I’m gonna be devils advocate for a moment and point out that there’s a probably-sound Austrian argument AGAINST certain kinds of infrastructure improvements, or for limiting same. I not only understand the logic, some non-Austrian, non-economist, non-high-school-grad friends have pointed out the same logic, just from their own history and experience.
The basic point is that Super-Highways built by the Pentagon as a “defense” measure against the USSR, but mostly to serve big business and industrial interests, have caused massive havoc and wealth transfers to the Rich and away from ordinary people, destroyed small towns and business communities, as well as adding to environmental destruction and chemical poisons.
Sure, there were winners. The car companies and their supply chain, as automobile growth exploded. Hospitals and undertakers dealing with car injuries and deaths. Major centralized corporate Big Box chain stores and shopping malls and shopping districts and super-markets benefited as it became easier to fall for the lure of easy travel for glitzy (govt subsidized) shopping and distribution efficiency.
The losers. Commuters, at first empowered to obtain better employment at longer distances from home, now often virtually forced into long, grueling travel arrangements to central locations and bigger cities to obtain work, to commute from country to city, and to move out to Suburbia and Ex-burbia and then commute for work.
So before the Interstate System, there was less car travel in general and more ability to Shop Local, even on foot or on bike, or by a short nearby car trip. This necessitated more “inefficient” local retailers and producers.
My friend pointed out several vibrant communities that died in the late 60s and 70s when Interstate or “bypass” highways were built to get commuters to home or work faster. My friend also pointed out several local arguably “redundant” highways, which were less needed for human travel but were designed with govt-funded exit and entrance ramps built directly to the loading docks of major industrial firms.
Don’t forget the people and families that were forcibly uprooted for Eminent Domain, and neighborhoods that were cut in half and culturally and economically destroyed (Black Bottom in Detroit was one, but I’m thinking of others in Cleveland and Akron), so freeways could be built with 3-4 lanes of traffic each way, and often ridiculous and dangerous entrance and exit ramps.
Confirmed with one anecdotal history praising the John C. Lodge freeway in Detroit, said to be over-capacity the day it opened. In other words, there was a traffic jam on the freeway the first day.
Our solution to this urban sprawl and congestion is to build ever larger bypass freeways around urban areas, sometimes multiple “loops” bypassing freeways that go through city centers.
So losers included many local shops and stores and restaurants along well-traversed roads and highways, community stores with community owners and community employees, replaced with well-heeled outside-investor-financed chains that lease more prime real estate located at freeway exits. Replacing mom & pop stores is Circle K, 7-Eleven, Speedway, as well as major fuel company brands, major hotels, and the Big Three or Big Ten fast food franchises.
Even such improvements as Bullet Trains for commuters, while enormously more efficient and probably cheaper (if fully utilized) than private cars which are now all but mandatory to participate in the workforce, it’s not hard to imagine which kinds of businesses will be able to buy the “rights” to serve commuters coffee, donuts, sandwiches, and other needs. It won’t be indie shops. Think of the Ohio Turnpike rest stops. Other than a few seemingly “no-name” retail shops for souvenirs and some candy and Coke, the bulk of food venders are typically Starbucks, Burger King, KFC, Panera, etc.
Again, this is a factor affecting the distribution of wealth, and how “bank-owned” (?) conglomerates benefit by sucking sales and wealth away from the dwindling number of non-chain independent shops.
The Job Guarantee program wouldn’t be tilted at expanding this corporatocracy via govt funding.
OR, perhaps this viewpoint has holes in it, but I think it’s valid.
The JG is basically a NAIRU policy flipped on its head, right? Instead of controlling inflation through an unemployed ‘buffer stock’, you have a buffer stock on a fixed wage. If inflation is too high, tax increases or spending cuts (or perhaps monetary policy changes such as increased bank capital requirements) lead to a reduction in demand, which leads to more people losing their jobs and ending up in the JG pool.
However, given that the JG will actually have an inflationary impact itself (higher than that of unemployment allowance/dole due to the higher wage and added benefits), will the JG buffer not have to be larger on average than an unemployed buffer would have to be, in order to achieve the same inflation-controlling outcome?
Inflation can of course be due to many factors other than excess demand, but the JG aims to control inflation by regulating demand. Perhaps a more direct approach to inflation control could be more appropriate, depending on the actual ‘source’ of the inflationary pressure?
For example, William Vickrey:
“Inflation occurs when sellers raise prices; they can do this profitably when the forces of competition are weakened by the differentiation of products, real and factitious, misleading advertising, obfuscating sales gimmicks and package deals, mergers and takeovers, and the increasing importance of ancillary services, trade secrets, patents, copyrights, economies of scale, overheads, and start-up costs. Inflation can and does occur in the midst of underutilized resources, and need not occur even if we were to consume our capital by failure to maintain and replace it, consuming more than we produce.
…if we are to control three major macroeconomic dimensions of the economy, namely the inflation rate, the unemployment rate, and the growth rate, a third control is needed that will be reasonably non-collinear in its effects to those of a fiscal policy operating through disposable income generation on the one hand, and monetary policy operating through interest rates on the other.
What may be needed is a method of directly controlling inflation that do not interfere with free market adjustments in relative prices or rely on unemployment to keep inflation in check. Without such a control, unanticipated changes in the rate of inflation, either up or down, will continue to plague the economy and make planning for investment difficult. Trying to control an economy in three major macroeconomic dimensions with only two instruments is like trying to fly an airplane with elevator and rudder but no ailerons; in calm weather and with sufficient dihedral one can manage if turns are made very gingerly, but trying to land in a cross-wind is likely to produce a crash.
One possible third control measure would be a system of marketable rights to value added, (or “gross markups”) issued to firms enjoying limited liability, proportioned to the prime factors employed, such as labor and capital, with an aggregate face value corresponding to the overall market value of the output at a programmed overall price level. Firms encountering a specially favorable market could realize a higher than normal level of markups only by purchasing rights from firms less favorably situated. The market value of the rights would vary automatically so as to apply the correct downward pressure on markups to produce the desired overall price level. A suitable penalty tax would be levied on any firm found to have had value added in excess of the warrants held. “
Or just a 100% tax on corporate profits in excess of x% of sales.
However, given that the JG will actually have an inflationary impact itself (higher than that of unemployment allowance/dole due to the higher wage and added benefits), will the JG buffer not have to be larger on average than an unemployed buffer would have to be, in order to achieve the same inflation-controlling outcome?
Not going to give you that – “that the JG will actually have an inflationary impact itself (higher than that of unemployment “. It’s preposterous. Aside: Linus Huber (quasi-Austrianly) commenting down on billyblog has a good, logical way of looking at things, which is why I have high hopes for him: Look at extremes. So which is more inflationary? 100% unemployment – nobody doing any work, but getting money. 100% JG – a sooper-evil command economy. But at least people doing stuff, making stuff for the money, the claims on production they get.
Wray considers the unlikely case that the JG stock would be a wee bit bigger than the unemployment stock for the same inflation control in his book. Again, on any reasonable conception of what a monetary economy is for, the JG is still preferable.
