Whatever – its either employment or unemployment buffer stocks

Since I published Wednesday’s blog – MMT is biased towards anti-crony – there seems to have been a fair bit of commentary on other sites some bordering on personal attacks (against me). I’ll steer clear of that level of discussion. I also note that John Carney over at CNBC responded with this article – Can the Government Guarantee Everyone a Job? – saying that if the notion of employment buffers is a central aspect of Modern Monetary Theory (MMT) then “it would mean that MMT is wrong”. I found his response interesting but essentially a rehearsal of the mainstream errors that arise when you haven’t really come to terms with what MMT is adding to macroeconomic theory. So today’s blog is a supplement to the Wednesday’s blog (and many others) and aims to provide some more context especially to those interested in the evolution of ideas and schools of thought. The point is that whatever else happens we are left with a choice – employment or unemployment buffer stocks. MMT provides the theoretical insights to show that employment buffers are superior whether you like them or not.

Macroeconomics is the part of economics that studies the economy in aggregate. The aggregates that concern us in this area of study are the level (and growth) in production, the rate of aggregate unemployment, and, the level and rate of change in the overall price level.

A coherent macroeconomic theory will provide consistent insights into how each of these aggregates are determined and change. Many a textbook will say that “Macroeconomics is the study of the behaviour of employment, output and inflation”.

A macroeconomic model is then the tools that are used to advance that study. No model is complete unless it provides a good understanding of the dynamics of inflation.

Further, a central idea in economics whether it be microeconomics or macroeconomics is efficiency – getting the best out of what you have available. The concept is extremely loaded and is the focus of many disputes – some more arcane than others. But my profession would be united in saying that developing theories about how efficiency is to be attained at any level is a core activity for an economic theorist.

At the macroeconomic level, the “efficiency frontier” is normally summarised in terms of full employment. The hot debate that has spanned the years is what do we mean by full employment but it is a fact that full employment is a central focus of macroeconomic theory.

Considering that issue doesn’t amount to a prescriptive preference – unique to me or other MMT theorists or otherwise. Using our macroeconomic resources to the limit is a key part of all macroeconomic theorists. The debate is what that limit actually is.

This concern about full employment was embodied in the policy frameworks and definitions of major institutions all around the world in the Post World War 2 period.

For example, the Reserve Bank Act 1959 – which established the central bank in Australia in its current guise – outlined (Section 10(2)) the following functions for the RBA Board (excerpt from the actual Act):

Also note the other functions that were required of the RBA – in addition to full employment. Price stability and the economic prosperity and welfare of the Australian people.

Again these were considered to be the big theoretical challenges for macroeconomists – how to maintain full employment but at the same time also make that goal consistent with price stability.

The clear point is that if you achieve that then you will be contributing to the prosperity and welfare of the population by ensuring real output levels are high within an environment of a nominal anchor (inflation control).

I didn’t invent those goals. They are not left-leaning or right-leaning. They are the core business of macroeconomics.

The debates over the last centuries have been about how to define those goals and how economic policy parameters can be best tweaked to achieve them.

Theoretical structures became differentiated by how they constructed those problems within the institutional realities that exist – that is, how we construe the monetary system.

So, for example, a fixed exchange-rate convertible monetary system faced different challenges and possessed different characteristics to a fiat monetary system. These characteristics, in turn, provided different theoretical insights into how an economy could achieve their macroeconomic goals.

A theoretical approach in macroeconomics then tended to be defined by how it theorised about and understood the options available to an economy. This doesn’t preclude a narrow concentration on one part of the macroeconomy.

But when it comes to defining a paradigm (school of thought, whatever expression you like to use to describe a body of theory) the way in which it builds theoretical structures to explain these aggregates, their interrelationships and their resolution forms an essential aspect of that approach.

Whether the defining elements are politically palatable, attainable, or culturally pleasing is irrelevant in theoretical terms. Ideas are not intrinsically popular – which is where the political domain operates. To be elected you have to be popular. Ideas are also not intrinsically time-bound. Some ideas are developed before anyone will accept them as knowledge (in the sense that the theoretical notions are not inconsistent with reality).

There are examples of this littered throughout the history of knowledge.

For example, a paper I read a few years ago that I found very interesting. It was by Charles G. Gross (2008) ‘Three before their time: neuroscientists whose ideas were ignored by their contemporaries’, Experimental Brain Research – and was about “three examples of neuroscientists whose ideas were ignored by their contemporaries but were accepted as major insights decades or even centuries later”.

As one of the more contemporary cases, the paper documented the work in the early 1960s by American scientist Joseph Altman who started to question the long-held idea that “no new neurons can be added to the adult brain”.

After being ignored for 30 odd years, his insights were “rediscovered” and the time was right for them to be accepted as the basic knowledge in the area. Neurogenesis is now one of the most significant areas in neuroscience.

In answer to the question – Why were Altman’s discoveries ignored for almost 30 years? – the paper posits (among other reasons) that:

… the dogma of “no new neurons” was universally held and vigorously defended by the most powerful and leading primate developmental anatomist of his time.

So whether a particular idea is “ready” for popular consumption is a separate issue to the idea itself and its veracity and where it fits into the body of theory that contains it.

To put this in context of Modern Monetary Theory (MMT), a brief historical excursion will help. There have been two striking developments in economics over the last thirty years. First, a major theoretical revolution occurred in macroeconomics (from Keynesianism to Monetarism and beyond). Second, unemployment and broader labour underutilisation rates have persisted at high levels.

These developments can be thought of in terms of the way that macroeconomists have debated the dual concepts of full employment and price stability – which in more modern times was summarised by the Phillips curve literature.

To advance this discussion, I will choose the Post World War 2 period to reduce time. If you were interested (and most will probably not be) I could write a lot about the earlier (classical-era – C18th) writings on full employment and inflation.

The debate began long before American economists started contributing to the discussions in various ways, although there is a tendency to think that American ideas dominate economic thinking. These earlier debates formed part of my PhD and comprise Chapter 2 of my 2008 book with Joan Muysken – Full Employment abandoned.

Macroeconomics really emerged during the Great Depression once J.M. Keynes’ General Theory (1936) was published. The macro insights of Keynes had been recognised by others much earlier (for example, Marx) but in terms of the English-speaking world, it was the General Theory that exposed the terminal flaws in the dominant theories of the day.

The emphasis of macroeconomic policy in the period immediately following the Second World War was to promote full employment. Inflation control was not considered a major issue even though it was one of the stated policy targets of most governments.

In this period, the memories of the Great Depression still exerted an influence on the constituencies that elected the politicians. The rising influence of Keynes’ group – in theoretical terms – explained that why full employment could be maintained with appropriate use of budget deficits. The large deficits during the prosecution of the war effort effectively ended the Great Depression.

The employment growth following the Great Depression really only accelerated with the onset of the War. All the orthodox neoclassical remedies that had been tried during the 1930s largely failed.

Following World War II, the problem that had to be addressed by governments was how to translate the full employed war economy with extensive civil controls and loss of liberty into a fully employed peacetime model.

The first major statement addressing this problem came in the form of William Beveridge’s (1944) Full Employment in a Free Society. This was consistent with the new Keynesian theoretical orthodoxy of the time, which saw unemployment as a systemic failure (a lack of effective demand) and moved the focus from the ascriptive characteristics of the unemployed themselves and the prevailing wage levels.

Beveridge (1944, 123-135) said:

The ultimate responsibility for seeing that outlay as a whole, taking public and private outlay together, is sufficient to set up a demand for all the labour seeking employment, must be taken by the State…

Macroeconomic theory demonstrated that fiscal and monetary policy instruments could be expected to impact on demand (spending) which in turn would generate a derived demand for workers.

Further, only the state had the capacity to intervene (with its policy tools) when private demand was insufficient to achieve full employment.

During this period, the emphasis was on jobs. Beveridge defined full employment as an excess of vacancies at living wages over unemployed persons.

Again, the late William Vickrey (1993) said:

I define genuine full employment as a situation where there are at least as many job openings as there are persons seeking employment, probably calling for a rate of unemployment, as currently measured, of between 1 and 2 percent.

These debates – as noted above – permeated the institutions of almost every nation and governments – informed by the macroeconomic theories of the academy set about achieving full employment.

The post WWII period was marked by governments maintaining levels of demand sufficient to ensure enough jobs were created to meet the demands of the labour force, given labour productivity growth.

Governments used a range of fiscal and monetary measures to stabilise the economy in the face of fluctuations in private sector spending. Unemployment rates were usually below 2 per cent throughout this period.

Economists did not think about full employment in this positive way for too long and instead shifted the focus to unemployment. Initially this involved a debate about what constituted the irreducible minimum rate of unemployment.

But soon the debate became tangled up in models of unemployment and inflation. In the 1950s, economists quickly shifted the focus and debated the magnitude of unemployment associated with full employment based on the notion that if unemployment was too low then inflation would occur.

This led to the so-called Phillips curve era which was marked by policy makers contriving to achieve a politically acceptable trade-off between inflation and unemployment.

The Phillips curve is “god-like” in economics and represents the relationship between unemployment and inflation as a smooth inverse curve. The underlying statistics that were used to get that curve (and since) are highly dubious.

However, in historical terms, fortuitous circumstances combined to keep unemployment low as governments still pursued high levels of effective demand. Policy departments – armed with all sorts of models from theoretical economists – worked on the “optimal” trade-off between the twin evils – unemployment and inflation. They overlaid what were called “social preference functions” designed to represent the way the citizens considered the trade-off, with the Phillips curve which was meant to illustrate the actual trade-off.

The tangency of these functions became the policy goal and the tools to achieve that goal were provided by the macroeconomic theorists.

But in the development of “ideas” (in macroeconomics) the focus had clearly changed from generating a given quantity of jobs. At this point, whether it was identified in this way or not, there was a recognition that a buffer stock was present.

In this case, the theorists were saying a nation can have lower unemployment (reducing the buffer stock of the unemployed) at the price of higher inflation. They argued that by manipulating the buffer stock of the unemployed a society could manipulate wage pressures and profit margin push and hence control inflation. There were major theoretical papers in this era to support this reasoning.

But it was clear that macroeconomic theory was positing that a buffer stock of unemployment was the way to control inflation.

So the Keynesian orthodoxy considered real output (income) and employment as being demand-determined in the short-run, with price inflation being explained by a negatively sloped Phillip’s curve (in both the short-run and the long-run).

Policy-makers were supposed to choose between alternative mixes of unemployment and inflation subject to a socially optimal level of unemployment and inflation.

Significantly, the concept of full employment gave way to the rate of unemployment that was politically acceptable in the light of some accompanying inflation rate. Full employment was no longer debated in terms of a number of jobs but a buffer stock of unemployed.

The next major “development” (if you can call some retrograde a development) was in fact a paradigm shift – the rise in importance of the Natural Rate Hypothesis.

The concept of full employment, in the sense outlined above, lost meaning with development of the so-called expectations-augmented Phillips curve of Friedman (1968) and Phelps (1967, 1968).

This model spearheaded the resurgence of pre-Keynesian macroeconomic thinking in the form of Monetarism. The embedded Natural Rate Hypothesis (NRH) outlined a natural rate of unemployment (NRU), where the inflation-unemployment trade-off was allegedly a trade-off between unemployment and unexpected inflation.

As workers gained more information the trade-off vanishes. At this point there is only one unemployment rate consistent with stable inflation – the Natural Rate.

Friedman (1968: 60) stated, “There is no long-run, stable trade-off between inflation and unemployment.”

These developments represented a major theoretical break from the previous versions of the Phillips curve. The pre-Monetarist Phillips curve models were based on a disequilibrium notion of the relationship between inflation and unemployment in that they modelled the adjustment of prices and wages to some labour market imbalance between supply and demand.

So rising excess supply in the labour market (that is, rising unemployment) caused the adjustment of prices to slow. The causality was from quantities to prices – that is, from the labour market disequilibrium to the price adjustment function. If unemployment is too low, the labour market will hot up and inflation will result.

There was also no presumption that full employment is inevitable or a tendency of a capitalist monetary economy.

The Friedman-Phelps story and the later developments under the rubric of rational expectations and the New Classical School are, instead, based on a market clearing relation and the causality is reversed.

So the natural tendency is for the economy to be at the natural rate (which they define as the full employment level) and at that state, unemployment is considered to be voluntary and the outcome of optimising choices by individuals between work (bad) and leisure (good).

Any deviations from this optimal level of unemployment are caused by errors in price expectations. The causality is thus reversed. If price inflation is stable then the economy will be at the natural level because all expectations of inflation are consistent with actual inflation.

Deviations are alleged to occur if the government tries to reduce unemployment below the natural rate by expanding demand (that is, behaving as in the past). This drives up prices but if workers temporarily confuse a rising in their money wages with a real wage rise they might supply more hours. On the other hand, firms knowing better that both prices and money wages have risen, will hire these extra workers because they also know the real wage has fallen.

So you might get temporary deviations from the natural rate but once workers find out the truth and withdraw their labour again back to a lower level consistent with the actual real wage (the price of leisure) then the economy reverts back to the natural rate of unemployment (and output) but has higher inflation.

Thus, in the natural rate world of Friedman and Phelps, the central bank can promote variations in the unemployment rate by introducing unforeseen changes in inflation, a temporary capacity allowed due to expectational inertia on behalf of the workers.

There is no theory in the natural rate hypothesis that changes in the unemployment rate cause changes in inflation.

Full employment is assumed to prevail (with unemployment at the natural rate) unless there are errors in interpreting price signals. The tendency is always to restore full employment by market mechanisms. There is no discretionary role for aggregate demand management.

This new thinking became dominant in the early to mid-1970s although it lacked any empirical support. As its dominance rose, any Keynesian remedies proposed to reduce unemployment were met with derision from the bulk of the profession who had embraced the NRH and its policy implications.

The NRH was now the characterisation of full employment and it was asserted that the economy would always tend back to a given NRU, no matter what had happened to the economy over the course of time. Time and the path the economy traced through time were thus irrelevant.

In the NRH, there is no discretionary role for aggregate demand management and only microeconomic changes can reduce the natural rate of unemployment. Accordingly, the policy debate became increasingly concentrated on deregulation, privatisation, and reductions in the provisions of the Welfare State with tight monetary and fiscal regimes instituted. High unemployment persisted. The fact that quits were strongly pro-cyclical made the natural rate hypothesis untenable.

So the Phillips curve trade-off was considered to be void. In the long-run (not defined) the dominant macroeconomic theory now said there was no trade-off.