From arguments I’ve read, JG wages would involve some kind of marginal inflationary “pressure”, in that consumers would have more income to spend.
The counter-pressure is that consumers would probably be engaged in producing more goods, for some marginal deflationary “pressure”.
In any case, Wall Street and Washington LIES when it claims to oppose inflation. It only opposes WAGE inflation.
Washington and Wall Street enjoy and live off of artificially-induced ASSET price inflation, and beyond that, the de-regulation of the commodity futures markets to encourage more speculative slush. Per Lynn Stout, commodity markets was controlled to 70% buyers, 30% speculative froth, as a useful financial service provided to production and distribution, now 30% actual buyers and 70% speculative froth, a “financialized” market that causes price inflation in key commodity goods.
Oil and energy in particular, but several articles were published about Goldman-Sachs and brother banks creating food future “index funds” which flooded commodity exchanges with cheap money, for wheat and corn and soybeans and such for which the banks would never actually take delivery. (I am far from an expert in the detailed mechanics of this process.)
Then this inflation is tacitly blamed on “money printing” by the Govt, by social programs, by unemployment insurance, by stimulus programs, with a failure to recognize how cheap credit created by banks independently of the Fed supposedly “pumping up reserves” (QE) is the cause of pushing up prices and profits for speculative investors. That is, “The Market” itself, financial markets cause inflation — and the Powers-that-Be don’t complain, they celebrate.
The factors Vickrey described are also significant, various forms of full or partial monopolization.
I’ve got an observation and a question. I’ve been following the blogs the last few months and have taken two classes with a post-keynesian/institutionalist. Anyway, my observation is that MMT will be difficult to argue and adopt in the US because it opens peoples’ eyes to the reality of the power of the government in the economy. Americans like to think the government doesn’t matter to them, and that its influence is minimal. However, if you propose that the government, through the power of deficit spending with no financial constraint, can create as many jobs as necessary to promote full employment, people who are currently concerned about the size and power of government will become positively enraged. Disregarding sound economic arguments, they will demand why government bureacrats have the power to determine who gets what in the economy (by providing employment), they will insist that its socialism. I bring this up because it is an obstacle that should be recognized, and of course its related to the huge lack of knowledge as to the consequences of adopting a currency that has value solely because the government says so (and collects taxes).
Okay and now the question for you Dr. Wray (or a commenter). I’ve been thinking a bit on MMT and have seen the logic in a lot of it. One premise that I think a lot of MMT policy rests on is the assertion that there is ‘excess capacity’ in the economy (which you briefly mention above when talking about inflation, refering to ‘capacity utilization’). My post-keynesian prof always talked about how the proof is in the business cycle, that after reaching a peak, say in 2007, if the GDP goes down from there it is proof that the economy is not at productive capacity; I think this also refers back to the paradox of thrift. I’m just an econ undergrad so don’t be too harsh on me if its obvious, but is there empirical studies on this? What evidence is there for the claim that there is unused capacity (for production, capital, etc.) in the economy? It’d be nice if you could refer me to an article or two, this is probably one of the last points I want to make clear in my mind before endorsing MMT. Let me know if I need to be more specific in my question.
TO David Cappella,
I’m not sure if this is sufficient as an answer for you but there is the Federal Reserve Industrial Production and Capacity Utilization measure: http://www.federalreserve.gov/releases/g17/current/
Also, unemployment is unused capacity, but one needs some capital to combine with the labor in almost all cases. Even labor intensive services, child care and elder care, require a suitable space for the care to take place. One can’t have childcare outside all year round.
But, a JG could be use build or fix spaces to employ child care facilities. If the JG can operate and build child care centers without causing inflation then there is excess capacity.
What ever happened to child care co-ops? Do it in the homes of the “customers”.
Thanks Justin, the stats definitely show that in almost all sectors except mining, production is at a smaller percentage of what it was in 2007, indicating we are no longer producing what we have the potential to produce. I’d be interested to hear an economist’s take on this sort of data in an academic article though.
I knew I read something on this before. I found it: http://www.levyinstitute.org/pubs/wp415.pdf
Also, there is the Monopoly Capitalism stagnation theory developed by Sweezy and Baran. Monthly Review just published an update on their theory: http://monthlyreview.org/2012/05/01/the-endless-crisis
David, read Wray’s point in the final paragraph. Yes, certainly, we CAN have MMT without a JG. Point is, we do.
That is, MMT is not a proposal for a new financial system, MMT is a description of how money “works” in our current system, since FDR abolished the constraint that the Govt agrees to go out and purchase gold at market prices then sell that gold to holders of dollars at FIXED PRICES. Doesn’t that sound a bit like fixed prices on milk or bread or cars?
Yes, the Fixed Exchange Rate (gold standard) was one standardization of money that benefited the Rich with specific government handouts/discounts. (Nixon abolished the last dregs of that, for foreign holders of US dollars.)
Now, MMT exists and is the current paradigm of the way the financial system operates. It was a set of Rules under the Gold Standard, it’s a different set of Rules now, and if this was fully and clearly acknowledged, Congress could further change or tweak more Rules regarding Treasury-and-Fed operations such as eliminating the “debt ceiling”. That’s where Congress REQUIRES Treasury to sell securities to special banks whenever spending is greater than taxation (a growth economy), but then Congress freaks out about the increase in outstanding Treasury Securities which Congress itself mandates that they be created.
Congress could if it chose allow Treasury to trade its own Notes and Bonds directly for Federal Reserves Notes, and refuse to sell T-Bonds to Primary Dealers. Of course you know who would be very angry — Primary Dealers and banks and investors that profit off Govt interest payments, or the special rights to sell those to others. I don’t know that this is ideal (I think it is one of Warren’s proposals), but it would eliminate “national debt” … except that portion held by the Fed which expires automatically.
Congress could allow itself and the Treasury to pay citizens directly in Treasury Securities — like Lincoln’s “Greenbacks” — and allow those to circulate “as money”. Presumably, this would entail accepting these “Greenbacks” for tax collection, instead of requiring that taxes be paid in some f0rm of Federal Reserve Notes aka U.S. Dollars. I don’t know all the ramifications, but the point is this COULD become a policy.
MMT shows that our monetary and financial system operates as a collection of Rules, rules that have roots in accounting but are established in Law, which means, established by Government.
There is no such money system that exists independent of government, and to the extent that one does or could exist, it typically amounts to a barter system or some other system of private credits similar to the one we have now, perhaps with a different form of “government”.
Yes, people’s mindsets are stuck in some kind of anti-government fetish, particularly those of our society who claim to be the most “patriotic” display the most hatred for our government, but I think a close analysis of most of the arguments are really about opposition to “democracy”, to civil society, to cooperative society, to any social solidarity, which means support for and defense of oligarchy and some form of totalitarian rule, especially if that amounts to rule by private corporate cartels backed by the force of a “night watchman” government (even a “private govt” with private arbitration, private law-making, private enforcement) that merely enforces property rights …. of the corporate cartels. That’s the ideal of quite a few Libertarians and Austrians, whether they know it or not, and has had a lot of mainstream traction coming with a kind of “rugged pioneer” marketing pitch, a la Ronald Reagan.
Again, MMT is the way things ARE. What we do with that fact — use it for a fully functioning workforce, or continue to maintain millions of people in a state of involuntary unemployment and under-employment, continue to maintain a low-level permanent recession on the backs of business and profits — continue to utilize MMT capacity for free spending but ONLY for wars and to benefit the Super Rich and never to benefit our society and country as a whole — that’s a political choice and an educational imperative that we come to a place and understanding where we can clearly choose.
The choice reminds me of one of the early ugly complaints about proposed Obamacare: if we pay for health care for stinky poor people and their children, my doctor’s office will be even more crowded and delayed than it is now. As if Demand for health care cannot increase Supply of health care, assuming our economy is the dynamic free market conservatives claim it is. But more to the point, that people DESERVE to sicken and die so I don’t have to wait in a queue reading old magazines.
To be the devil’s advocate I would say: MMT is a static theory, it neglects incentives that produce technological growth. In a static universe it makes sense to employ everybody. What JG critics believe I think is that unemployment may be stimulatory for long run technological growth. I don’t think they have a theory of this, nobody does; it is just an intuition, but it may be a correct intuition. This is where ideology comes in: some think it is more important to leave open the chance for growth driven by fear of unemployment, others think that it is absolutely morally obligatory not to risk the lives of the unemployed to test out this intuition.
I can’t see how fear of unemployment drives growth. Actual high unemployment directly impedes growth. There’s already insufficient consumption to purchase current output (and available imports if corps and the US Chamber prefer that).
For these reasons, there’s currently a dearth in investment in new technology where predictions of future sales is looking shaky or weak.
Instead, investment goes to inflation of assets that currently exist, especially LAND and land derivatives, and also derivatives of commodities that are currently in production.
Giving a paycheck to people with a high school education or less — and spurring growth in the private job market due to increased sales — that’s a growth strategy. Idling millions of people is not a growth strategy. Operating at deep under-capacity is not a growth strategy. If it were, why not just have an internal war and bomb our existing factories?
“I believe it is a policy mistake to operate a modern money system without a JG—but that is what almost all countries do.” – Dr. Wray
Okay, I’m dying to know the country or countries with a JG. I’m happy to Google it, but I’ll first state that Denmark is one of my guesses. I’ve read that it’s a very happy nation.
Yikes. Just now realizing that no country has a JG, no matter if they have a modern money system or not.
He’s probably referring to experimental programs, for example:
1) Argentina: http://www.cfeps.org/pubs/wp-pdf/WP41-Tcherneva-Wray-all.pdf
2) India: http://en.wikipedia.org/wiki/Mahatma_Gandhi_National_Rural_Employment_Guarantee_Act
There may be more.
Wray was probably a little too loose with his wording. I don’t think there are any countries with a “full” JG.
Thanks, JK. I also went back and read MMP Blog #47.
” how to get a job to everyone who wants to work.”
But why is that the topic? How about how to get a Lamborghini to everyone who wants to drive a sports car? Why do we care about every single thing that every single person wants? The social justice issue is getting everyone a basic income. Period.
A job is how one gets an income, for the vast majority. One contributes to society, for which one is paid.
If some unemployment were not the unavoidable consequence of our economic system, there would be no need for a job guarantee. Everyone would have an income, because everyone would have a job, like in pre-industrial, pre-monetary economies.
Guaranteeing a job IS guaranteeing a Lamborghini to everyone who wants to drive a sports car (if that is what they WANT above all else).
And why am I not entitled to *my* share of the rents of the earth without having to work for the man?
You’re entitled to the fruits of your labor. If you want to exchange some of the wealth you have accumulated for some earth, and enjoys the rents of it, go right ahead, nobody is stopping you. And you don’t have to work “for the man”. Be an entrepreneur, if that is what you prefer.
“Some advocate demand stimulus over a JG.
OK, explain to me how pumping up the demand for higher skilled and educated workers—setting off a bidding war for them—will cause jobs to trickle down to the less skilled and less educated workers WITHOUT causing wages and prices to rise.”
Demand stimulus need not pump up demand only for higher skilled and educated workers. In fact, only a highly targeted policy such as buying the output of only such workers could do that. Demand stimulus in the form of a broad-based tax cut, or an increase in the monthly food stamp allotment would likely cause a broad-based rise in demand for products of all types and labor of all skill levels.
Setting off a bidding war is evidence of “too much” stimulus. Bidding wars occur naturally, stimulus or not, for some rare skills (think Pro-Bowl quarterbacks), but if you “set off” one of them you’re doing inappropriate policy.
In our current situation, for instance, suppose the objective was to return to conditions of demand and employment that prevailed in, say, 2006. There has been no decrease in the minimum wage since then, so it would seem likely that the unskilled and employed workers of 2006 could be rehired today without a general rise in prices or wages, if demand were returned to the levels of 2006 (adjusted for population, blah blah). There are also plenty of skilled and unemployed workers today, (even more highly educated and unemployed) so there would be no need to substitute unskilled for skilled workers, just to employ those who were employed before.
If you were to assume that all skilled workers were already employed, and then you tried to pump up demand, even in a non-targeted way, then some wage increases and substitution would likely occur, but we are not close to that situation today.
You don’t want a JG pool of 30 million workers in a work force of 140 million. You want to “pump” aggregate demand enough to get the JG pool down to something like 3-4 million (2-3%), and see what inflation and skilled labor markets look like then, and decide where you want to go from there. The answer may well be “more pumping”.
Looks like several of the commentators have not read the blogs on the JG that go before this one. Please go back and look at them. In this particular blog I did not repeat the arguments on the costs of unemployment and the benefits of employment–that go far beyond the income.
Golfer: “directed spending” by government to buy the output of the low-skilled, low-educated, little-experienced workers is effectively the JG! GENERAL demand stimulus will not direct spending to them, so will not directly create jobs for them. By Definition! Try writing out your comments and puzzling over them before posting. But in truth, government purchases tend toward the output of the more advanced, and more oligopolized sectors of the economy–so it is even worse than “general”–it is actually targeted to the already high paid. Hoping that jobs trickle down to the unemployed, before setting off inflation.
Cutting a regressive tax such as the FICA tax, or increasing Food Stamps is directed toward the higher income groups? By what logic? Who said the increased demand had to be “government purchases”? That’s you, not me. Read what I wrote, not what you imagine I wrote.
If increased demand would not direct jobs to the low-skilled, low-educated, little-experienced workers, how did they have jobs before? There was no JG, no spending directed towards them (that does not still exist, and in even greater amount). They had private sector jobs because demand was higher.
Yes but, as Wray said, we’ve had unnecessary high unemployment during “boom” times. We had high unemployment in 2006, even if that wasn’t all counted. We’ve had a “jobless recovery” since the recession caused by Volker in the late 70s and early 80s, and we’ve had higher-than-necessary unemployment before that.
Warren or someone has pointed out, the last time the USA truly had FULL employment was World War One. Then, we sold “war bonds”, not to finance the war but to prevent newly-employed industrial workers from spending all their income on consumer goods, thereby competing with the Government for scarce resources needed for war.