The natural rate morphed in to the concept of the non-accelerating inflation rate of unemployment (NAIRU). Franco Modigliani and Lucas Papademos pioneered this terminology in 1975.

Lucas Papademos is now the unelected Prime Minister of Greece!

Their approach was in the Phillips mould in the sense that movements in the unemployment rate from some steady-state rate (defined in terms of the rate at which inflation was stable) would promote opposite movements in inflation.

Modigliani and Papademos (1975: 142) said a NAIRU existed, “such that, as long as unemployment is above it, inflation can be expected to decline”.

Various theoretical structures support this conclusion. It can arise in a simple excess demand model where wage pressure builds as the labour market tightens and the firms pass the rising costs on in the form of higher inflation. Marxist-inspired models where inflation arises due to incompatible claims on existing real income were also developed within this framework.

Whatever theoretical construct is used to underpin the model the conclusion from each is simple: there is only one cyclically-invariant unemployment rate associated with stable price inflation. The NAIRU concept has dominated macroeconomic policy making in most OECD countries since the late 1970s and the “fight-inflation-first” strategies have exacted a harsh toll in the form of persistently high unemployment and broader labour underutilisation. Under the sway of the NAIRU, policy makers around the World abandoned the pursuit of full employment as initially conceived.

While the theoretical additions of the NAIRU-NRH economists changed the way economists thought about policy choices this dominant theoretical model (the NAIRU) was still based on a “buffer stock” of unemployed being the essential component for price stability.

They defined full employment in terms of this buffer stock of unemployment. If you read this literature you will quickly realise that the neo-liberals define full employment as being the NAIRU which is divorced from any notion that there has to be enough jobs available to meet the desires of the available labour force.

So in one small change in taxonomy governments have been able to turn their failure to provide enough jobs into a success – well we are at full employment now because we are at the NAIRU.

There have been various theoretical challenges to this concept. I have devoted most of my academic career to researching and developing theory and practice to challenge what I consider to be a wasteful concept – the permanent maintenance of a buffer stock of unemployed to achieve price stability.

I won’t go into the body of literature that has exposed the theoretical and empirical flaws of the NAIRU concept. Please read my blog – The dreaded NAIRU is still about! and Lies, damned lies, and statistics – for more discussion on this point (which overlaps some of this discussion).

Even Franco Modigliani, who introduced the term NAIRU to the economics profession (Modigliani and Papademos, 1975), had cause for reflection in his later years. For example, in 2000 (‘Europe’s Economic Problems’, Carpe Oeconomiam Papers in Economics, 3rd Monetary and Finance Lecture, Freiburg, April 6) he said (page 3):

Unemployment is primarily due to lack of aggregate demand. This is mainly the outcome of erroneous macroeconomic policies… [the decisions of Central Banks] … inspired by an obsessive fear of inflation, … coupled with a benign neglect for unemployment … have resulted in systematically over tight monetary policy decisions, apparently based on an objectionable use of the so-called NAIRU approach. The contractive effects of these policies have been reinforced by common, very tight fiscal policies (emphasis in original)

Enter Modern Modern Theory (MMT) which like all “theoretical” approaches builds on past knowledge and work. It draws on a range of influences as I noted in my blog the other day – MMT is biased towards anti-crony. It is thus part of a long tradition which opposes an exclusive reliance on the free market and considers that aggregate demand has to be regulated by government intervention.

In part, this is a recognition of the unique characteristics that the government has as the issuer of the currency under monopoly conditions. I have written extensively about that for many years as have my colleagues. A good place to start is with the suite of blogs – Deficit spending 101 – Part 1 – Deficit spending 101 – Part 2 – Deficit spending 101 – Part 3.

But MMT deserves to be considered a “new” and unique development, notwithstanding the legacy it owes the past (like all “new” ideas). And part of that uniqueness relates to the way it brings together characteristics of the currency with the theoretical challenge to maintain macroeconomic efficiency, which for all time has been described in terms of full employment and price stability.

As we have learned the way that the efficiency point – that is, how full employment has been defined – has varied over as the different schools of thought have emerged and competed for dominance in the battle of ideas. But the characterisation of “efficiency” in broad terms has been a common element in the history of macroeconomic thought.

The early developers of MMT – again differentiating MMT from earlier Chartalist and “theories of state money” etc – spent a lot of time batting the ideas around ourselves – so much that we became staunch lifelong friends as well as colleagues.

I think the keynote speech at the CofFEE Conference earlier this month, my colleague Randy Wray where he traced the development of the ideas that now are referred to MMT and which dominate this blog and other blogs, provides an excellent historical account of how things started for MMT – who was involved and where the ideas came from.

It documents some of the academic papers and books since the 1990s that were the result of our individual and joint work, long before the popularity of the World Wide Web and blogs. Our audiences then were academic conferences, public forums and meetings, academic papers and Op Ed articles – in other words, a fairly limited space to throw these ideas around.

Also like Joseph Altman the concepts we were advancing were the anathema to the NAIRU-dominated, government-budget-constraint thinking that were “universally held and vigorously defended by the most powerful and leading” economists of our time.

One of the essential theoretical components of this work – was that used the fundamental monetary insights drawn from an understanding of how the currency was in fact a public monopoly where the monopolist could set the price to address the major constraints on activist fiscal policy posed by the NAIRU-NRH school.

That is, it directly challenged the dominant orthodoxy by proposing a way to achieve full employment with price stability. As Randy Wray noted in the speech referred to earlier MMT, in part, “turned the Phillips Curve on its head: unemployment and inflation do not represent a trade-off, rather, full employment and price stability go hand in hand”.

As I noted in the introduction, a complete macroeconomic framework has to address these issues. A theory of banking is not a macroeconomic theory. A theory of “state money” is not a macroeconomic theory in the way that that term is understood. Components are components of a whole.

One might not be very interested in the “Phillips curve” aspects of the theory and prefer to specialise in some component of the theory – such as, study how bank work etc. There is nothing wrong with that – our time and patience is limited after all.

But it still remains that the body of theoretical work now known as MMT does directly and intrinsically address the major macroeconomic debate about the trade-off between inflation and unemployment – which I would add – is still the dominant discussion around town anyway.

And the way MMT does that is intrinsic to the theoretical framework and logically consistent with it. It is crucial to understand that notions of price stability all have some buffer stock underpinning them. As noted above, the mainstream NAIRU theories deploy a buffer stock of unemployment to control price inflation.

Moralists might find this to be objectionable. I do! But that is a separate discussion of values.

As I noted in the blog – MMT is biased towards anti-crony – the theoretical offering that MMT provides – independent of whether its developers or anyone else likes or dislikes unemployment – is that if we are concerned about efficiency and price stability then there is a superior buffer stock available to a public currency issuing monopoly.

That is, if we really understand the way the currency works and the way the labour market works then we can have both full employment and price stability by using an employment buffer stock rather than an unemployed buffer stock.

Now you might still understand MMT and dislike the idea of an employment buffer stock. But then you would advocate less superior, more illiquid buffers compromising unemployment. You would not be able to argue from a theoretical perspective that you had challenged the mainstream claim that unemployment buffer stocks were TINA.

MMT can argue that because of the integration of a Job Guarantee into its macroeconomic framework.

Then you have a direct route into the current policy debate. The governments think that large deficits are bad so they spend on a quantity rule – that is, allocate $x billiion – which they think is politically acceptable. It may not bear any relation to what is required to address the existing spending gap.

MMT shows you how it is far better to conduct of fiscal policy by spending on a price rule. That is, the government just has to fix the price and “buy” whatever is available at that price to ensure price stability. But what is the price the government would be fixing?

Answer: the price it offers labour to enter the employment buffer stock – that is, the JG wage.

If you dispense with that part of the theoretical structure then you have limited capacity to challenge the orthodoxy.

Sure you can tell the mainstream that the government is not revenue-constrained and give them chapter and verse about monetary operations etc. And you would be correct. But then when they ask you how you achieve full employment under this model, what are you going to say?

MMT gives the powerful theoretical response to that question – when a government spends on a price rule (via an employment buffer stock) it can achieve full employment and price stability.

We have always referred to this full employment state as “loose” full employment.

In the face of wage-price pressures, the JG approach maintains inflation control by choking aggregate demand and inducing slack in the non-buffer stock sector. The slack does not reveal itself as unemployment, and in that sense the JG may be referred to as a “loose” full employment.

We have written extensively about the likelihood that an employment buffer stock will also only solve time-based underemployment but will not eliminate skills-based underemployment.

That is, some workers for short periods will be the JG pool but have high level skills that are beyond those required to do most JG jobs. These workers may choose what economists call “wait unemployment”.

In professional occupational markets, it is likely that some wait unemployment will remain. Skilled workers who are laid off are likely to receive payouts that forestall their need to get immediate work. They have a disincentive to immediately take a JG job, which is a low-wage and possibly stigmatized option. Wait unemployment disciplines wage demands in the skilled sectors of the economy.

The point is that these workers would always have the option to take a JG job.

But because it would be impossible to run a JG matching all the skills to jobs the employment buffer stock comprises “loose” full employment. We differentiate that from true full employment although in better times the gap between “loose” and “true” would be around zero.

I wont go into all the advantages of using an employment buffer stock over an unemployed buffer stock. They are many. Please read my blogs under the – Job Guarantee – for more discussion on this point. If you want deeper, more technical discussions you can read our academic work – search for Mosler, Wray, Bell (Kelton), Fullwiler, Tcherneva, Forstater and Mitchell as authors.

So in a fiat monetary system, price stability is maximised using employment buffers rather than unemployment buffers.

That insight is an essential part of the body of work that has become known as MMT and is an essential part of the understanding of how monetary systems operate and deliver macroeconomic outcomes.

There are those who might consider that the MMT proposal that national governments should first bolt down the nominal anchor via an employment buffer stock amounts to a disagreement with Post Keynesian policies of public infrastructure investment, which I referred to as “generalised expansion” in Wednesday’s blog.

Some might even think that the proposal to introduce an employment buffer stock amounts to a preference for “small government” in the Hayekian tradition.

None of these views would be correct.

What we argue is that to turn the Phillips curve on its head – and thus thwart the use of unemployment to control inflation – you need a different nominal anchor. Generalised expansion does not provide that.

Once you have that anchor in place then your ideological preferences will determine what other public spending you might entertain within the capacity of the economy to embrace further nominal demand expansion.

As I have said in the past I favour strong public sectors with lots of investment in first-class infrastructure to advance the prosperity and well-being of the citizens. Others, who consider MMT to be a valuable contribution (that is, get it) may have different preferences.

My JG pool would be small (but sufficient for the purpose as a nominal anchor) others might have a larger JG pool and less public sector spending elsewhere.

But the essential point is that independent of our preferences with respect to the size of government we would maintain an effective and highly liquid employment buffer.

Conclusion

In terms of the Job Guarantee – my ideological preference is not to have such a capacity. I would prefer everyone to be gainfully employed doing what they love and earning the best wages they could.

But my understanding of fiat monetary systems tells me that unless we have firm price controls (which inevitably fail) and/or total state control then fluctuations in private investment will generate inflationary pressures if the government is to use its fiscal capacity to maintain full employment at all times.

I accept the macroeconomic concepts of full employment and price stability as being desirable goals and the way for the economy to achieve public purpose – advance the prosperity and well-being of its citizens.

So based on the body of work that has become known as MMT we understand that a buffer stock of some sort will be used to ensure inflation control. The question becomes what is the “best” buffer stock to employ. MMT demonstrates clearly that it is the employment buffer option that is superior.

Further, no-one owns a school of thought. My work is my work and I respect the work of my other colleagues and enjoy learning from them. It is clear that there is a strong consensus among the “1990s” MMT clan. What others think and write about in their own spaces is for them to argue and justify.

If you want to propose a coherent body of macroeconomic thought then you have to address the key questions of full employment and price stability.

Within that, there is always a moving feast of ideas. But which buffer stock one proposes in terms of the history of macroeconomic ideas over the last 80 years or so certainly reflects which school of thought one’s ideas are associated with.

Finally, it is far-fetched to suggest that a JG is a descent into socialist or communist state control. Is the massive and expanding US military a sign that the US is heading down the socialist road? Is the entire public service workforce and example of socialist domination?

The introduction of the JG alters no property relations although it might just allow some very disadvantaged workers to keep the title to their own home in bad times! Further, the JG would be a buffer stock that the private sector would have total control over. If they didn’t like it they could simply eliminate it. How? Increase spending and expand private employment.

I have never heard of a socialist state where the expansion of private spending eliminates it.

Saturday Quiz

Tomorrow, you will get your last chance at the big 5/5 for 2011. Yes the End of the Year Saturday Quiz will be back – as undergraduate as ever. I hope it is a bit of fun for all as well as a challenge.

And … happy new year to everyone – I trust we all become happier although I doubt that will happen given the contribution that my profession is playing – for example – Greek economic crisis turns tragic for children abandoned by their families.

That is enough for today!

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This Post Has 89 Comments

  2. Such a clear full explanation, hope John Carney be capable of understanding it… and most of our politicians and economysts. But sure plain street people will get hold of this first, just because we are who most would benefit from successfully testing MMT theories and JG employment buffer. Then we’ll have to force politicians to conduct the full scale test in our own cuentries.

  3. The point of the JG is to create price stability in a potentially inflationary system. But price stability only becomes an issue if there is an expanding stock of net financial assets. The C19th gold standard era showed that trending long term inflation can be avoided by having a relatively fixed stock of net financial assets. The terrible waste that typically comes from such a system is because leakage to savings can not be offset by government deficits. That leads to unemployment.
    The point of deficits is supposidly to fill the void left by that leakage to savings, create spending and so create employment.
    I’m just doubting whether asset taxes act like other taxes in terms of reducing private spending. If asset taxes do not reduce private spending, then the argument for deficits is gone. So balancing government spending with an asset tax is a balanced budget way to get as much employment as any MMT proposal could hope for.
    Some people’s spending is limited by how much income they get and how much they pay in servicing debt. If the government takes money from such people by taxation then that shrinks the economy. If you look at the distribution of wealth then clearly much of it is held by people who have a growing surplus. Taxing that growing surplus will not reduce spending and so will not limit employment. Government spending ultimately filters through the system and finally comes to rest as asset prices. If tax is directed only at that end point then the cycle is complete and can continue in equilibrium. Our current problem is because taxation is not limited to that end point. So the flow of value piles up into higher asset values whilst diversions from transaction taxes etc cause unemployment.
    The entire tax burden would have to be in the form of an asset tax on all assets held by any citizen where ever in the world they were held in what ever form irrespective of where the citizen was resident. Financial assets would also need to be subject to the same flat % asset tax by the issuing nation irrespective of whether they were held by foreigners. That would ensure that financial assets held by trade surplus nations were similarly recycled back into the economy of the trade deficit nation.