For the most part, our society and economy has not had a scarcity problem since the early industrial age. We’ve had an abundance problem, too much Supply, insufficient Demand. Much of 20th Century imperial outreach and war was designed to secure new Third World markets for export, plus importing raw materials, to boost corporate sales and profits beyond what Americans were willing or able to consume.
We STILL have an abundance problem. a Demand shortage, but neo-classical economics refuses to acknowledge that this exists or CAN exist. Say’s Law (the roots of Austrian econ) argues that production and Supply automatically creates Demand, without any Govt intervention or social services or minimum wages. One can easily see the holes in that, both in theory and in empirical results.
“We had high unemployment in 2006”
Compared to what? Not anything since then, and not very often before. Recoveries before this one have not been “jobless”. Each time employment rose to new highs before the recovery ended.
Here’s some answers, Golfer.
First, the most “extreme”, Warren said we haven’t had real “full employment” since World War One. Something to think about. Everyone was employed, with many men at war and the rest at work who could, such that women were required (long before “women’s lib”) to join the workforce as factory labor and add to manufacturing output, beyond more traditional “women’s work” for poorer or late-marrying women and widows. (I believe my grandmother was like a live-in maid or nanny in her twenties, as an immigrant.)
A jobless recovery or jobless growth is an economic phenomenon in which a macroeconomy experiences growth while maintaining or decreasing its level of employment. The first documented use of the term was in the New York Times in 1935.
The United States is stuck in its third consecutive “jobless recovery,” stretching back to the rebound from the 1990 recession.
But I remember hearing about this phenomenon in the Reagan era and Bush Senior era, though it was not as sharp and was aimed at “working class” and “unions”, not middle class and even upper class professionals and semi-professionals. So while it had a strong impact on many people, it was not broad as it is now, and it became “chic” to embrace the Reagan era viewpoint on punishing greedy workers.
Sorry, but the data are otherwise. From FRED:
In 1980 (peak) employment was 99.995 million
Next peak in 1981 101.056
Next peak in 1990 119.203
Next peak in 2000 137.270
Next peak in 2007 146.595
May 2013 143.898
Maybe the most important post on the JG yet! Two point!
First, a combination of the BIG and the JG wouldn’t create any more jobs, but it would give people who chose the BIG a chance to do what they want to do and not what someone else wants them to do. For many people, writers, for instance, that freedom can be very important.
Second, my first point also leads to this one. Above you’re emphasizing that people are changing the subject, by talking about other things which the JG sin;t optimizing, rather than simply accepting your assumption that the goal is FE with price stability at a living wage. That’s true. But I don’t think it’s entirely on the point.
For example let’s say I have a choice between an MMT-based program that implemented State Revenue sharing payroll tax cuts and a JG vs, one that implemented all of these plus a BIG. It’s true that the addition of the BIG doesn’t create more jobs, but it should increase personal freedom.
In other words, when we look at two alternative policy combinations, we have to look at and compare all of their impacts. If a policy combination produces FE with PS, but an alternative produces FE with PS, plus greater individual freedom, then I think we ought to prefer the second, provided the side effects are comparable.
Also, our MMR friends, seem exercised in part because they think a JG may somehow dampen creativity and innovation (I’m afraid I don’t really understand the logic here). But supposing this is true than the combination on the three initiatives including the JG plus adding the BIG, should undercut their argument.
I hesitate to say this but here goes. It seems to me that one thing we need is to improve our infrastructure, roads, bridges, rails and our green space. Much of this work requires some level of skill, management and equipment. Private companies make money from this sort of activity and local government pays for it. That may be why it is left aside. Why not a federally run non profit that both sells its services to local governments and undertakes to improve our infrastructure before the bridge falls into the river. Can such a company be run as a JG? Would the “free” nature of such a company mean local and state government would just step aside entirely or can some level of cost be assigned to them?
I am asking this bc it appears that all the discussion is about unskilled labor and the use of non profit local organizations, like health clinics, missions and the like. No problem with it, but the available jobs could be greatly expanded with something more. The infrastructure company does not need to pay union wages, I would suppose, but some premium for skilled workers like crane operators.
Most probably the best way to do this is to just fund it, but that is almost a road to nowhere these days. (or is it a bridge?) Congress won’t do it and states and local government are really out of money.
If Congress understood MMT, they would fund it. I think if Congress gave $150B to the states in per capita grants, as Warren Mosler proposes, some of this would be part of what they would do with the money. Some of this is Federal, too. Obama has proposed a high-speed train to nowhere. Depending on the State, it may not be possible to avoid paying union wages, and if it were done with JG it would directly compete with (and vastly underbid) private companies and union workers.
Golfer, i am sure you are stating the mainstream view. Some jobs could compete with private enterprise. Actually, I suppose that should trouble me, but it doesn’t, since I believe a lot of jobs should be in the government domain anyway, mostly infrastrucure. But I’m realistic. I doubt such a idea will get very far.
Infrastructure is a normal function of government, and needs to be done regardless of the state of the economy or the size of the JG labor pool. If you make it a JG project, what happens when the JG workers get private sector jobs and the bridge is half-done?
If the bridge needs to be built, or fixed, then put it on the list of government projects and prioritize it with the rest of them. Infrastructure shouldn’t wait for a recession.
Agree, I don’t want the bridge half done. But somehow, I think there may be ways around it. There is,I suppose, a hierarchy of projects one could schedule, some may need private contractor support for parts.
You couldn’t have done a better job. I appreciate that you have a lot of independent thinkers participating here, and I find their comments interesting and thought provoking. But, generally, I have to agree with you, often they’re just changing or ignoring the subject. When one knows how the plague works and what it can do to humanity, how can one then pay homage to its dark side–especially when one has a very special tool (MMT) that allows one to see what’s really happening and what can simply be done to make it better?
For me personally, this is one of the most difficult economic topics to think about coherently. That’s because it goes to the fundamental human need to lead a life of value. Most of us get that sense through the work that we do, although obviously that isn’t the only possible source. Is it the government’s responsibility to ensure that this is possible for all citizens? Reasonable people might disagree about that, but I’m personally ok with the idea that the government should at least provide a pathway for someone to succeed in living such a life. Does “providing a job to anyone who wants one” live up to that responsibility. I have some doubt about that, not because it’s not on the right track, but because it seems too vague about how to guarantee that such jobs will actually provide the sense of being valued that is so essential to providing a successful outcome. And doing that while at the same time not competing with the private sector seems even more problematic. Many jobs (ok excluding the digging and filling in of holes) might provide a sense of being valued for people with few skills and little education. If that is the entirety of the target demographic, then JG may be all that is needed. But someone with a college degree or other specialized skills will be unlikely to get that same sense of fulfillment if their skill and training is significantly underutilized. And unfortunately we’re seeing more and more unemployed people who have pretty good skills and education.
So while JG is progress in the right direction, it seems to me to be inadequate for addressing a broader problem that will only become more pronounced as advanced intelligent technology pushes productivity to higher levels and more people get advanced educations, resulting in more and more unemployment among highly educated and talented people. Are there ways to address that within the context of JG? Maybe so, but I’d be a lot happier if that were more obvious to me. Is there any way in which the private sector could be stimulated to solve this problem? That’s also not at all obvious to me, but I wouldn’t totally rule out that possibility either.
I wouldn’t oppose a JG politically if one were proposed, but I still have the nagging feeling that it is just a bandaid that won’t really help with the more substantial underlying problem.
Government has two responsibilities, I think, with regard to the economy. First is to manage the currency it has created so as not to adversely affect the business cycle. That means to create more money as needed to satisfy the savings desires of the non-government sectors, so that their saving does not result in excessive unemployment, and without creating so much money that its value is excessively degraded. Second, since we are a monetary economy and saving does result in underutilized labor, we, society, through our government, have a responsibility to provide an income to the unemployed.
If you think of these as two separate and independent functions, I think it becomes clearer.
In the olden days, society did that second function through charity. Today that function is viewed as a responsibility of government, and is done by unemployment insurance, which expires after some period of time. Absent a Great Recession, that has been a not so terrible solution for most, as their unemployment is of short duration and when the business cycle turns up they get jobs again. Mostly. There have always been a small number of long-term unemployed, and now there are lots more of them. They become less employable as time goes on, and unemployment insurance, even if it did not expire, doesn’t help with that aspect. These are the problems that JG is designed to fix, in a way superior to Unemployment Insurance. It changes the buffer stock of labor from unemployed to employed, and at a higher income, without an expiration date.
JG is not your psychological coach, helping you to find self-esteem. If you are one of the long-term unemployed, even in good economic times, and if a job is going to do that for you, then JG can make you more employable so that maybe you can get that job that you otherwise would not be able to get. JG helps you get on the first rung of the ladder. After that, how high you want to climb is up to you.
JG is not supposed to be a primary business cycle smoother, although its effects will be counter-cyclical, and more powerful than Unemployment Insurance. The first responsibility of government to manage its currency, and aggregate demand, remains, JG or not.
People with more skills and more education have less unemployment. Even now when their unemployment rate is high, it is still a lot lower than those with less education and training. When unemployment is a big problem for educated and skilled workers, as it is now, that indicates poor performance by government in their first responsibility. JG is not going to fix that, and should not be used to try to fix it, IMHO. JG addresses a different problem.
My point, which is admittedly only a projection based on my own expertise in AI, is that the unemployment problem is likely to spread up the food chain in the future. In that future, fewer and fewer people will be needed to provide most of what is produced. We’ll have (at least) two distinct problems: 1) how to distribute the wealth of society equitably and 2) finding a useful role for all of the intelligent & trained unemployed. Historically every new technology that displaced workers also provided a new class of jobs to go along with it. But in a world where a substantial amount of all labor can be done more efficiently by computers and robots I think that won’t happen because the number of any new jobs will be substantially less than the number of displaced workers. So I’m really trying to imagine what sort of JG would be able to address those future problems. I actually think that we’re just starting to see that effect now in the elimination of blue collar factory jobs by robots. There are even examples where some scientists have been replaced by robots that perform experiments automatically. The majority of all trades on Wall Street are because of choices made by computers, not people. There are companies working on commercial robots that will be able to assist the elderly in nursing homes. My expectation is that this won’t happen overnight, but will be a problem that sneaks up on us, affecting more and more until we have a real crisis. I realize this isn’t exactly the problem that JG attempts to address; I just wish it could.
Predictions are hard to make, especially about the future. So far, whenever increasing productivity has allowed “everything” to be produced by fewer people, we have begun producing different things. Buggy whips come and go. There’s no law that says that must continue forever, though. At some level, we still have to produce the basics: food, energy, shelter, clothing. If all that can be done with very little effort, then we will have a society of leisure, free to pursue non-economic interests. For all the talk about a job being “fulfilling”, the real reason for working is to get an income so that you can buy those things you need to live. Maybe instead of some working and some not, we’ll have a shorter “standard” work week. That has been the trend so far, as well. Used to be that children worked in factories, but no more. People are retiring earlier, so maybe the “working age” population definition will change. People are living longer, which requires more real output from those working to support the retired population.
Increasing productivity is not a new thing, although the pace of change is accelerating. Something to think about, for sure. I don’t think it’s the problem that JG is trying to address, though.
I’m not disputing that there is social utility in jobs (and Lamborghinis). But there’s plenty of disutility too. Putting somebody’s nose to the grindstone from 9 to 5 every day doing something barely useful may add a lot less marginal utility than just giving the person a Citizen’s Dividend and letting them choose *all by their big grown up selves* how to spend their time. What you share with the right is the assumption that left to their own devices the poor will just blow their income on beer and popcorn. The big difference between you and them is whether the poor should be thought of as helpless or undeserving. The hurdle you set yourself in your post was the premise that it is not possible to accept MMT without also accepting the JG. Now you are saying that in order to complete your argument one must accept that work, in and of itself, is a social good. But if I accepted that then obviously I would accept the JG, MMT or not. So what does MMT have to do with it? Does accepting MMT necessarily *imply* accepting that work is a net social good, or is that a special axiom?
My great-great-great…grandfather staked out an acre on Broadway between Wall St and Pine some 500 years ago. Since then, while our fellow citizens toiled away at back breaking labour, invented great things and created amazing enterprises, the K family hasn’t done a thing. We just rented our little piece of land to the highest bidder and now it’s worth a few hundred million dollars. It’s an awesome little “enterprise”. We never lifted a damn finger in 500 years and should you, the public, have chosen to tax away 99% of the rents, it wouldn’t have changed how the land was used (by others), even by the tiniest amount. Why? Cause, as you know, they don’t make land any more, and by the same virtue, they don’t remove it either. You can tax it all you want and *still* there’ll be no less of it and the optimal use is totally unaffected. Why on earth we got to receive all those rents, I have no idea. But anyways, thanks.
My point is, lets start by taxing the rents and handing out a Citizen’s Dividend. Then, when everyone has an adequate and truly fair income, lets scrap the minimum wage and let the people, newly empowered to choose, decide on their own mutually beneficial employment arrangements.
It is heart-warning to me to see that at least one Native American family has kept a little piece of Manhattan. I thought Peter Minuit bought the whole island in 1626.
Anyway, whether your family was the original owner or bought it from someone else, you are now foregoing the current price of it in favor of the rent. And as it passes from each generation to the next, the Federal government takes 55% of it, and I suspect the State of New York gets its cut, too. If you still have one acre after all those generations, your family must have started with 64 or 128 acres. Or else gave up other assets each time, in effect paying for that land and the income from it over and over again.
Not that the estate tax is a bad thing. But it does accomplish essentially what you advocate.