  4. Dear Bill,

    First of all, on a related subject, do you happen to have written any articles on the 70’s stagflation? Personally, i ‘ve had to debate the issue (seen by others as a failure of Keynesian economics) many times and i would appreciate any insight.

    It is my understanding that the JG places a floor on the price of labor. Unless the jobs provided are extremely labor-intensive i sense that there is a disconnect between labor and capital. Involuntary unemployment definitely means that there are idle labor resources, but that does not mean that capital and capital producing resources are equally idle in every sector of the economy and every part of the country. How does a JG scheme deal with micro-economic capital limitations in specific labor sectors or parts of a country? One could easily support that such limitations could create inflationary pressures, especially with a large enough unemployed persons pool.

    For instance in Greece we have large seasonal unemployment in most of the tourist islands during the winter. How could the state provide a temporary job/income for all these unemployed people while facing actual limitations (due to both the island’s available idle capital resources and the labor available skills)?

    Thank you for your insight and have a happy new year.

  5. The JG might work well as a buffer stock to provide consumer and wage price stability but I can’t see how it could ensure asset price stability. Unless there is asset price stability, the FIRE sector will expand inexoribly. That will divert much needed talent and resources from the real economy. The MMT system would depend on a cat and mouse chase between regulators and financial inovators. I fear that with unrestrained growth in the stock of government debt (ie private sector savings held by banks and high net worth individuals), any attempts at financial regulation will be overwhelmed by the shear financial imperative of getting a return on those trillions of $.

  6. Bill, You claim that the idea that “there is no discretionary role for aggregate demand management . . . became dominant in the early to mid-1970s”. My answer to that is: “What about Barber’s boom in the early 70s?” Anthony Barber was the UK’s finance minister who implemented a sharp rise in demand in the early 70s, and then realised he had gone too far, and cut demand back a year or two later. He was obviously into demand management big time.

    Thus the “no role for demand management” idea might have been dominant in academic circles, but it clearly was not dominant in political circles in the UK.

    Re the NAIRU versus Phillips Curve versus “natural rate” argument, I’ve always found this to be utterly yawn provoking. But I realize this trifling question has kept hundreds of academics employed at the taxpayer’s expense over the years.

    As to the idea that at NAIRU, all unemployment is voluntary, I quite agree: that idea is nonsense. A significant proportion of so called unemployment is clearly voluntary (people turning down jobs they could easily do), but obviously not ALL unemployment is voluntary.

    As to whether JG / WPA is a separate idea to MMT, I still think the two ideas are independent. To illustrate, one could perfectly well implement a large scale JG / WPA system alongside traditional Keynsian demand management system, rather than alongside an “Abba Lerner / MMT” demand management system. That’s roughly speaking what they did in the US in the 1930s.(Not that there is much difference between traditional Keynsian ideas and the “Abba Lerner / MMT” variation on Keynes’s ideas.)

  7. I’m just trying to trace out how the JG would ensure price stability. The JG wage presumably would be only allowed to slowly increase as the years passed. Imagine it was $10k per year now and then we roll forward to 2020; in 2020 perhaps robotics and offshoring etc will mean that 50% of the population will be on the JG. The other 50% of the population may be very well paid. They might only produce enough essential supplies to cover the requirements of that 50% of the population. The rest of the efforts of the private sector could be dirrected towards luxuries. The private sector workers might all earn >$500k per year. How is the unaffordability of essential supplies for the JG workers going to increase supply? That would require profitable production of luxuries for the private sector to be abandoned in order to supply the impoverished JG workers.

  8. Further to what I wrote above, I can see that (unskilled) private sector wages might be restrained by a buffer stock of JG workers BUT investment income etc could make all the difference. A class with rentier income could swamp the price control. Perhaps to get a job you would need an expensive education etc. As soon as there was any lack of equivalence between the JG workforce and the private sector workforce, the price stability mechanism would break down.

  10. I could say I understood the employment buffer. But I don’t even understand the unemployment buffer, or buffers in general. The NAIRU was something I never really understood.

  11. ‘ a “buffer stock” of unemployed being the essential component for price stability.’

    Reminds me of the Marxist idea of “reserve army of labour” aka the unemployed.

    Can’t say I understand all of this stuff (why is economics so jargon-filled and full of obtuse and abstruse notions?) It certainly is the dismal science. My god.

  12. My mind boggles at the thought of a government trying to administer a job guarantee. The U.S. has many millions of citizens out of work at the moment. As a practical measure, how is the government supposed to administer that, especially since the number would presumably fluctuate all the time as people move in and out. So, it would be difficult to manage any projects. My puny brain can think of a number of jobs that would be suitable for the JG program. The ideal job would be one in which the number of jobs would fluctuate along with the size of the program: child care worker for other JG participants’ kids, JG program administrator, and so on. But what about jobs that don’t adjust with the program? Construction project are sometimes mentioned as good candidates for JG workers. Can you really have construction projects waiting around for unemployment to rise, and then lay dormant when the JG workers leave for their ‘real’ jobs? I suppose it would help if most citizens had a JG-suitable job. So a programmer or automobile worker would also be qualified as bricklayers or carpenters, so that when they lost their ‘real’ job they could do something productive in the JG. But what about the people whose profession is bricklaying or carpentry? Are there really millions of JG jobs which don’t displace someone else? Say there’s a recession in the construction industry and tens of thousands of workers in the construction trades are out of work. Are they supposed to be hired by the government for a JG wage which is presumably below their normal wage? The devil’s in the details!

  13. Randall Wray says, “The disease is money manager capitalism”. Isn’t that an inevitable consequence of having so much government debt (ie private sector net financial assets)? The task of money managers is just so much bigger. They have so much more at stake relative to the size of the real economy. No wonder they take over.

  14. “My mind boggles at the thought of a government trying to administer a job guarantee”

    Like Warren said. What they are trying to do now is next to impossible to get right even though it has the added bonus of mass unemployment with all the joy that goes with that.
    Happy New year !

  15. Very nice, Bill!

    To re-emphasize . . .

    You are either in favor of an employed buffer stock or not. If the latter, you are in favor of an unemployed buffer stock–note that believing inflation doesn’t become an issue until productive capacity is reached (as MMT supporters of every stripe appear to believe) is inherently implicating a buffer stock of one or the other variety. There is no way around being in favor of one over the other.

    And if you are in favor of an unemployed buffer stock, then you are also implicitly in favor of all the additional social and economic costs that come from involuntary unemployment relative to an employed buffer stock. As Bill has shown in earlier research, virtually every social problem has a a statistically significant relation to involuntary unemployment–crime, child/spouse abuse, divorce, poverty, poor physical and mental health, malnutrition, lower educational attainment, and so on. And because government’s invariably end up spending more in an attempt to alleviate these problems (via spending on welfare, unemployment benefits, the courts system, special education programs, healthcare for the poor, crime prevention, incarceration, and so forth), you are also in favor implicitly of such spending relative to what it would be under a job guarantee. And because such spending uses real resources, you are also in favor of whatever additional taxes are necessary to avoid inflationary impacts of such spending relative to what there would be with an employed buffer stock. And because any cost benefit analysis incorporating all of this in addition to whatever macro benefits there would be to an employed buffer stock, it’s conceivable that a well-conceived employed buffer stock can accompany a smaller govt and lower taxes than pursuing the same macro goals using an unemployed buffer stock. And so the argument that somehow the employed buffer stock necessarily requires “more govt” falls flat–it does not. And for the same goals and orientation of macro policy, it could very well require less.

    It is certainly the case that a well-run employed buffer stock would be an enormous undertaking, and that is a valid cause for some to have their reservations. But it must also be recognized that the opportunity cost of the employed buffer stock is not private sector employment and productivity, but rather involuntary unemployment and all the social and economic costs that come with it. And if it is determined that an employed buffer stock is desirable, then it is possible to carefully study and prepare for such a program (however imperfect given political realities, etc.) as with Bill’s 300 page study and numerous others. There have been large and complex government programs before–military, infrastructure, etc.–given the political will. And regarding the latter, it is rather odd for an MMT supporter to suddenly worry about current political realities of MMT policy proposals. Certainly the employed buffer stock, at least in the US, has many more political obstacles in front of it than understanding how the monetary system works at the current time, but it’s generally been accepted by MMT supporters that the latter is a long way off, too.

    In short, this is not to “ram” the JG down anyone’s throat. It is simply to encourage clearer thinking about what an employed buffer stock is, and what one who is against the buffer stock is inherently in favor of. The majority of arguments against the JG cropping up recently (Carney’s is a classic example) are simply ideological and don’t contribute anything to discussion (seriously–I haven’t heard even one argument against the JG on the blogs that I didn’t hear dozens of times the past 15 years from academics). I would be interested in seeing those against the JG address why they believe an unemployed buffer stock is superior–MMT economists in favor of the JG are not infallible and we don’t presume to have all the answers or to have thought of every possible continencies, but without such explication, those in favor of an unemployed buffer stock aren’t actually making a coherent argument to support their difficulties accepting an employed buffer stock.

    Best wishes and happy new year to everyone (and happy birthday to my daughter, who turns 5 today–not that she’s reading this!),
    Scott

  16. Bill,

    This is a really excellent post.

    As a non-economist (but very avid amateur) I always appreciate the explanation of the theoretical constructs used in macroeconomics. I am of course familiar with them (which is why I read your blogs as well as many other macro blogs), but I really enjoy and appreciate how you continue to put these ideas into a coherent form that non-economists can follow and understand. This is also very true of the historical context of these ideas and how different economic schools have tackled them in the past (and how we have the current mess). I really do appreciate the historical perspective you constantly provide.

    Getting to the meat of the subject, I very much agree with your position. It took me awhile to get there, but several of your posts (not just this one, although I think this post really is very successful and timely in bringing these ideas together) talk about the JG, NAIRU, employment, buffer stocks and price stability. And they are always couched in terms of a coherent macroeconomic framework. Once you realize that a sovereign fiat currency issuer is not revenue constrained, then it always has the tools to balance general price levels. That it can adjust its net spending position in response to the net spending positions of the private domestic sectors and foreign sectors. And like you state, this can be done in the context of an unemployed buffer stock or an employed buffer stock. And the employed buffer stock will act as as 1) a wage floor, 2) nominal price anchor, and 3) achieve the stated policy goal of full employment.

    My original draw to MMT was to find an economic theory that actually understood how the macroeconomy works, because it was clear that mainstream economic theories had failed dismally. But I originally thought of the JG as an ‘add-on’ that I wasn’t really ‘sold’ on. But in reading your and Prof. Wray’s and others work on the JG, and how it fits in context with macroeconomic policy goals, I agree with you that it is superior to have an employed buffer stock vs. an unemployed buffer stock. I also agree that there is significant useful and productive work that can be done with a JG program, that when couched in terms of a Federally funded job, but localities choose where to usefully employ people than specific local needs (conservation, environmental, infrastructure, etc.) could be addressed. This is compelling.

    While there are many ways a JG can be implemented, and whether it is in the context of a larger or small government framework (all of which would be based on political decisions), it is clear that the the operational insights from MMT regarding sovereign money creations and banking operations and the prescriptive insights that call for price stability (via spending on price, not quantity) allow for macroeconomic goals to be fully realized. As such, the JG is a vital part of MMT.

    Thank you very much for your work, it is very much appreciated.

  17. Happy New Year Bill!

    Given that all macroeconomic theories require an “anchor” for inflation of some sort – Bill’s recognition that the JG anchor is superior to the existing army (buffer stock) of unemployed persons, seems correct to me. This is because it prevents basic skills, motivation from deteriorating, and it does this partly through training and keeping the structure in peoples’ lives. It could also include training in higher quality skills alongside part-time work where this is appropriate for the individual.

  18. GaryD,
    “The U.S. has many millions of citizens out of work at the moment.”

    I don’t think MMT is proposing that the ONLY way to deduce unemployment is through JG. Bill and others also say fiscal stimulus with good spending multipliers is also necessary. JG only takes the part of reducing unemployment that would be normally considered infaltionary – clearly unemployment in the US is way above that level, so stimulus would also be needed.

  19. Don’t any of you acknowledge that if there wasn’t growth in net financial assets, then long term inflation couldn’t occur? This idea of their just being a two way choice of either unemployment or JG only comes about because of being wedded to not having taxation as an asset tax and so needing deficit spending to counteract leakage to savings.

  20. Stone,

    You’re missing the point. Regardless of what you do with NFA, there will be some without pvt sector jobs that want them–the pvt sector has a financial constraint and so can’t hire everyone just to do it, and it doesn’t create jobs for the very bottom of the labor pool (as Randy documented in the 1990s). No matter how much you increase NFA, if you don’t target theiir employment directly, some will remain without jobs. Given that, each person must decide whether they are in favor of employing them or leaving them unemployed as a matter of policy.

    Now, we obvioulsy favor countercylically altering NFA to enable price stability and reduce fluctuations in pvt sector capacity utilization. The point here is whether that countercyclical fluctuation in NFA should target an employed buffer stock or an unemployed buffer stock for these purposes. There are no other choices.

  21. Follow up for Stone,

    “This idea of their just being a two way choice of either unemployment or JG only comes about because of being wedded to not having taxation as an asset tax and so needing deficit spending to counteract leakage to savings.”

    I don’t know what you’re talking about there. We have repeatedly said our preferred tax is a property tax on cubic feet of living space. Property is an asset as far as I know. 🙂

    Again, though, with any sort of asset tax to counter saving leakages, once your asset tax has eliminated the saving leakage you will end up with a pool of individuals without private sector employment, and your choice then is to leave them unemployed are employ them directly. The latter does not add to inflation because (a) it’s a fixed wage, and (b) the NFA created from doing so fluctuates countercyclically (so it is decreasing and thus reducing NFA toward its smallest value precisely when the pvt sector is doing the most hiring).

    Best,
    Scott

  22. Scott, if the NFA were not growing then a citizens’ dividend system would not be inflationary. With a citizens’ dividend people would have the financial freedom to start up their own businesses or look after children or whatever. That financial freedom would be a buffer stock. People would work as much as there was real profitable work to entice them away from their own enterprises.

  24. Scott, thanks for fielding all these queries of mine!
    I was meaning a flat % asset tax applied equaly to all assets so ineffect a decay in the value of all asset values (cash, bonds, stocks, land, collectables). That would ensure that full economic use was made of all capital so as to gain the income required to pay the asset tax. With all of the tax burden in that form I think leakage to savings would no longer be an issue and a citizen’s dividend could provide everyone with financial freedom to start job creating enterprises or do whatever they wanted.

  25. Scott, I think wikipeadia says citizens dividend, basic income guarentee, negative income tax are all synonyms.

  26. GaryD above correctly identifies a couple of the problems with JG if JG takes the form of specially set up JG schemes, as distinct from subsidising the unemployed into work with existing employers.

    1. Re the “fluctuation” he refers to (his 3rd line), this fluctuation would certainly occur with specially set up schemes. I.e. if unemployment falls by X%, then the number of people on each JG scheme would fall by roughly the same amount. On the other hand with the existing employer option, the fall is negligible or non-existent.

    2. Re the construction projects to which Gary refers, construction or infrastructure has always been a favourite with JG / WPA enthusiasts. And the WPA in the l930s was heavily weighted towards construction. This sudden expansion of construction work in a recession is obviously inefficient.

    But the solution to this inefficiency is easy: allocate the unemployed to as large a selection of employers and sectors of the economy as possible, which is what you get with the “existing employer” option.

    I met a part qualified and unemployed lawyer over Xmas who said she’d offered to work for a London law firm for nothing. The firm said they’d be delighted to employ her, but for some rule or regulation (minimum wage law, probably). I nearly tore my hair out: that’s an absurd waste of skilled labour. If we had a system under which government paid her wage (for a limited period) she’d have been employed for a few months.

    A part qualified lawyer looking for work experience is not of course a typical member of the dole queue. Nevertheless a system under which the unemployed can get temporary subsidised jobs with existing employers should be feasible.

  27. Stone,

    I would argue two things–

    1. I don’t think a tax that gets assets to decay in value will encourage spending. This is the montarist view of excess cash balances. If you make the value of my retirement portfolio decay, I just need to save that much more to enjoy the same quality retirement as without the tax.

    2. MMT’ers have written a lot about the BIG (see Pavlina Tcherneva at CFEPS.org and perhaps Levy). There are many that favor this. We prefer requiring work to simply guaranteeing income, and certainly to redistributing income, though we aren’t against progressive taxation per se (as in the property tax proposal).

    Best,
    Scott

  29. Scott, I think so long as the real return on savings is counteracted by an asset tax, then net saving across the economy will be avoided. People will save for retirement and then draw down the savings during retirement. Our problem now is that savings earn an above tax return and that leads to accumulations of wealth that inevitably mean net saving on a macro level. That net saving is what requires the deficits to counter it. The problem is that increasing deficits so as to accomodate net saving desires simply provides fuel for the deficit harvesting financial apperatus.

  30. What if the economy imports a ton of energy at externally-set prices? You have on one side a rising cost component, on the other side the government firmly pays the same amount for the JG, so “stabilizes prices”.

    What would the result be? This economy would be priced out of the international energy market? Or JG wage would have to be raised? (in what sense is it an anchor, then?)

  31. Scott, Isn’t it true that the bulk of the “saving” done in the economy is not what could be called “discretionary saving” (ie people saving for retirement)? Instead it is growing value of asset holdings by very high net worth people. If someone has millions of dollars in annual returns from asset holdings, then they don’t decide to save more to compensate for an asset tax.

  32. “And the WPA in the l930s was heavily weighted towards construction. ”

    That’s probably because it was largely heavy manual labour at the time and therefore offered scope for employment.

    Perhaps we should take the Japanese approach and deploy the people to smile and say ‘hello’ when they walk into a shop.

  33. “I met a part qualified and unemployed lawyer over Xmas who said she’d offered to work for a London law firm for nothing. The firm said they’d be delighted to employ her, but for some rule or regulation (minimum wage law, probably). I nearly tore my hair out: that’s an absurd waste of skilled labour.”

    It’s not an absurd waste if it avoided some crowding out. An unpaid lawyer can take the work of a paid one if there is insufficient work. Capitalists will allocate the work to the lowest cost unit.

    To make that work properly you would have to subsidise the wages of everybody all the way up the tree.

    Additionally you need the alternative of a Job Guarantee job available so that people always have the option of saying ‘no’ to a job offered and doing something else instead. That way the minimum standard of job is maintained in society and the increase in slave labour terms we have seen recently is reversed.

    JG is not just a price anchor. It sets the minimum acceptable standard for work in society and thus anchors everything else we consider to be decent about the workplace.

  34. “Perhaps we should take the Japanese approach and deploy the people to smile and say ‘hello’ when they walk into a shop”

    To me that shows disrespect for the value of those people’s time.

  35. Can someone counter Carney’s point on inflation? If we create all of these new jobs with people consuming more goods and services then isn’t inflation inevitable? These are new people driving to work, using gasoline, etc, etc. So they get jobs and an increased living standard and the rest of us get to pay more for gas. How is that a win for society as a whole?

  36. Do the idle rich suffer from the same social pathologies as the unemployed? My guess is no. The problem isn’t unemployment, it’s a lack of money.

    Whether a job guarantee is superior to just giving people money depends on how productive the workers are in the JG program. If productivity is low, then you aren’t really gaining anything, except a disincentive to be unemployed. An alternative would be to offer money in exchange for painful electric shocks.

  37. Max, I suspect that just giving people money irrespective of whether they earned on top of that would actually free people up to create genuine productive jobs for themselves and other people. I think the root problem with our economic system is that it does not fully tap into every individual’s ingenuity and knowledge of what that individual wants from life. The only way to do that is to fully disperse financial power. A citizen’s dividend fully disperses financial power. IMO a JG hands a conscript army over to JG administrators. Some of those administrators may be OK but many will be petty, unpleasant people who relish being able to dictate over other people’s lives and squander their time.

  38. «Can someone counter Carney’s point on inflation? If we create all of these new jobs with people consuming more goods and services then isn’t inflation inevitable? These are new people driving to work, using gasoline, etc, etc. So they get jobs and an increased living standard and the rest of us get to pay more for gas. How is that a win for society as a whole?»
    I think the trick is that a job guarantee involves people working – aka, producing themselves too; which is a major improvement over minimum income, in which people receive and consume without producing nothing. The former should be much less inflationary than the latter.

    But that is just me, I don’t get either of the buffer things 😛

  39. @ Talvez,

    Sure, but what are they producing? This seems like a crucial point. Are they picking up trash in parks? Because I don’t want to pay more for gasoline so that there are fewer cigarette butts in central park. This is a pretty important point that MMTers seem to gloss over. The trade-off between inflation and output matters with regards to the JG. I don’t want 5% of the population to experience a better living standard so that the other 95% can see a reduced living standard.

  40. “If you want deeper, more technical discussions you can read our academic work – search for Mosler, Wray, Bell (Kelton), Fulwiller, Tcherneva, Forstater and Mitchell as authors.”

    You can search, but it could be a while before you find Scott there.

    🙂

  41. Bill,

    I appreciate your argumentation and in my view, your work (in terms of JG and labour market) is important. I’ve read the discussion on PragCap, and Carney’s articles, and let me tell you that I appreciate the claim that the JG isn’t a component that someone could avoid talking about MMT. Often I read people claiming that many components of the MMT framework aren’t MMT original stuff (say, chartalism, sectoral balances, stock-flow consistency etc) but they forget often JG, and they seem to be confused when someone says that MMT isn’t only a description of the monetary system (because otherwise, people like Lavoie, Rochon, Rossi and many others like Bindseil would be MMT).

    But what really confuses me is the way they take the idea that a theoretical framework could not be neutral. To be honest, I think that every theory or model in a social science (in this case economics, or macroeconomics), is never neutral. In my view when people confuse a model for a neutral idea (ok probably some claims in the past by MMTers are about the “universal” MMT) make the same typical error made by the neoliberal, that consider themselves “at the service of the science”. When Sargent claims that “Europe’s generous unemployment compensation system has made an important contribution to sustained high European unemployment” isn’t neutral, or isn’t at the service of the social science called economics, he is only one that doesn’t understand what “to be unemployed” means. Anyway I think that many models and theories built by neoliberals could be refuted with a simple opinion poll (theories like rational expectations, ricardian equivalence, transmission mechanism of monetary policy etc).

    I live in Italy and I see everyday the particular stock of theories built by neoliberals and I see unemployment rising and the consequences of that. A study made by the local government estimates that between now and 2060, 300 thousands people will leave the island (I live in a island called Sardinia). The most populated city has a population of 250 thousands. And the main problem is: to find a job.

    So what’s the problem with political aspects? And why people want to analyse the JG programme only in terms of “lack of productivity”, “a world without losers and winners” (that is, a world where work in itself isn’t the ultimate aim of life)? Take the example of Fiat in Italy, why a person like Sergio Marchionne should have the power to decide the life of thousands of people? There is really a lack of logic. My logic is that if Marchionne wants to relocate, he can do that, but in no way he can decide the life of thousands of people that want to work. What does he mean “lack of productivity” in this case? We can consider an acceptable job, what italian Fiat workers do now, in other words, to build cars that no one buy? Well, if we consider the “lack of productivity” logic, it is an acceptable job because it’s the private sector that is hiring workers, not the State (and a lot of data confirm that the State is less efficient!). And there are a lot of examples of productivity spent in something that isn’t really essential.

    Anyway, thanks a lot. In my view, JG, presented in this way, is essential. If someone wants to understand monetary system could read a lot of post-keynes papers, or, at least, central banks documents.

  43. “Because I don’t want to pay more for gasoline so that there are fewer cigarette butts in central park.”

    Right. So you want somebody else in your economy to suffer the effects of poverty and possibly die young so that you can have cheaper gasoline.

    ISTR a similar argument put forward about the abolition of slavery. And the introduction of the minimum wage.

    Isn’t that the attitude of the 1%. What happens when they decide it is you who is to be introduced into the ways of poverty and slavery so that they can have more fuel for their Leah Jets?

    We all stand on the shoulders of others, and we are all diminished when others suffer because of our actions.

    Anyway:

    Firstly if prices increase on any item, the incentive to supply that item increases. Everything can quantity expand – more oil can be produced and more refined to handle the increased demand.

    Secondly if these effect are real (I believe they are known as Cantillion Effects) then they would apply equally to private sector expansion. And that means that we should ban anybody going to a bank to borrow money to invest in a business – since that would increase the price of gasoline.

  44. Neil Wilson, if oil was equally affordable/unaffordable for all 7bn people on Earth, then wouldn’t that cause development of alternative energy to be profitable? Developing alternative energy is just an issue of allocating the man-hours. Man-hours are the one thing that it is impossible to store up for the future. Any man-hours left unused are lost forever. Austerity just prices some people out of being able to aford oil untill it runs out and we have no alternative energy. Leveling of global wealth so that oil is equally unaffordable for everyone will ensure that we get busy getting the alternatives up and running.

  45. Hungary adopts public works progam: http://www.bbc.co.uk/news/world-europe-16309078
    – Wage below minimum wage but more than unemployment benefits
    – No Job Guarantee: does not offer a job to anyone who is willing and able to work
    – Coercion: work or starve attitude. Anyone refusing to work or gets fired from the program loses his unemployment benefits

  46. Neil, My answer to your crowding out point is thus.

    The barrier to raising aggregate demand is concern about inflation, although gauging the actual level of employment at which inflation really is a threat is always difficult.

    Anyway, where unemployment is at what Bill calls the “inflation barrier” level (or NAIRU if you like), the key problem is shortage of suitable or skilled labour. And that induces employers (ably assisted by trade unions) to bid up the price of labour, which equals inflation.

    However that problem can be ameliorated if employers are induced to take on relatively UNSUITABLE labour, which is what my “lawyer subsidy” would do. Result: the inflation threat recedes, which facilitates a rise in demand, which means the trainee lawyer is likely to be a NET ADDITION to the workforce, rather than someone who replaces other lawyers.

    As to how to ensure employers claim the subsidy ONLY in respect of the least productive employees, that’s easily done: just limit the duration of the subsidy for each individual. If the employee is GENUINELY not too productive, the employer will be happy to let them go on expiration of the subsidy. If not, the employer will be bluffed into paying the full wage.

    Re using JG to enforce minimum standards, minimum wage laws can do this job. Though there is not necessarily any harm in using JG as a backup.

  47. Ralph, wouldn’t that just induce employers to churn the workforce over so as to harvest the subsidies?

  48. One reason to be against JG is that we don’t really need more production/consumption. We are way past the point, in the developed world at least, that we need to provide basic living necessities of life. If one looks at purchasing power and hours worked as a different sides of the same coin, it is hard to understand why economists are so obsessed with maximising this variable. Maybe it is because they live bit like rentiers: others produce all goods and services while they do easy teaching jobs, or some paper suffling. It is always in the rentiers interest to get laborers to toil away maximum hours because they don’t have to do the effort but get to enjoy benefits.

    But seriously, it’s not that we do not produce enought to keep us fed and clothed and happy; but that work-hours are so unevenly distributed. And think about our planet, think about our environment, think about climate change. Isn’t it high time that we tone our activities down?

    There are studies how different income levels correlate with happiness. After certain treshold increased income levels just don’t cause happiness to increase. I bet people would be more happy with more free time.

    It is this single-minded idiosyncretic production maximization thinking of economists that is destroying our environment, future and happiness all at the same time!

  49. PZ, that’s why I think an asset tax/citzens dividend combination would ensure that only as much work was done as actually needed to get done to meet what people actually wanted.

  50. Neil,

    “Right. So you want somebody else in your economy to suffer the effects of poverty and possibly die young so that you can have cheaper gasoline.”

    That’s a little dramatic. The mass unemployment is not because we don’t have enough government in our world. It is obviously because we don’t have enough private sector employment. MMT shows us that the government can help maximize private sector prosperity due to its monopoly on the currency. But this doesn’t mean they need to do so by hiring everyone in the world.

    PZ’s point is interesting here because it shows how the mind of an economist works. They think – this variable needs to be increased so since this entity can fix that then abracadabra – full employment. We all know the government can theoretically employ the whole world. But that doesn’t mean they should. MMTers are incredibly flippant about this idea because they see “full employment” and “price stability” as being equivalent to prosperity. But what if, as we’ve seen in Japan for the last 20 years, price stability and full employment really aren’t that great?????

  51. “But what if, as we’ve seen in Japan for the last 20 years, price stability and full employment really aren’t that great?????”

    Is there something wrong with Japan?

  52. “But what if, as we’ve seen in Japan for the last 20 years, price stability and full employment really aren’t that great?????”