Golfer, I see you didn’t read the links I provided earlier. I’ve hand picked a paper by Michael Hudson for you:
OK, that’s nice, but if the gain in the price of your real estate is due 90% to inflation, as it usually is, then you would be taxing an imaginary gain, which is neither efficient nor equitable. Also, “real estate” encompasses more than just land. Improvements to land can and do increase production, and they are also real estate. Most real estate, if neglected, would decrease in value over time, not increase, so the rent does not come automatically or without effort. I don’t dispute that there is such a thing as economic rent. It’s not a free lunch, though, and the principal is being taxed, whether upon sale by taxing inflationary gains, or at death.
At least read the abstract of the paper! Inflationary monetary policy definitely amplifies the problem, and taxing the land rent would certainly force that inflationary pressure into stocks and commodities, but that’s a separate issue that doesn’t cause persistent unemployment.
As for the use of the land, it seems to me we have some decaying inner cities, where property tax rates are high, surrounded by thriving suburbs with lower tax rates. Of course urban sprawl was enabled by cheap oil, but is it not somewhat motivated by taxes? It’s true they’re not making any more land, but there is quite a lot still unused, on the other side of the Hudson River.
“Others prefer a BIG (basic income guarantee—welfare payments to all, payments that are not means tested). Again, explain to me how this will create jobs for the less skilled and less educated workers WITHOUT causing wages and prices to rise.”
I’ll try. If the BIG is paid from land rent dividends, it will not be inflationary because land rent is by definition an amount not needed to put the land into production, and therefore will not raise the cost of production. It’s a morally defensible redistribution of real value that will stimulate demand and thereby create more jobs. Wages will rise and prices will fall because they are no longer being taxed by land rent. This is not a monetary phenomenon at all and cannot cause monetary inflation.
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I like the Job Guarantee for moral reasons.
I would suggest implementing it on a trial basis in one of the economically depressed regions of the country — an Indian reservation, the Mississippi Delta, or maybe even Detroit.
My guess is that people will be very apprehensive at first, but after a few years, they’ll scream bloody murder if you tried to take it away from them.
Go to a mayor of one of those depressed towns, having youth unemployment at 50% and adult unemployment at 20% or more, with empty storefronts on main street, and 25% of the houses vacant, and ask him if he’d be willing to participate in a Federal program that gave a job (that paid a living wage and included free health care and child care ) to every adult who was willing and able to work. Heck yes ! ! !
Then check back after a year or two and see how it is going. I’m sure there will be many specific complaints to deal with, just as there were complaints about the WPA. Not enough pay, too much make-work, too many slackers, etc.. Nonetheless, the once vacant houses are now occupied, the once empty storefronts are now bustling with customers. The town looks spiffy. Crime is down. Like I said, once they get used to the JG, they’ll scream bloody murder if you try to take it away.
As for the MMR crowd, all I can say is that they seem to live in a well-to-do part of the country and don’t know or care about the depressed regions of America. I’ve yet to see them explain how they are going to solve the problems at say, Pine Ridge Indian Reservation ? The Dole ? — it hasn’t worked yet.
You remind me of Warren’s simple retort, it only has to be marginally better than what currently exists, a period of unemployment insurance coupled with idleness, and in the case of “jobless recovery”, extending to eventual long term deep poverty and everything bad about living off an “underground economy”.
I visited Canyon de Chelly last year, on the Navaho reservation. Their unemployment rate is 50%. I suggested to Stephanie that a reservation such as theirs, with a tribal government formed in the 1920’s that levies taxes and operates its own casinos would be a good candidate to adopt its own currency and practice MMT. No response.
Detroit would do just as well as a demonstration project for JG, but would need Federal funding. A sovereign nation such as the Navaho could do the whole enchilada on its own.
This post set off some reactions at the MMR site and at Mike Norman’s: http://mikenormaneconomics.blogspot.com/2012/05/cullen-roche-does-anyone-actually-know.html
I left the following comment there. (I don’t comment at Cullen’s sites including MMR because I don’t trust that the comment record will be kept intact there if Cullen decides later that he’s not pleased with how it looks and I don’t want to give him a chance to rewrite history.)
“So, can we have MMT without a JG? Certainly! We already have modern money systems with sovereign currencies and without the JG. MMT is the proper way to analyze these. I believe it is a policy mistake to operate a modern money system without a JG—but that is what almost all countries do. MMT allows us to analyze them, and to offer policy recommendations.
But if we leave out the JG in our recommendations, we are seriously remiss in our advice.”
I think this is plain enough. Randy’s saying that the MMT framework is the proper one to use in analyzing economies with fiat currency systems. He’s also saying that if you want to recommend economic policies that will produce Full employment w/price stability then you have to include the JG as part of the policy combination you’re going to recommend for that purpose.
I don’t think this is change in Randy’s position at all. Nor do I think any other MMTers have a probem with it. I’m sure Warren, Bill, Stephanie, Scott, Pavlina, Marshall, Rob, Mike, and anyone else closely associated with the core MMT group agrees on this.
I think MMR’s “gloating” (See what Like said in his morning e-mail) over what Randy said is just silly and also disingenuous, since Mike is certainly bright enough to know that there’s no contradiction with earlier statements here. That is, CR doesn’t recommend the JG and he does not agree with the MMT mainstream that a program including the JG will produce Full Employment w/Price Stability, and I expect that Mike and Beowulf agree with him on this. Now that’s a core theoretical difference.
In addition, Mike has blogged a policy target of 4% UE and 4% inflation for MMR. But MMT writers have the target of FE w/price stability, where FE is FE, if anyone is still unemployed it’s by choice. And the PS target isn’t even mentioned at all. So, there’s another concrete difference.
Oh, btw, this comment isn’t identical to the one I posted at Mike’s since I worked over a few things in the process of posting. But the discussion over there is still worth noting.
Well, there seem to me, not being part of the argument, that there are two issues.
1. Is JG part of MMT?
2. Is JG a good idea?
One issue 1, there is some validity to Cullen’s gloat, because it seems to me that Randy is now saying that they are separate issues, whereas before he has said that JG is an integral part of MMT.
I think that’s correct, that JG is separate, and is a policy option that seems appropriate when you analyze the economy using an MMT perspective. I would not say that Cullen is an evil miser who wants a permanent underclass so as to enhance his own well-being, or any of the rest of what Randy says about people who don’t support JG, but I do think Randy is right and Cullen is wrong, and JG is a good idea (if anyone cares what I think).
In a future where MMT does gain ascendency, I think the most likely path would be a phased JG, perhaps geographically as has been mentioned, in the poorest areas first, and then with empirical evidence it may become obvious whether JG is good or bad.
This blog entry #48 may be an opportunity to heal the rift between MMT and MMR, if JG is the main issue. After all, scholars of other schools often disagree about policy while agreeing on the basics of theory. That seems to be the case here, so can MMT and MMR kiss and make up, and move forward together to educate and save the world?
Golfer1, what Cullen really thinks is reviewed with quotes in these two posts:
along with the main reasons why MMT is for it. There’s really no room for glossing over this when we’re getting to policy questions.
The real point is that Cullen wants to amputate MMT’s policy component and has said as much in the initial MMR posts where they took the ridiculous position that MMT could be theory and value-free: See: http://www.correntewire.com/the_job_guarantee_and_the_mmt_core_part_twelve_theory_and_fact
Right, the policy question is #2. Cullen disagrees with Randy, and others. Is that not allowed?