    Japan doesn’t have full employment.

  53. “Isn’t it high time that we tone our activities down?”

    What are they going to do instead? Baring in mind that, in the words of Mrs Doyle, ‘some of us like drudgery’.

    The mental and physical health of the newly retired in the newly alienated world they inhabit suggests that we need to tone our activities up.

  54. Uh, Japan has had an avg unemployment rate of 3.5% since 1990. It’s currently 4.5%. Those are enviable numbers by economist’s standards. So MMTers use Japan to prove their theories when it’s convenient, but ignore it when they claim it doesn’t.

  55. “Ralph, wouldn’t that just induce employers to churn the workforce over so as to harvest the subsidies?”

    It would. All the ideas with clawbacks or time limits on subsidy fail because of that. It is an unnecessary complication that causes emergent behaviour.

    Tax credits suffer from the same problem. You get churn due to the high marginal tax rates in the clawback period. People start work, can’t understand why they don’t have any extra money and then stop again.

    I don’t understand persisting with a clawback when the straightforward solution of making the payment universal solves the issue completely without any unnecessary distortion to the market.

  56. “Re using JG to enforce minimum standards, minimum wage laws can do this job.”

    No they can’t and they don’t – hence the number of poor quality minimum wage jobs in existence. People need to have an alternative they can go to and employers need to know that they have an alternative to go to. There always needs to be more jobs available than people to fill them, so that the competitive pressures of scarcity discipline the work side to bid up the price and quality of a job to the point society finds acceptable.

    Rule documents never achieve the dynamic benefits of a real situation. That’s why “work to rule” is such an effective industrial dispute technique.

  57. “So MMTers use Japan to prove their theories when it’s convenient, but ignore it when they claim it doesn’t.”

    Not so much prove their theories as provide evidence that others are talking out of their hat. Mostly those that involve hyperinflation and the maximum amount of public debt.

    Bear in mind that Japan has been in the grips of a balance sheet recession for 20 years. It has been sweeping money through the public sector to keep things ticking over, but it *hasn’t* implemented the nominal price anchor.

    “It’s currently 4.5%. Those are enviable numbers by economist’s standards.”

    That’s 3 million individuals in a hole. More than the entire population of Osaka City without work.

    Not much to envy I’d suggest.

  58. The Prime-minister of Japan has been advocating for an increase on the sales taxes, hasn’t he? I’m not sure how that is now.

  59. Dear JanV (at 2012/01/01 at 4:12)

    Happy new year.

    You asserted:

    So MMTers use Japan to prove their theories when it’s convenient, but ignore it when they claim it doesn’t.

    When I discuss Japan – as a sovereign currency issuer floating its currency in international markets – I typically make the following points:

    1. Its experience demonstrates that rising budget deficits do not cause inflation and rising interest rates as a matter of course.

    2. Its experience demonstrates that rising public debt ratios do not cause rising interest rates (yields).

    3. Its experience demonstrates that the central bank can set and hold interest rates at zero (by appropriate liquidity management) and control longer-term bond yields if it desires.

    4. Its experience demonstrates that the national government deficits drive growth.

    5. Its experience demonstrates, therefore, that all the major predictions of mainstream macroeconomics are flawed and have no empirical traction.

    I have never (nor have my MMT colleagues) said that Japan has full employment although it has managed to maintain lower unemployment rates than other nations.

    You just have to go to the public parks – within metres of luxury hotels and government buildings – to see the vast tent cities occupied by homeless (unemployed) men (mostly) who are sustained by welfare groups (soup kitchens) to see the problem. There is also a rising suicide rate in Japan.

    So please be careful when you make assertions about what MMTers claim.

    You might like to read this blog – https://billmitchell.org/blog/?p=1079 – where I discuss this problem in relation to Japan’s homeless.

    best wishes
    bill

  60. Happy New Year.

    One of my wishes for 2012 and beyond is the fading out of macroeconomics, including the MMT – whatever it might turn out to be – as a subject of public interest. Another one is the fading out of ‘schools of thought’ in Economics.

    The latest example which supports my wish concerns Spain. The NYT published an article on the debt problem of Spain. The crux of the matter is that largely autonomous regions incurred debt, some hidden including unpaid bills. The so-called MMT “insight” (an assertion according to my terminology) that any sovereign nation which can issue its own currency cannot default is clearly challenged in this example. How many ‘national currencies’ would Spain have to have?

    It is not only governmental decision makers – like the regional governments in Spain – that are causing a monetary negative externality by their behaviour. Decision makers of private corporations – usually large ones – have a similar record when one looks at various locations and over various time periods. And who could forget the ‘major’ banks and other financial institutions?

    None of the macro-economic ‘schools of thought’ – including the so-called MMT – have an explanation for the obvious patterns. Perhaps it is due to the right questions not being asked.

    At the 2011 Lindau meeting, Prof. Stiglitz mentioned that insights have been gained from micro-economics. This rang a bell in my ears. For example, back in the 1970s, Prof Roy Radner’s work on sequence economies with financial markets provided a clear insight. There is no natural bound on an economy with financial markets due to negative holdings of financial securities (short selling in the language of Finance). If an arbitrary lower bound is imposed on the theoretical model, then the solution has the property of the value of the excess supply being minimised. Excess supply is observable at various times and in various sub-markets. Excess supply of office space, excess supply of people who want to work. Radner used the term ‘pseudo equilibrium’. The point I am trying to make here is that anybody who reads – or studies – Radner’s work can obtain this insight independently – no schooling of thought is required. Another insight comes from the work of Oliver Hart from the 1970s. Hart found conditions on an economy such that an endogenous solution is possible for an otherwise unbounded economy (ie no solution). His 2 conditions, which are additional to the otherwise ‘standard’ conditions are: Each and every individual (ie corporate managers, bank managers, government officials, you and I….) is strictly risk averse. This means people set themselves a limit on borrowing (no ‘unlimited short sales’, contrary to the message in Finance texts). Second. price expectations are in a ‘closed cone’ – they are not too divergent. So, those amgitious men and women who want to ‘grow’ their profits by reducing ‘costs’ and getting a bonus for achieving their goals are not obviously consistent with Hart’s conditions.

    Yes, by all means ‘unlearn’ dogma.

  61. I must have missed something, what does TINA mean.
    Doesn’t the over staffing of Government Departments act as a JG?
    Models don’t impress me much. The real thing is underway now anyway.
    Who will be right? Austerity or MMT. Thanks Bill for the long explanation.
    I would really like to be convinced that a JG is the answer and not just an
    Unemployment benefit by another name.
    Cheers Punchy

  62. TINA – There is no alternative.

    JG is not make-work as all the critics seem to say. Perhaps this needs to be made clearer?

  63. Ernestine – if Spain had monetary sovereignty, the country could not be forced to default. The regional government debt issuance you highlight is simply a result of the current, non-sovereign, arrangements.

    With respect, you have a lot more MMT reading to do.

    Best wishes

  65. Anders, you are speaking in tongues. Who is forcing Spain to default?

    Your second sentence indicates to me you don’t understand or accept the MMT premise that fiscal independence of an economic agent requires the ability of the agent to issue its own currency such that spending (read expenditure since MMT relies on the balance sheet identity) is paid for with the issue of currency units.

    Regional governments in Spain are but economic agents. Other economic agents are individuals such as you and me. Now where does the MMT idea lead to? It leads to the idea that you and I should be able to issue our own currency. No? If not, why not? (Possibly because MMT is but another macroeconomic thing.)

    Think of Greece vs Turkey. I would accept the proposition that Greece’s tourism industry could compete more comfortably with that of Turkey if Greece would still have the Drachma and not be a Euro member. But the same would be true if Turkey had been allowed into the Euro. Moreover, the most efficient and price competitive tourism industry cannot undo the financial mess created by complex derivative transactions involving Goldman Sachs nor the lack of rigour in recording transactions that affect exactly the one identity (in the mathematical sense) which I have found on this blog site, nor the habit of non-market side-payments.

  66. Bill,

    I haven’t posted on your site before but I’ve been a long time reader and admirer as an MMT advocate. That said, I strongly believe the way you and other MMT theorists have framed the JG is biased and detrimental to the wider acceptance of MMT. I agree with you that for MMT to be complete it must tap a buffer for price stability and public purpose strongly favors a modality that should PROMOTE job creation, perhaps to the point where almost everyone that wants a job can get one. But insisting on a job GUARANTEE requiring new bureaucracies and government restructuring is not the only way to exploit the employment buffer and may not be the best way.

    There are many other ways that government can spend its fiat money and use the coercive power of taxation to encourage job growth when and as needed without the need for the restructuring you and the other core MMT theorists have proposed. I think the chronic need for infrastructure rebuilding (where we have $3 trillion in needed work) is enough but we can always find other avenues such as green energy that serve multiple public purposes at once. If we need roads and bridges and solar farms it would not be hard for government to hire private contractors via competitive bidding and perhaps stipulate only the hiring of American workers and other incentives for using goods made in America.

    I simply see too much naivete on the part of too many MMT theorists in how to feasibly implement a JG in the real world. It is doubtful that any major economy will implement a permanent JG (though used temporarily for the most part during downturns) de novo. Rather, MMT ideas will probably come in stages on the back of or with the support of (neo/post/etc.) Keynesian thinkers in more rigorously modeled stimulus programs along MMT lines. If they work as MMTers predict, the politicians and government will be more prone to implement MMT modeled stimulus in the future and these programs, MMT, and government will all evolve together. If done right, this evolution may asymptote to a JG program very similar to what the core MMT theorists have proposed. But I doubt it. My guess that it would evolve to something else and it’s possible that this “something else” may be better than what the MMT theorists currently envision.

  67. Dear awk (at 2012/01/07 at 6:56)

    Thanks for your “first” comment. I appreciate your involvement in the discussion.

    Every monetary economy needs an inflation anchor if you desire price stability. So that means some buffer stock has to be chosen – explicitly or implicitly. At present, we use unemployment with devastating consequences with respect to lost output, income and a host of other personal, family and community pathologies. The costs of unemployment span generations via family structures.

    The alternative – if you want to target inflation and given the dominance of labour costs in total costs – is to use an employment buffer stock. That achieves the purpose of a nominal anchor but avoids most (not all) of the costs.

    The unemployed are already in the government sector. The JG just says that we make use of that stock that is already being managed – via various welfare bureaucracies – to do productive activities which benefit the individual, their families, their communities (that is, all of us, directly or indirectly).

    But there is a choice of buffer stock – a very costly one and a much more effective one. Given I am an economist, I would choose the more effective option (that is, a monetary consideration) quite apart from my private views about the evil of unemployment.

    In usual times, the JG would be tiny. In bad times larger. Its existence doesn’t prevent the government taking political decisions to do all the things that you argue for. But that is a separate discussion to the need to have a nominal anchor.

    To propose a macroeconomic theory without an explicit nominal anchor is to go back to the mainstream of using unemployment to serve this role.

    My role as an academic researcher is not to win elections or be popular for that matter. It is to provide ideas and tease out their logical ends. Ideas are not inherently popular nor intuitive. Ideas have their time. Broader communities always lag behind new ways of thinking that the academy tosses around. We have been tossing these ideas around now for years. The blogosphere is only just getting them out. It takes time for ideas to be distilled in a public which has been so strongly conditioned otherwise.

    But in the late 1960s we put a person on the moon. Now 50 or so years later which all the technological advances since then – all I am suggesting is we create a few jobs to stop the wastage. That should be easy.

    During the Second World War, when the men went away to fight, Australia replaced almost its whole manufacturing workforce with women who had previously not worked – it was called the War effort. It was said to be impossible. Productivity in that sector actually rose – all in the space of a very short time. I think we need a war on unemployment to lift people out of their preset thinking and show that we can do things we thought were impossible. Then naivete as you call it becomes insight.

    As a macroeconomist I am beholden to develop ideas that have logic, consistency and address the major issues of that discipline – which include full employment and price stability (along with growth). I don’t work in a counter-universe.

    best wishes
    bill

  68. “I simply see too much naivete on the part of too many MMT theorists in how to feasibly implement a JG in the real world.”

    I see a lack of will or ability to think outside the box from its critics, and certainly a lack of systems implementation experience.

    I have explained what systems are required in the real world to get it started on my site. Here in the UK we already have pretty much all the IT and payment systems necessary to make the initial phase of JG work. PAYE records are being upgraded to real-time and will include timesheet data and that is being done to introduce the Universal Credit programme.

    The only change that then needs to be made is for the government to announce that it will pay a fixed guaranteed hourly wage of any new person hired in the voluntary, charity or non-profit sectors up to a maximum of, say, 35 hours per week.

    Two things will then happen:

    (i) The voluntary, charity and non-profit sectors will go wild hiring people.
    (ii) The private sector will go wild hiring people to service the increase in demand created by (i) and since (i) can’t compete on price the private sector will always win a labour bidding war if it chooses to reducing the number of people in (i).

    You then wait and see how far that simple process goes in reducing the unemployment problem, review the situation and consider the next step (which may be to put the remainder on ‘gardening leave’ if the political will isn’t there to do something more positive – which is pretty much what Keynes was getting at I think in his famous quote on the subject).

    The benefits to business of the JG are massive. The voluntary JG sector does a ‘try out’ for you and filters the ‘suitable’ from the ‘unsuitable’ in work terms, and it absorbs the job losses in both directions as the system fluctuates over the business cycle.

  69. @Neil

    “Two things will then happen:

    (i) The voluntary, charity and non-profit sectors will go wild hiring people.
    (ii) The private sector will go wild hiring people to service the increase in demand created by (i) and since (i) can’t compete on price the private sector will always win a labour bidding war if it chooses to reducing the number of people in (i).”

    Wow, just wow. I bring up naivete and you throw me a beaut like this. My family has actually helped run several charitable organizations, some partially govt funded, some not, and I can tell you that one of the surest ways to corrupt good works is to attach private charities to the government tit. But let’s say you don’t believe me. Hell, just say I’m wrong. Let’s move on to bigger specific problems I’d like to see you explain away.

    As the JG is described, it is a permanent program but the buffer stock varies depending on private sector employment. When private times (high private employment) are good, the govt. pays for fewer workers. This means participating private charities and non-profits will go from boom to bust times in ways they never encountered before. Do you not see the problem here? Because I can already hear the howling and lobbying. “Don’t let this or that cause down by effectively slashing its funding (as the subsidized jobs will essentially be). Demand that your representative save charity XYZ today!” Of course, we’ll probably have to pass laws (among many new regulations I’d imagine) so that the people hired by these organizations aren’t paid to lobby the government for even more support. And even assuming we pass such laws (that our current political system proves are easy to work around), before you know it, what was temporary becomes permanent in ways that may also completely distort the nature of the original charity/non-profit.

    Unintended consequences anyone? I could write pages but I won’t. Here’s just what came to the top of my head. Many charity volunteers are just that, volunteers. They don’t get paid whether they have a job/income or not. How will they feel when those next to them are paid for work they aren’t paid for? Add that these new people may not be as dedicated to the cause as they are – after all it’s just a temp job with little hope for long-term employment. Or let’s say we go to paying the previously unpaid volunteers too, at least the ones without jobs, since now some of them might feel like suckers working for nothing. Think that won’t have any deleterious consequences? It’s just the tip of the iceberg.

    Non-profits are another kettle of fish. Many non-profits, at least in the US, are aligned with profit making ventures. For example, due to many favorable tax, liability, and other reasons it is very common for companies to set up and support non-profit R&D facilities that, in turn, license their IP back to the company. I can just imagine how such ventures will be distorted and expanded to enable them and their de facto parent company to gain what are essentially govt. labor subsidies.

    Colleges, Universities, Think Tanks (conservative or liberal), Lobbyist PACS and their front organizations all vying for free labor, dreaming of ways to use it to offset normal expenses, and all committed to seeing that it becomes permanent. After all, what organization can reasonably plan around the flimsy promise of free labor “for as long as the economy stinks”? Oh wait, let me guess. We’ll end up having to pass even more laws to guarantee the job subsidy has a framework to enable the sponsoring charity/non-profit to make a “soft-landing” when their buffer labor force dries up before their mission is completed.

    And when the people, like me, who donate to charity see this mess, how do you think they’ll react?

    And we haven’t even gotten to all the controversial charities and non-profits yet. Abortion clinics, Creationist Museums, NAMBLA, Scientology, the KKK, etc. etc. etc. I’m laughing just imagining these debates in my nutty country. Hopefully your country is more civilized.

    I think you’re the one that needs to think outside the box when it comes to contemplating unintended consequences. Because there is one box you can’t think outside of and it’s human nature. You can’t change it via wishful thinking.

    So out of the blue, you’ve posited what you probably thought was the easiest way to begin the JG. All I can say is if the rest of the JG in other venues is anything like this, MMT will be dead politically before it starts, at least in any country like the US that is leery of government interference and highly individualistic.

  70. Dear Bill,

    Thanks for the reply. But I’m not sure it really addressed my main criticism over the MMT schism about the JG. I don’t think there would be any schism if you replaced
    1) “MMT requires a JG”
    with
    2) “MMT requires a buffer stock optimization program that achieves price stability by targeting full unemployment (though recognizing that the target may have some inherent limitations, i.e., there may be a natural level of unemployment below full employment that may actually be necessary for price stability).

    Then, the JG, JIG, and ELR ideas could be included as competing theories under the MMT buffer stock optimization requirement but NOT as the be all and end all of MMT.

    Instead Bill, what you seem to be insisting in your reply to me is that your JG is the only way or the best way to achieve #2. I know you have argued for this. But are you sure you’ve PROVEN it? Are you sure there aren’t other ideas, perhaps not yet articulated, that might be just as good or better from an economic perspective (and perhaps better from a political perspective)?

    I’ll admit I’m not a highly trained economist (I’m a neuroscientist in the “hard” sciences) as you are but given all the other economic theories I’ve studied, the history or economics itself, and the inherent scientific limitations that render economics vulnerable, I don’t see how anyone could have complete confidence in any economic theory until we fully understand human nature at the micro and macro level – which we are very far from understanding.

    However, I have an open mind about this and I have read your COFfee report entitled “Creating effective local labour markets: a new framework for regional employment policy.” (2008) where you also appear to claim that you have supported the optimal nature of your JG (vs. a Keynesian approach). Unfortunately, that document doesn’t supply the “proof” but instead references Mitchell and Muysken (2008) which I could not get. Can you provide an online resource for this reference of an equivalent one? If you really have proven that your JG is the only or optimal way to implement #2 above I need to see the nitty-gritty details of your models, assumptions, and logic and assess them from the framework of the completeness of the framework you are examining them in. However, akin to my response to Neil above, I don’t think you should ask anyone to accept your model as proof unless you can really also model the emergent effects commonly called “unintended consequences” in the wider economy (and many would argue at the societal level as well). Your critics will contend that your model is only as good as it really would reverberate throughout the economy or society in real world application. And I’ve never seen any economist or economic theory as involved as this one that could make such predictions. I simply don’t think it’s possible with the current state of our knowledge, tools, and history. Hence my skepticism.

    And yes, I know you’re an academic and not a politician. As a scientist I understand that you want to formulate an optimal economic model that assumes human reason will someday accept it on your terms rather than cloud it or add unnecessary and sub-optimal tinkering. You don’t want to have to consider side-effects of your model (if implemented) that may not be strictly economic. But is that really reasonable? One of the things I respect about you is I can tell you really want to make the world a better place. As Obama says, “Don’t make the perfect the enemy of the good.”

  71. ” Many charity volunteers are just that, volunteers. They don’t get paid whether they have a job/income or not. How will they feel when those next to them are paid for work they aren’t paid for?”

    Charities run employees alongside volunteers all the time, so the same dynamic already exists.

    And of course current volunteers without work, unpaid interns and the like can apply for the JG jobs on offer.

    How will they feel when those next to them are paid for work? Depends how selfish they are. Those who struggle with the concept that everybody needs an income and something to do to make them feel worthwhile may have an issue. I would suggest that is definitely an individual problem that they need to work on – unlike unemployment which is a systemic issue.

    “This means participating private charities and non-profits will go from boom to bust times in ways they never encountered before. ”

    And they will have to gear up to deal with that. Somebody has to and they, allegedly, have the incentives and the skills to deal with variable labour levels.

    And of course there is no compunction for the voluntary, charity or non-profit sector to take on JG jobs if they don’t want to. It is only an offer. Those worried about pollution to the purity of their mission can carry on their own merry way.

    Those with a little more vision and a positive attitude will be able to put it to good use though.

    ” at least in any country like the US that is leery of government interference and highly individualistic.”

    Mmm. It generally take a century or so for the civilisation of the US to catch up with the rest of the world. The rest of us find that rather amusing and more than a little sad – because you make your fellow citizens suffer so much for no good reason.

    ‘Do you not see the problem here? Because I can already hear the howling and lobbying. “Don’t let this or that cause down by effectively slashing its funding (as the subsidized jobs will essentially be). Demand that your representative save charity XYZ today!”‘

    To which the response would be “sure, let’s just raise taxes to suppress private sector demand a bit” – at which point the lobbying would be drown out by the usual suspects with substantially deeper pockets.

    Buffer stocks work both ways.

    “I think you’re the one that needs to think outside the box when it comes to contemplating unintended consequences. Because there is one box you can’t think outside of and it’s human nature. You can’t change it via wishful thinking.”

    Would that be the human nature that always comes up with a reason why not and never anything positive. The one that is totally resistant to change no matter what the current problems are.

    There are still millions of people in poverty and depression across the globe due to unemployment. Unemployment that is created as a required result of the system design in place. For anybody opposing the proposals, the question is the same: What are you proposing to do with these people instead, given that (I hope) we’ve ruled out euthanasia?

    Ignoring them and hoping they go away is not an option. We’ve tried that for four decades and they haven’t.

    Jobs can be eliminated if the price is wrong. People can’t.

  72. Dear Neil,

    Before I respond to your last post specifically, let me reiterate that I personally favor a JG of some form (actually a JIG). At other MMT sites I’ve been on I’ve written about how I came to MMT as a AI scientist/entrepreneur wondering how the economy should/must evolve as AI begins to destroy more jobs than it fosters. I think this process may already be beginning and I’m confident that before this century ends, we’ll face a situation where over half the labor force is no longer needed, but must be given an income in order to support aggregate demand, that I believe we will eventually have to treat like a valuable natural resource lest many suffer. America and the rest of the world will all have to change as a result and I want to see this evolution proceed without literal bloodshed.

    I want MMT to win the war of ideas and see it bear fruit ASAP. This means it must be widely embraced by the public and politicians. If you read my last post to Bill, you can see that the main objective isn’t to say forget the JG. I simply want to semantically modify how MMT defines itself that will heal the developing schism and both make it more pragmatic AND easier to sell. Moreover, nobody in the MMT world has yet proven to me that the form of JG currently tied to MMT is the best or only way to satisfy statement #2 in my last post to Bill. And I’m sorry to say that your posts and retorts concerning charities/non-profits are proving my point, though I’m sure you don’t realize it and won’t see it no matter how much we argue. Though I’ll give it at least one more try herein.

    I see we’re dealing with a bit of bias (for both of us) here so I’ll put it on the table first where you say:

    “Mmm. It generally take a century or so for the civilisation of the US to catch up with the rest of the world. The rest of us find that rather amusing and more than a little sad – because you make your fellow citizens suffer so much for no good reason.”

    How smug. Actually, I agree with you in many ways. I’m critical of many things about my society and want to see them changed. But I don’t want to become Britain either, especially the Britain that tends towards labor and socialist paralysis and bureaucratic stagnation like much of Europe. Watching the EU comprised of all those uber-civilized Europeans and their Euro and Britain’s dive to austerity is amusing too. Americans haven’t yet quite cornered the market on stupid – though we are trying hard!

    Yes, Americans suffer more in many ways – at least the ones that are easy to see like poverty. But we also excel in many ways that are less easy to see but that result in our society being the most dynamic, innovative, creative, and charitable – yes charitable. American private charities and the time put in by Americans to charitable work dwarfs yours and the EU per capita (even if you add your governmental-sponsored charitable work into private – and please don’t try to argue that America is less charitable by virtue of its far lesser govt.-sponsor giving, I know that too). I see the danger to my society as primarily one of crony capitalism that steals our democracy from the citizens and endangers our values.

    In the final analysis it comes down to values. Americans, for better and worse, have chosen to have a more individualistic society than you. We have chosen that we want to have the opportunity to achieve the best AND worst of everything rather than have a more comfortable mediocrity for everyone. And the consequences of any economic reality here must take that into account. The rest is a philosophical argument. I would argue that one society is not right and the other wrong. If either side wants to live more like the other, they can vote for change. So let Britain implement the JG and I hope it works. If it does, it will serve as a great example for the US that perhaps we’ll adopt in a century 😉 or adapt in some fashion to suit our different values.

    But if the MMT proponents in Britain are strident ideologues like you who don’t want to carefully consider the unintended consequences of such programs, I doubt you’ll get it off the ground unless there is a perfect storm of crisis that somehow brings an MMT leader/dictator to office. And even then, unless these things are thought through, I predict failure, which will discredit the entire theory.

    One HUGE advantage that economic theories like Keynsianism or Monetarism and others have over MMT-JG is that their prescriptions can be implemented, tried, and tested in very simple ways relative to the JG. Need a stimulus? Calculate some reasonable number and spend it. Need more/less money money in circulation? Tweak printing/interest rates/QE/ etc. Using a chemistry analogy, I see the activation energy of implementing a JG as ENORMOUS, with all the attendant laws, structures, and regulations that I’m sure will be necessary (that I maintain you haven’t thought through). Unless MMT can come up with a catalyst or a way to stage MMT prescriptions in a convenient evolvable manner, there are too many pitfalls, even in Britain I’ll bet. Please apply your out-of-the box thinking to solving that problem.

    Getting back to your rebuttal about charities/non-profits…

    AWK: ” Many charity volunteers are just that, volunteers. They don’t get paid whether they have a job/income or not. How will they feel when those next to them are paid for work they aren’t paid for?”

    Neil: “Charities run employees alongside volunteers all the time, so the same dynamic already exists.”
    This is such a facile and misleading response I barely know where to begin. I could write a book just addressing this one issue. Maybe charities in Britain are already so interwined with the public sector, that the damage is already done and you don’t even realize it – perhaps one reason why successful private charities in the US dwarf yours per capita. I don’t know.

    Your statement is true of course, but you have to examine the breakdown of the paid vs unpaid charity workers which will be greatly distorted by a JG. Charity administration is generally done by long-term faithful paid employees. Field work is often done by unpaid volunteers often aided by paid supervisors. The JG will probably not go to admin and if it does, it will cause friction as it forces pay down to JG levels. The field volunteers are another matter. Having personal experience in this I can tell you it’s a big can of worms. Can it work having volunteers and paid personal alongside doing the same work? Yes it can. But it’s not easy to implement and maintain such a culture and the boom/bust cycles of JG payment/withdrawal will undermine the stability needed to sustain this. Frankly sir, you simply don’t know what you’re talking about.

    I could go on but I’m sure that most readers of our dialogue who have an open mind (both ways) can anticipate and understand many more problems just from common-sense thinking. The fact that you are so dismissive and do not even want to acknowledge that I might be right about this is very telling. Let me remind you, the onus is not on me to prove that the JG is wrong/premature/sub-optimal. You are the one proposing a radical new economic structure of complex dimensions (many more than I think you realize). The onus is on you to anticipate and solve these problems.

    Neil: “How will they feel when those next to them are paid for work? Depends how selfish they are. Those who struggle with the concept that everybody needs an income and something to do to make them feel worthwhile may have an issue. I would suggest that is definitely an individual problem that they need to work on – unlike unemployment which is a systemic issue.”

    Yeah, I see where this is going. If MMT doesn’t work it’s the people fault, especially those more selfish Americans. This sounds like you’ve been living in a commune all your life. Selfishness is not necessarily a static state. I believe that the JG will increase, not decrease the selfish impulse. It’s knee-jerk “he’s getting something so I’m entitled to it too – even more since I was here first”. I’ve read similar responses from Marxists who insisted communism would work if people just learned how to behave more civilly. Ugh. Again, we could argue who is right or wrong about this – but you’re the one demanding we make an enormous gamble based on your conviction.

    AWK: “This means participating private charities and non-profits will go from boom to bust times in ways they never encountered before. ”
    Neil: “And they will have to gear up to deal with that. Somebody has to and they, allegedly, have the incentives and the skills to deal with variable labour levels.
    And of course there is no compunction for the voluntary, charity or non-profit sector to take on JG jobs if they don’t want to. It is only an offer. Those worried about pollution to the purity of their mission can carry on their own merry way.”