Why is it ridiculous that a theory of monetary systems could be value-free? MMT describes how it works. Why does it have to prescribe what its goals should be? It is a valid point that in the US, we have certain values embedded in our founding documents and laws, but other countries differ. Does MMT not describe how the monetary system works in China, because they have different laws and culture?
Did you read the link? If so, let’s discuss it. If not you’re not really replying to me. Also, on the matter of whether a theory of monetary systems can’t be value free, here’s a carefully worked out argument about why no scientific theory can be value-free: http://www.kmci.org/media/Against%20The%20Fact-Value%20Dichotomy.pdf
Further even MMT as a descriptive theory will inevitably import certain value assumptions, it’s also true that it’s descriptive aspect is conceptually distinct from its prescriptive aspect which may vary from nation to nation. But vis-avis, the US MMT as a broad framework includes public purpose as an overarching goal, and prescriptions consistent with it will be oriented toward fulfilling public purpose. As the MMT approach has developed the idea of public purpose, FE w/ PS are essential elements contributing to that. If one’s approach doesn’t put public purpose first and view FE w/ PS as essential elements in accomplishing it then whatever else that is, it’s not MMT.
Sure it’s allowed. But it’s also allowed that I can point out that Cullen doesn’t put public purpose first with FE /PS as primary objectives, among others for achieving it, and also point out that this is a difference between Cullen and the MMT approach that is so significant that it marks his approach as something different from MMT. I think he agrees with that and that’s why he, Carlos, and Mike named it MMR.
and also Parts 10 – 12 and 16.
There’s sort of “two sides” of MMT. One, the fact that MMT exists now in varying degrees, in reality and potentially, and has existed for centuries of “modern money” issued by governments. It isn’t a question of “should we have MMT or not”.
Historical perspectives seem to indicate that US Congress and other economies tend to operates in an MMT mode when it’s something politically desirable to elites in charge, such as unchecked spending and inflated spending on the Iraq War, such n0-bid cost-plus contracts and welfare for large corporations in general, few question any Deficit for these things, including Bush tax cuts that must typically fail to add much aggregate demand, when they go to people who can already purchase all basic needs and more frivolous wants.
Two, the discussion of what MMT means and the moral question of what MMT _should_ entail, coming from the perspective of public purpose and coming from various points about actions the govt has taken under “globalization” or simply the anti-inflation obsession that has caused or exacerbated unemployment, therefore a moral obligation to fix employment issues.
There is no such thing in the real world now as a real economic and financial system that operates without government, sans laws, sans standardized money.
MMT without a discussion of economics as a social-political science — political economy, per Michael Hudson — is somewhat similar to abstractions of Paul Samuelson (as described by Hudson), beautiful theories with little or no connection to the real world.
Merely describing the intricacies of Treasury and Fed operations without regards to austerity, deficit terrorism, deepening poverty and wealth divide, high unemployment and the like, failing infrastructure, and what COULD be done to correct these issues, must fall under the realm of what some Econ students have labeled Autistic Economics.
The JG is not part of Part 1, Modern Money, Sovereign Currency issuer. JG is Part 2, the reasoning and policy proposals that emanate from the basics of MMT.
Yes, US Congress might have to change some Laws, but Congress changes laws all the time. I think Randy remarked that legal changes to implement the basics of MMT would be less onerous than the Financial and Commodities Modernization acts in the 90s.
It seems we will never get beyond this until Randy just says ‘ yes, the JG is just optional. Sorry I mislead anyone.’. But I doubt that. If you want to eradicate measles, you need to use the vaccine. Now some people will never do that. They will say it causes measles or autism, despite evidence to the contrary. This is integral to MMT IF you want FE and PS. Now, if you don’t want that or your religion says it is bad for this or that, that reasoning does not invalidate the JG. I imagine an MMT economist would not even walk out in a huff, if he did not get his way. But the JG would still be the better solution. It is beyond me why CR argues so vehemently against this other than it offends his conservative sensibilities. In fact, I think that is a major part of this. The JG tends to play to the left, since it concerns unemployment. I am happy we have something that addresses the NAIRU regime. It will be a long time to get this accted and we are staring at why in this repeated dust up with CR. So, in the end, the MMT economist will recommend the JG, since that is the best “science” we have, not NAIRU. MMR may suggest more of the same unemployment or welfare payments. But not a full dose of something to fix it, one and all.
There are other medical analogies that might fit better. If you have breast cancer, maybe you do chemotherapy, maybe you do radiation, maybe you do surgery, or maybe a combination of treatments. There need not be just one valid answer to every medical problem, and there need not be just one valid answer to every economic problem.
Not that I know of anything I think is better than JG, but using a medical analogy that rules out the possibility seems a bit rash.
And even though I disagree with Cullen, he takes his position because he thinks his answer is better than JG, not because he wants to inflict maximum suffering. Having a different opinion does not make someone evil.
The JG is optional (to me) only in the sense that Bush financed the war with lots of “off-budget” spending, including reports of shipping C130s with pallets of $100 bills to Iraq, for both contractors and for bribery of factions, yet DID NOT implement any MMT spending proposals domestically.
Said more simply, Deficits Don’t Matter when a Republican is in charge. Deficits DO Matter, suddenly, when a “perceived Liberal” is in charge.
I wonder if youve even seen the proposal Morgan Warstler made? His version of a JG that he says would get full conservative support tomorrow and be working in 48 hrs if adopted. Here is his description;
“Using a clone of Paypal and Ebay platforms, the US govt. should establish a Guaranteed Wage of $240 per week. Anyone who wants to work registers, receives a Debit Card,and each Friday has their GI deposited.
All recipients have their labor weeks auctioned online. Bidding begins at $40 per week ($1 per hour). Bid increases by .50 cents per hour ($20 increments).
Recipients keep 50% of the top bid, if they take it. If they opt for a lesser bid outside certain boundaries there are penalties (fraud measure).
Recipients cannot be made to work outside a radius of a couple miles.
Bidders must deposit money into system before they bid. They must accurately describe the job. Feedback will be given both ways. If you are familiar with Ebay, you understand what this accomplishes.
There are no taxes paid, there are basic workplace protection requirments. Umbrella insurance is sold on site for folks bringing labor into their home.
Expect 30M to register so approx $345B is our cost assuming 30M are auctioned at $1 (The govt. is picking up $5.50 and bidders are in for $1)
At an avg. bid of $4 per hour, avg. worker is making $8, and the govt. is spending $250B a year.
There is no more UI. There is no more minimum wage. That’s why there are 30M in program.”
I’d be interested in your critique. It seems this COULD be a way to fashion a JG using existing framework like Ebay and Paypal. It seems there is a bottom up element to it and it probably would appeal to many on both sides. There has to be some downsides though………. since it was proposed by Warstler! ; )
Id be interested in your thoughts
A clever system, but it’s a simple subsidy of private employers, especially employers of minimum-wage workers. Why would they not fire their current minimum-wage employees and hire only under this program for far less cost?