    Sorry, this is mere handwaving. “They will have to deal with it”? Yes, they will deal with it by lobbying the government for more subsidies to get them through THEIR hard times induced by the JG dispensing fewer workers. I like your optimistic spirit but you’re not very convincing.

    “Those with a little more vision and a positive attitude will be able to put it to good use though.”

    Yes, if we all think nice positive thoughts everything will work out 😉 What a wonderful foundation for implementing such a theory.

    I noticed you didn’t address all my points but Ill assume this last quote from you about sums it up, for both of us. So I’ll leave it at that.

  73. Hi ya Neil,
    In Australia Charities compete with private enterprise.
    Big Charities are big property owners for profit in the retirement village
    Sector. Obviously the private sector is squeezed if you give the charities free workers.
    Doesn’t the same apply to any job you give the JGers?
    If I wanted to build a bridge I could ask a Charity to do it with
    Using JG ers. Private bridge builders can’t steal JG ers because
    The Charity always wins the tenders because of the low wage
    Paid to JGers. So private business will be at a permanent disadvantage.
    How do you stop the disadvantage occurring?
    I am sure the answer is on your site or Bills but I don’t
    speed read so a reference would be appreciated .
    Cheers and good luck in 2012. Punchy

  74. Mike,

    What you said reminds me of how the warden shook down local businesses with prison laborers in the Shawshank Redemption.

    Also recalled that the Mormon Church is also a $65 Billion biz in US often accused of just leveraging their tax exempt status against businesses. Will the JG support missionaries, the Deseret News, and real-estate workers for the church (the Mormon church is the second largest US land holder after the US govt) The “Church” (ugh) of Scientology controls the “independent” non-profs Narconon and others whose affiliation they kept secret for years. Google that and find out the damage they did.

    You know all those church bake sales around the country? Why couldn’t any non-profit decide to bake and sell discount cookies which it could afford to bake and sell for almost nothing but the cost of ingredients since the govt would pay? It would put the local bakers out of business. In many cases you can bet also the money will not go towards charitable work but would line the pockets of the charity admins. Sad fact is, many charities and non-profs in this country are scams or very nearly so. Look at the salaries of some of the leaders of these orgs an the payout ratios. Oops, need more laws and regs to stop all this abuse which will have even more unintended consequences… Before you know it, you have a huge govt bureaucracy to enforce the new rules and new opportunities for crony politics.

  75. “Private bridge builders can’t steal JG ers because
    The Charity always wins the tenders because of the low wage
    Paid to JGers. So private business will be at a permanent disadvantage.
    How do you stop the disadvantage occurring?”

    Isn’t private enterprise supposed to be more efficient that the non-profit sector. You know all those dinners, inefficiency and leaving at 5pm on the dot.

    Surely the remarkable private sector will be able to just organise things that much more efficiently so they can make the profits. After all that’s what the outsourcers have been saying in their sales pitches for years.

  76. “Let me remind you, the onus is not on me to prove that the JG is wrong/premature/sub-optimal”

    No the onus is on you to answer the question you skipped.

    I will repeat it:

    What are you proposing to do with these people instead, given that (I hope) we’ve ruled out euthanasia?

    Ignoring them and hoping they go away is not an option. We’ve tried that for four decades and they haven’t.

    Jobs can be eliminated if the price is wrong. People can’t.

    What are you going to do with these people and since you refuse to provide them with anything to do why are you not prepared to fully compensate them for their loss – including their loss of self worth due to the in built design failure of the current system.

  77. ” But it’s not easy to implement and maintain such a culture and the boom/bust cycles of JG payment/withdrawal will undermine the stability needed to sustain this. Frankly sir, you simply don’t know what you’re talking about.”

    It is pretty straightforward really, because the business cycle does that already. The public sector grows and shrink with the business cycle and so does the Third Sector.

    And the answer is the usual one. If the Third Sector can’t handle the expansion and contraction then neither can the private sector. We are all doomed and should top ourselves on Monday morning.

    So the problems here are the usual issues of blowing things out of all possible proportion in an attempt to deflect change. You always get at least one naysayer in any change process. And they are always wrong. Because change is the only constant.

    There are 4.8 million people without work who want it in the UK. That’s more people than in the seven of the largest cities in the country.

    So yes you’re damn right we need to change the system. I don’t want to live in a country where entire cities full of people are disengaged when it is so straightforward a problem to solve.

  78. ok thanks Neil. I will think it over. To work the JG jobs would need to
    be real jobs doing things that add to the mental health
    of the JGers. Not just creative work for work sake or we will
    end up with a permanent underclass of JGers.
    Cheers Punchy

  79. @Neil:

    AWK: Let me remind you, the onus is not on me to prove that the JG is wrong/premature/sub-optimal”

    Neil: “No the onus is on you to answer the question you skipped.”

    I didn’t really skip it Neil (like you skipped many of my questions/comments outright). If you had thoughtfully read my posts you would have deduced the implicit answer fairly simply.

    I told you in an earlier post I’m for a JIG and in the long run, because of my beliefs about where AI is headed, we’re going to need an IG because I doubt we’ll be able to invent enough real jobs unless there is a Luddite revolution. In the future, I wouldn’t be surprised if people paid for certain jobs in seeking self worth (this would be a very affluent society). Ironically, in many ways, it would be easier to do an IG now than a JG. In fact, we already have income guarantee programs – just not big enough. All the infrastructure is there already via unemployment ins., welfare programs, and social security – no new complex bureaucracy is needed! There are NO issues of cronyism NONE – as I have illustrated can emerge from the JG (though I agree the JG is still much better in that regard than most other sorts of govt. responses) – There are no issues of private sector job displacement, regardless of your facile and silly response to Mike above. And finally, an IG is not unique to MMT. Even Milton Friedman proposed a variant of it so it’s not so revolutionary. I’d argue the best way to get to a JG is by tweaking the IG-like systems already in place just as welfare many US states (and other countries) got tied to employment.

    The IG is not an easy sell either – but much easier than your JG – at least until you and the other JG advocates show you really understand all the potential problems I and others are pointing out AND prepare equally well thought-out responses – which none have you have done anywhere near adequately enough. Responses of the kinds you’ve made to me would only strengthen the resolve of our adversaries. You have to get in front of the criticisms of the type I’m making or your enemies will define you, as they already are. You don’t seem to realize I’m potentially your best friend. That’s why I’m fighting to stop the schism I see emerging in MMT that is needless and avoidable if we simply make a few semantic tweaks that should satisfy most of the Bills and Cullens of this world.

    The mathematics of an IG would work the same for MMT as the JG. The main reason I’ve heard that the core MMT theorists insist on a JG instead of an IG has more to do with the history of economics and the bragging rights of solving the full employment vs. inflation problem that has been at the core of economic theory for many decades. If you’re so terribly worried about all these unemployed people why don’t you support an IG too?

    Of course, people can attack the IG just like I’ve been attacking the JG, i.e., via the potentially deleterious consequences. And there would be many since we have experience with just paying the poor/unemployed. It can foster lazyness and an underclass. But I’m not sure the JG does any better in that regard when you really carefully think it through – as I’ve been trying to do with you. One of my best friends started what became a multi-million dollar venture while he was on extended unemployment insurance and food stamps. Do you know how JK Rowling supported herself when she wrote the first Harry Potter book? Neither might have happened if those people had been required to take a JG job for support.

    I think it’s just downright naïve and stupid to expect a JG program to come about de novo in most countries I know much about anytime soon – especially if MMT is quashed before it takes off due to the growing needless schism over this issue. I’m not sure any country would put so massive a restructuring in place unless, as I said before, a perfect storm of crises drove a desperate populace to elect an MMT leadership/dictatorship to power. MMT needs more out-of-the box thinking about how it can evolve a JG/ELR/JIG/IG within a slow consensus-building democracy. We need people savvy about politics and promotion, not just academics. Idealists like you, who try to bite off more than you can chew, usually bite the dust. Scientists do the science, engineers turn it to technology, and businessmen turn them into leveragable products people will buy (optimally with feedback all the way back). With MMT it seems like the scientists think they can sell it. They can’t. As a somewhat rare species of person who has successfully straddled science, invention, engineering, and business with a fair degree of acumen this is obvious to me. I’m an idealist when I invent and a realist when I design and implement.

    As you consider your reply think about this. Most of those unemployed people who were unemployed when you wrote your question to me will still be unemployed well after you read this. What is the best strategy to help them? Please realize that the best strategy doesn’t always involve the best solution at first especially when there are millions who think the best solution is crazy. Or is it all or none with you?

  80. Mike: “Private bridge builders can’t steal JG ers because The Charity always wins the tenders because of the low wage Paid to JGers. So private business will be at a permanent disadvantage.
    How do you stop the disadvantage occurring?”

    Neil: “Isn’t private enterprise supposed to be more efficient that the non-profit sector. You know all those dinners, inefficiency and leaving at 5pm on the dot.

    Surely the remarkable private sector will be able to just organise things that much more efficiently so they can make the profits. After all that’s what the outsourcers have been saying in their sales pitches for years.”

    Neil,

    This snide response from you to Mike’s concern annoyed me so much that I felt I needed to respond more in depth than my mention above. Are you just a cheerleader for MMT? Are you one of the cult-like MMT fanatics I’m always reading about from anti-MMT authors? You’re not doing MMT any favors with your lack of thoughtful skepticism. We must first be the greatest skeptics and critics of our own ideas if we want others to accept them.

    Mike’s concerns are very valid and can be illustrated via multitudes of real world examples. You should not have blown him off.

    There is some truth to what you say but it’s very misleading. But let’s take your reasoning at face value. How much more efficient will private firms paying many times the JG labor rate have to be to compete with JG-leveraging private firms, charities, and non-profits? More amazingly, you failed to consider the reason for the JG in the first place, i.e., aggregate demand is down and the economy is reeling. You expect private companies to compete with low labor under precisely the times and conditions under which they are most vulnerable. This is beyond ridiculous. Why should anyone take you seriously when you make a reply like this?

    It is obvious to me that private firms will be hurt and/or they will have to cut the wages of their workers to compete. My guess is, if a JG were implemented the damage would be obvious such that the more savvy firms would learn how to game the system. They’d set up affiliate companies and non-profits to leverage JG workers too to stay competitive but its pretty much obvious to me that this will be at the expense of higher paid workers. This will NOT work like you think it will.

    Your sarcasm about private enterprise suggests to me you don’t even believe in capitalism. If you’re really a Marxist and want to leverage MMT to bridge to it just say so. Otherwse, your position simply isn’t cogent or logical.

  81. “The mathematics of an IG would work the same for MMT as the JG”

    No it doesn’t – the dynamics are very different. You’ve misunderstood the Job Guarantee and what it does.

    One is the state acknowledging that it is causing unemployment and encouraging the system to provide something for people to do. The IG is largely compensating people for their losses and then leaving them to it.

    The key is ‘hiring risk’. JG uses state funds to encourage the elimination of hiring risk, IG uses state funds to keep people quiet and out of the way.

    Job Guarantee and IG dampen the business cycle, so your fears of ‘boom and bust’ are incorrect. The violent up and downswings that the current system has (which as I’ve pointed out the private sector has to deal with and does) would be moderated.

    Plus under IG there will be a lot of people with very little to do, which will mean that the Third Sector will start hiring them allegedly causing all the problems you fear anyway.

    “Your sarcasm about private enterprise suggests to me you don’t even believe in capitalism. If you’re really a Marxist and want to leverage MMT to bridge to it just say so. ”

    Once you get to calling people names and trying to label them without understanding who they are, you lose the argument in my view.

    I have tried to address your concerns, but they are based more on a belief structure than an understand of how systems functions or are put in place. For example:

    “Neither might have happened if those people had been required to take a JG job for support.”

    I will repeat again that nobody is required to do anything. The JG largely boils down to the state paying a fixed wage to people in return for their labour – cos paying people is one of the few things the state is good at.

    The first stage of that is to give that capacity to certain sections of the economy – second and third sectors – and see where it leads. There is no requirement for the firms in that area to use the subsidy and no need for anybody to take the work.

    My business has put people in the Third Sector to assist and observe the systems in operations there. In the UK the paid placement scheme of the last government put unemployed into the Third Sector as paid placements (via the Future jobs Fund). The Third Sector businesses concerned only took on placements their existing management could cope with, and once the funding was cut the placements dried up and the Third Sector firms shrunk down (including reducing the hours of their staff from five to three days).

    It’s only preliminary data and needs further research, but it shows that the Third Sector operations can cope with providing people with buffer jobs – they limit their take up to their management capacity, either initially or due to competition (volunteers get bored and are placed elsewhere). In fact the election manifesto of the Labour party in 2010 – promising a job (actually just a placement) to all those unemployed over 2 years – was based on this capability.

    So the chain yanking was for a reason. The hyperbole is without foundation. I appreciate the US is a difficult sell for the JG and that may alter the way things are done there. But the US is not the whole world. Other societies are more cohesive.

  82. It is obvious to me that private firms will be hurt and/or they will have to cut the wages of their workers to compete.
    Question is, to compete with whom?
    The charities? Since the charities help those without money, they are not crowding out the for profit sector, because the for profit sector requires just that, profit. And no profit can be made from who doesn’t have any money.

  83. AWK: “The mathematics of an IG would work the same for MMT as the JG”
    Neil: “No it doesn’t – the dynamics are very different. You’ve misunderstood the Job Guarantee and what it does.
    One is the state acknowledging that it is causing unemployment and encouraging the system to provide something for people to do. The IG is largely compensating people for their losses and then leaving them to it.
    The key is ‘hiring risk’. JG uses state funds to encourage the elimination of hiring risk, IG uses state funds to keep people quiet and out of the way.”

    I agree the dynamics are different, but not the math. Otherwise, show me. Hiring risk is degenerately addressed either way. There will be qualitative differences as I already acknowledged, but you haven’t proven they would result in different quantitative outcomes. The irony is you’re turning the tables using my form of “consequences” argument against the IG but you can only get away with that because they are better understood with more history than the JG consequences you either refuse to acknowledge or dismiss at every turn.

    Here’s an example that illustrates there’s no difference? Imagine all those charities and non-profs and whatever other orgs get JG money hire you and just pay you to do nothing, or the stuff you do anyway like blog, shop, etc. I’ll bet they won’t need much incentive to do it. And given your snide remark about the private sector efficiency vs public inefficiency is that much different than the many lazy/non-productive JG employees you implicitly don’t mind sitting in an office all day just to collect a paycheck? You can bet it will happen in various ways anyway to some degree, especially since you don’t want to acknowledge that the JG might require a big bureaucracy for accountability requiring a lot of permanent regulations and policing. Here’s just one of thousands of illustrations: ever heard of Secret Shoppers? If you don’t know, it’s a work-at-home “market study job” we got here and in some other countries I understand too. Some of it is legitimate, some a scam. I’ll bet it will be one of the biggest growth industries after the JG is implemented. I can barely imagine how you’d police it, among all the similar types of work-at-home “jobs”, but it would take legions. You’ll probably see that as a plus – more people for JG to employ. We risk making our society more dishonest. It’s more straightforward just to implement an IG and incorporate and evolve the JG from it.