Don’t know about Randy’s reaction. But for me since it doesn’t pay a living wage it’s unacceptable. End of story! Sure conservatives would support it. They love slave labor and a downtrodden employee class. They’d do anything to lower wages even more than today.
Re: whether the JG is a necessary part of MMT. When you first introduce someone to MMT, their initial reaction is always “but what about inflation?” The JG is part of MMT’s answer on how to achieve full employment without excessive inflation. So, yes, the JG is an integral part of MMT.
Note that when the national unemployment rate is 4%, the black unemployment rate is 8%, and the black youth unemployment rate is around 16%. Some Indian reservations are much, much worse. You have a whole class of people who would still be in a world of hurt under MMR’s 4% “full employment.” To me, that is morally repugnant.
The Warstler proposal is interesting for its new ideas, but I for one would not care for it. Not everyone in the labor pool is going to be able to do every kind of work at every hour of the day, so you shouldn’t auction people off like a commodity. The ebay idea reminds me of slave auctions.
Getting a little off topic, I envision the JG program requiring a SUBSTANTIAL human resources department to screen and evaluate workers, and to recommend them for particular assignments. I don’t view the resources and money spent on JG HR as a drawback, I view it as an investment. When someone signs up at JG, they should be given a thorough physical, intellectual, and personal evaluation, similar to what the military does. You’re going to encounter people with physical limitations — perhaps before they are sent out on a job, they need glasses, or a new knee, or a hearing aid, etc., etc.. Some of the workers may be mildly autistic or have other learning/behavioral issues that should be considered. Some of the workers may have substance abuse issues or personal troubles that will effect their job performance, so maybe HR decides to send them to counseling — and pay them an hourly wage while they are at counseling ! Some of the workers will have college degrees and specialized skills — maybe HR decides to assign them to a desk job or a supervisory job, or even send them back to school for more training — and pay them an hourly wage to attend school !
If HR’s evaluation suggests that a not-so-old person has the potential to be a doctor or a technician, rather than sending him or her out to do pick and shovel work, they should send them to college instead — and pay them an hourly wage while they are going to college !
Bear in mind that the JG will be dealing with the “bottom of the barrel,” society’s misfits and rejects. I view it as an opportunity to turn people’s lives around, an opportunity that people are often not given in the private sector.
It may be that some workers have so many physical or behavioral issues that HR decides they are not employable, not even by JG’s modest standards. In my vision of JG, HR would then recommend classifying those people as disabled, or in the case of older workers, recommend that they be given an early retirement.
What I don’t want is middle aged folks with bad knees, bad backs, or bad hearts being sent out to do pick and shovel work. Or parents with young children being expected to work hours that prevent them from doing normal parental chores — seeing their kids off to school in the morning, picking them up from school in the afternoon, taking kids to the doctor, etc.. Or intelligent young people being forced to do dead end manual labor when they should be in college.
Sorry for the off topic rant, but it was necessary to explain why my vision of a humane JG is quite a bit different than the Warstler auction.
I would envision the JG program making use of technology to match applicants with opportunities, not in an auction, but similar to existing web sites that do that. Even using those existing web sites to do it. And, yes, personal screening as well. And education – or rather, training. No medical school, but maybe a week-long class on some technical topic, or a certification course. Maybe a recent technology graduate can’t get a job only because he lacks an industry certificate and can’t afford the $2000 class himself.
I’m sure JG would help many minority inner-city teenagers and some on the reservations, as have other programs directed specifically toward them, but I’m afraid the real answer in those cases is a cultural change. Maybe more accessible opportunity and real hope is what will bring that about.
I just read about an ambitious woman who joined the Army and Army Nat Guard for some training and future job for self and child, I forget what maybe medical rescue tech, but now she needs $$thousand for certification and/or school, and can’t save that or attend. So she’s working part-time retail and the year(s) Army stint left her no farther ahead, actually behind.
That should not be how we operate our world.
Did they do away with the “GI Bill”? Or does it only cover college? Compared to part-time retail, if there are full-time jobs available in her area for someone certified in a medical skill I would think it financially beneficial to take out a loan to get the certification. But JG would certainly cover it, if I were in charge.
“you shouldn’t auction people off like a commodity”
I didn’t get that impression. Seems to me employers would bid for specific skills, hours, and location, and applicants would choose which jobs to apply for. Or maybe the worker lists his skills and availability, and employers bid for him specifically. Kinda like Dice or Monster, but with a subsidy.
Re: the auction. Suppose you auction people on the Pine Ridge Indian reservation. Who is going to bid on them ? No one. Because there is little demand, and because there is discrimination.
So no one would bid, and the Indians would end up getting a dole rather than a job, defeating the purpose of the JG.
A JG would create DEMAND for workers, even on Pine Ridge Reservation, even for people of color, even for people who have “issues” or lack skills.
The auction for short term jobs is not unlike what Manpower does, except without the subsidy. I did work for Manpower in my youth, when I was in between steady jobs, and did not care for it. I got no training or skills out of it, no references, and I never knew whether I would be working from one day to the next. It paid for a few groceries during hard times, but was a big fat zero for my long term career.
Getting back to the idea that the JG is an investment in people — I’d like to see the JG give people something that they can put on their resume. That they held a steady job, they got treatment for any issues that they had in the past, and maybe learned some new skills. My vision of a humane JG would do that. The auction system would not.
The resistance to a humane JG (and training, even if it means medical school) seems to be the cost and the bureaucracy. But MMT tells us that we can pay for it with keystrokes. The so-called bureaucracy would offer skilled jobs to otherwise unemployable middle aged workers who have been laid off.
Yes, it’s true that in an auction some workers would attract no bids, and would have only the $6 wage, and nothing required of them to do (e.g., a “dole”.) JG is superior in that respect, because, at least in theory, there is *always* work to do, and no (or very little) marginal cost to the “employer”.
But if JG is going to pay for my post-graduate education, and a salary, too, I’ll come out of retirement for that! And you can’t tell me it’s only for the young, that’s illegal age discrimination.
More seriously, colleges today make sure that qualified applicants don’t lose out because of inability to pay. There are need-based scholarships, as well as loans, for prospective MDs, at least for undergrads. If college grads have trouble finding jobs, as they do today, it is not for their lack of skills and education but for lack of aggregate demand, and JG is not the answer for them, a bigger deficit is.
I’ve heard, too, that doctors are coming out of med school with student loan burdens that they cannot hope to repay. That is also not a problem for JG to address, it is an imbalance of med school costs vs. doctor incomes, and not, it seems, due to any excess supply of doctors.
Dan, in general, I agree with what you say here. It does seem we are getting ahead of ourselves. I just want a job for everyone who wants one. No auctions. I want people to feel they have something permanent that fits on a resume. Yes, we will need an HR function. I am not sure how far afield we should go at least at the beginning.
HI ALL: SO MANY COMMENTS, SO LITTLE TIME! OK I HAVE SENT MY “RESPONSE TO BLOG 48” TO MITCH AND I EXPECT IT WILL GO UP SOON. SO PLEASE SAVE YOUR FURTHER COMMENTS FOR THAT.