    “Job Guarantee and IG dampen the business cycle, so your fears of ‘boom and bust’ are incorrect. The violent up and downswings that the current system has (which as I’ve pointed out the private sector has to deal with and does) would be moderated.”

    Under current theory, yes, but the theory isn’t complete. MMT, and all other economic theories for that matter, have really offered little if any modeling that can accurately anticipate global vs sector downturns and the many speculative and behavioral forces that drive economic inertia and hysteresis. I’ve argued this on other MMT sites and never gotten an answer beyond “it’s a very hard problem and not a priority now”. While I agree there will be moderating modulation there will probably still be big bumps, gaps, and lags and, more likely persistent periods of softness/malaise (that may affect various sectors very differently). Anyway, the main point of mine which you still refuse to reasonably answer (and I noticed you didn’t answer my efficiency question at all – quite telling) is how you expect private firms to outcompete JG-advantaged orgainizations at precisely their most vulnerable times, whether it’s during “busts” or just “softness”. Tell me, what regulations or other policy measures would you introduce to solve this problem? Or do you simply still refuse to acknowledge any validity to it as with all the others criticism I and others have discussed?

    “Plus under IG there will be a lot of people with very little to do, which will mean that the Third Sector will start hiring them allegedly causing all the problems you fear anyway.”

    Huh?! Hire them with what money ? If we’re under the IG premise as you state, then there is no JG or it’s muted as part of a JIG you didn’t mention. No, they’d have to volunteer for free. And some might but it won’t be anything to fear because the monetary incentive is gone. Moreover, this would be a volunteer push scenario instead of JG pull scenario where the charity/non prof would be far more incentivized to develop new concentrations adverse to the private sector. Some IGers will start new businesses. Some will make music. Some will try standup comedy hoping for their big break. Some will write books. Some will care for elderly/sick relatives. Some will make lots of YouTube videos hoping for the next big thing (via ad monetization). Many would go back to school (WHY SHOULDN’T WE TREAT THIS LIKE A JG JOB and incentivize a more educated populace?). And yes, MANY will be lazy and do little of value.

    Face it Neil, this is the future anyway, for our grandchildren if not our younger children. You might as well get used to the concept. In the long run, there simply won’t be enough jobs that aren’t of the make-work, mind-numbing variety. Lots of people will opt to interface with their Orgasmatrons (props to Woody Allen’s “Sleeper”), video games, play tennis, etc. all day. Many will seek MEANINGFUL work to give life purpose and those who need it but can’t find it may become demoralized outcasts (though well-off from their IG). If we do things right, the common man of the future could enjoy forms of leisure only the rich enjoy today. Yet, I’m not convinced that human nature will be capable of fully adapting to it. I can see many wonderful and problematic things ahead in this brave new world. In fact, I’m writing a novel about the transitionary near-future I envision (tentatively titled “Going Amish”). I’m fortunate to have investment income to support my writing without having to depend on an IG. Why shouldn’t many others “victimized by the system”, as you seem to be saying, be afforded the same opportunity via an IG?

    AWK: “Your sarcasm about private enterprise suggests to me you don’t even believe in capitalism. If you’re really a Marxist and want to leverage MMT to bridge to it just say so. ”
    Neil: “Once you get to calling people names and trying to label them without understanding who they are, you lose the argument in my view.”

    I wasn’t calling you any names, simply trying to understand where you’re coming from given the tone and logic of some of your arguments. It’s not in vogue now to be a Marxist so if you took it as an insult, I’m sorry. However, I have a feeling some form of Neo- Marxism will emerge again within the next 50 years and with the power of super-advanced AI/Predictive modeling combined with ubiquitous individual/micro/ and macroeconomic data, who knows, it might just work next time. But I realize I’m going beyond the focus of our discussions.

    Neil: “I have tried to address your concerns, but they are based more on a belief structure than an understand of how systems functions or are put in place. For example:
    AWK “Neither might have happened if those people had been required to take a JG job for support.”
    Neil: “I will repeat again that nobody is required to do anything. The JG largely boils down to the state paying a fixed wage to people in return for their labour – cos paying people is one of the few things the state is good at.”

    If I’m guilty of your first comment, than it’s no more than you are. It didn’t help that you didn’t even understand my quote above (read “support” again). Of course I know nobody is forced to take a JG job FOR SUPPORT. But since you are insisting on there being no IG they either have to take the JG or starve. The point was that my friend and J Rowlings might never have made their business fortunes if they had not been afforded the support for them and their family from a form of IG that gave them time to create very successful enterprises that went on to employ thousands more.

    “My business has put people in the Third Sector to assist and observe the systems in operations there. In the UK the paid placement scheme of the last government put unemployed into the Third Sector as paid placements (via the Future jobs Fund). The Third Sector businesses concerned only took on placements their existing management could cope with, and once the funding was cut the placements dried up and the Third Sector firms shrunk down (including reducing the hours of their staff from five to three days).”

    I will always keep an open mind. Please provide any references you have on how this works. I am familiar with some similar programs that do work in the US (and some that don’t) but I have my doubts it will scale to the levels required to solve current levels of unemployment without the kind of problems I discussed. I do agree with you that there is a certain level that should work. And I’d love to see the experiment – in your country first.

    “So the chain yanking was for a reason. The hyperbole is without foundation. I appreciate the US is a difficult sell for the JG and that may alter the way things are done there. But the US is not the whole world. Other societies are more cohesive.”

    And the “hyperbole” was exactly what? As I made clear I was mostly disturbed by your chain yanking of Mike’s concerns and I see no hyperbole in his honest questions and concerns, quite humbly stated.

  84. Talvez,

    I think your question is answered in the above posts but perhaps you missed it. Part of the answer lies in how many of us believe charities and non-profs will evolve in the face of a permanent JG (though with various levels of JG jobs). Not all charities and non-profs are set up to help poor people. In fact, most non-profs aren’t set up for that primary purpose, at least in the US.

  85. I can see that a price anchor is a good thing and needs to be something that the government is a price setter for. I’m worried that the JG wouldn’t work because it wouldn’t be viewed as credible that the government would stick to the anchor. I think there is a potential “better than gold” price anchor a bit like the JG but credible. If the USD (or GBP our Yen or whatever) was redefined as 1/1400th of a starting low rank soldier’s pay then perhaps that could be such a credible price anchor. It could be extended such that there was a fixed ratio between that pay and the pay of a five star general (perhaps 5x as much?) and the president and any federal employee they decided to peg (perhaps all).

    As you say, the crucial difference between governmentl employees and say private sector car mechanics is that the government has total power over how much to pay their own employees and also it is the government that creates the USD (in “net financial assets sense”). If the peg were made to private sector car mechanics then disaster would ensue because the private sector car mechanics would constantly be changing their pay so as to keep ahead of the government in a cat and mouse spiral. The government its self pays the government employees so no such event can occur.

    The reason to choose military pay (rather than the president’s pay or JG pay or whatever). Is because military pay is such a large amount that it can not be messed around with and also the military are not going to be messed around with. Everyone relies on them being on our side. That would give international credibility to the idea that the government would not devalue the USD and just let the military suffer. That wouldn’t be the case with JG pay. That would make the currency a very trusted and sort after reserve currency even in a (near) zero interest rate environment as I guess we are heading towards.

  86. April 18, 2013

    PART 1 [of 2] The Legacy of a Dysfunctional Senate/Congress

    F. Michael Kelleher, Special Assistant to President Obama

    Members of Congress/Council of Economic Advisers:

    Since the mid-1970’s, the Market has been less, and less, capable of creating the jobs necessary to its viability-and going forward in the 21st Century, an expanding and contracting public workforce is an-indispensable– component to the effective functioning of a modern market economy.

    Every credible economist agrees with Dr. William F. Mitchell that “High and persistent unemployment has pervaded almost every OECD country since the mid-1970’s.”.

    In the mid-1970’s, the world economy underwent a paradigm shift: The colliding forces of automation, technology, globalization, etc., reached a critical mass-resulting in ubiquitous unemployment in all of the OECD countries- leaving their leaders conflicted, ever since, regarding the displaced employee.

    Eurozone unemployment is still in double digits, with Greece and Spain both in excess of 20%, and we still have 12 million jobless Americans, in spite of our optimistic, but lethargic, 7.6% unemployment rate.

    In the U.S., we took a pro-active role in addressing this economic shift-and in 1978 President Carter signed into law 15 USC § 3101–which “authorizes” the creation of a “reservoir of public employment” anytime unemployment in America exceeds “3%”–a Pro-Market solution.

    In Australia, Dr. Mitchell has proposed THE BUFFER STOCK EMPLOYMENT MODEL: An expanding and contracting public workforce, that expands during downturns in the market, and contracts as employees return to the private sector, and in applying our Law–triggered anytime our unemployment exceeds 3%.

    PART 2 [of 2] The Legacy of a Dysfunctional Senate/Congress

    For multiple reasons, the legacy of fear associated with McCarthyism, the erroneous belief that public sector jobs equate with massive deficit spending, and the overarching reason: The failure to recognize unemployment as a “social” problem, i.e., we, as a society, are compelled to address-Washington keeps insisting that the market can fix a problem-it is no longer capable of fixing-

    In short, the world has changed, our solution hasn’t, and fixing unemployment has been a disaster [the 2010 election…we celebrate automation, but are remiss in addressing the displaced employee].

    And not being considered are Pro-Market, deficit-neutral: HR 870 [funded by a stock transaction fee], and The Neighbor-To-Neighbor Job Creation Act: A federally mandated, mutual insurance, owned by our employed-to provide a fund to hire/train our unemployed [via Social Insurance]. For a modest 4% of salary policy cost, we could reduce our unemployment to 3%, within a year of passage [and in concert with 86% of Americans who believe that “anybody willing to work should be able to find a job”].

    In closing, this would create more private sector jobs in 6 months, than our current path [HR 2847-The HIRE Act], in six years….and evidenced by the CBO projection that on our current path it will take until 2017 just to get back to a barely acceptable 5.5% unemployment rate [with unemployment benefits long since expired]-and for not the least of reasons, this would restore and inspire confidence in the economy, and address domestic violence-[and the failure by the Senate to pass common sense gun control was one of he most shameful days in American history!].

    See also: ECONOMIC INCLUSIVISM, and BACK TO FULL EMPLOYMENT, on Amazon/Kindle.

    Jim Green, Congressional Democrat opponent to Lamar Smith, 2000 http://www.Inclusivism.org

  87. President Obama/Council of Economic Advisers:

    Capitalism is ideal in producing and selling corn flakes and cars-It doesn’t work in solving “social problems” such as unemployment and our healthcare….

    And when we have tried “privatization” to solve our social problems-it has been a disaster:

    Essential programs have been cut-such as the elimination of text books from the Job Corps education program-to increase profits, and cronyism has been rampant-

    And in our “for profit” healthcare system, billions of dollars are siphoned away from the premiums we send in-and do not go to the healthcare of ANYONE-but rather is used to pay for lobbyists, to make the CEO’s filthy rich-and spent on propaganda ads to keep it that way!

    Further, it attracts a few who see healthcare as a means to get rich, rather than cure the ill….

    The truth is, we currently have a blended system-and they are, in fact, indispensable to each other:

    Were it not for Social Security Insurance moneys percolating up through our economy in 2008-we would not be talking about having narrowly averted another Great Depression-We would be buried in one!

    Social Insurance is a vital ingredient in building a vibrant and decent society-And, invent a better widget, sell the company for a million bucks, and retire in South Florida [capitalism]-is as well a vital ingredient in building a vibrant and decent society.

    So why do we have this war of words pitting the two against each other-rather than educating the American people regarding the indispensable symbiotic relationship they have to each other?

    Most Republicans ask God in their prayers at night to be protected from communists, or socialists, or even worse “liberals”-

    And this war of words disguises that the Republican Party, today, is not the Pro-Market party they boast-but rather their policies are, in fact, Anti-Market-destructive to capitalism!

    Pandering to the greed of their wealthiest contributors-the Republican One and Only program-is NOT a Pro-Market concept!

    Another misnomer in the war of words, is right-wing invented “entitlement”-a word that should be banned from honest discussion-do we refer to our auto insurance as an “entitlement”?

    And when Social Security Insurance brings in more that it pays out, i.e., is deficit-neutral–how is that an “entitlement”, and why is it portrayed in our graphs as a “government expense”-or even included? If a corporation reported a massive loss on a product they in fact made money-they would be charged with fraud in a New York Minute!

    The list goes on-please see: OUR GREED AND IGNORANCE, on Amazon/Kindle

    Jim Green, Democrat congressional opponent to Lamar Smith, 2000

  88. Dr. Mitchell-two questions [when you have time to answer]:

    Those who are dismissive of the importance of [or are frightened by] Full Employment invariably assert that Full Employment causes inflation-[in the absence of direct cause and effect data–there could be other reasons, other than full employment–and there is night and day between mild inflation-and economy-killing inflation]—but the truth is, we have an abundance of data on this specific issue from Australia — 1945-75 – when it was government policy to provide work for anyone who was willing and able to work. In short, do you have data on the annual inflation rate over those 30 years? Does this data provide definitive proof that this theory is false, or specious, at best? And since this Full Employment policy survived for so many years it certainly appears that the inflation rate was not a death knell for the economy-which leads to the second question–

    And 2, it is obvious that Full Employment is on the right side of history, and work will, in time, become a legal right [IMHO]-but following the massive paradigm shift in the world market economy in mid-1970’s, we politically took a dramatic shift to the right, Reagan and Thatcher were swept into power, along with the ushering in of neo-liberalism [a disaster for America, we, to this day are still trying to recover from]-the question is: We were at a crossroads, and we were on course to make a major step forward in our social evolution-and I am curious re your opinion why we took the wrong path?

    Jim Green, Democrat candidate for U.S. Congress, 2000 ECONOMIC INCLUSIVISM, on Amazon/Kindle

  89. Again, a land value tax introduces contractionary fiscal policy which would force many people onto the JG. But it would destroy large property owners if that is the problem.

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