I have received several E-mails over the last few weeks that suggest that the economics…
The ultimate boondoggle courtesy of slack government policy
Workers, particularly low-paid ones, are regularly sent up in comedy or satire. The 1959 British movie – I’m All Right Jack – was an acidic attack on the British trade union movement although it also parodied the stuffy upper-class British industrialists as well. In 2003, a British author Magnus Mills published the book – The Scheme for Full Employment – which is a satirical attempt to deride Keynesian full employment policies. Boondoggling and leaf-raking is the term that invokes the ultimate put down by the conservatives who laud the virtues of the private sector and accuse the public sector of creating waste and sloth every time someone proposes that the government introduce a large-scale job creation program to alleviate the dreadful damage that mass unemployment causes. Well the New York Times investigative team has discovered the ultimate boondoggle that has been made possible because of slack government policy. And, it involves our friends in the financial markets – those so-called productive, entrepreneurial free marketeers.
The Scheme for Full Employment is narrated by a driver of one of many UniVans, which each day follow a very busy schedule, shifting spare parts around the countryside from depot to depot. Yet, the UniVans are designed to never wear out or succumb to rust.
The daily routine is repeating. Arrive at the depot, load up with crates of spares, drive around to the next depot, unload, reload a new crate containing spares and so on.
The van drivers receive a raft of benefits (dry-cleaning allowance, welfare fund, subsidised tea and doughnuts, etc) and a regular productivity bonus, even though there is no measured productivity.
The book has all the stereotypes. Workers who try to knock of from work early each day, endless debates about work practices, go-slow campaigns and a massive strike.
There are all sorts of dodges – for example, vans being used for private profit making etc.
The UK Guardian reviewed the book (March 1, 2003) – Mysteries of the mundane – noting:
The book is a Keynesian fantasy in which citizens are kept gainfully employed by driving a fleet of vans from one depot to another. This doesn’t create much actual work for those involved, but as the narrator shrewdly comments: “there’s a difference between full employment and being fully employed”. The workers can win a productivity bonus even though they don’t actually produce anything, since they always might if they were working in a different industry.
Margaret Thatcher is channeled in the form of a newly appointed supervisor (a female named Joyce) who hates so-called workplace rorting and full employment policies, which she calls “failed social experiments’ in the book.
Towards the end, the narrator reluctantly admits that Joyce:
… looked magnificent and, at that moment, I realised the future belonged to people like her.
Which leaves the reader with the right impression (excuse the pun) about the validity of neo-liberal attacks on government programs that not only provide stable and secure work but also the welfare state in general.
I should add that I have been associated with several public works programs and also studied a considerably greater number and the Scheme for Full Employment bears little resemblance to any of the real programs over many decades that I am now familiar with. But stereotyping works doesn’t it?
There are countless other efforts in the arts and literature that deride the rights of workers to expect full employment and decent working conditions. Workers are regularly cast as being lazy, scheming, ingrates who if the capitalists are not taking care of them (a la Atlas Shrugged) then the government is expected to fill the breach.
No-one does anything for themselves although the workers always display cunning and a kind of ingenuity in the rorts they come up with to take what they haven’t produced through their toils.
Boondoggling and leaf-raking is the term that invokes the ultimate put down by the conservatives who laud the virtues of the private sector as they create hundreds of thousands of low-skill, low-paid, precarious and mind-numbing jobs but hate, with an irrational passion, the idea that the public sector could employ workers that the private sector doesn’t want and get them to work on community development projects at a minimum wage. And to put a finer point on it … on projects that can leave massive positive legacies to all that follow.
I last considered the put-downs against public sector employment programs in this 2009 blog – Boondoggling and leaf-raking ….
But more stark is that when large-scale public sector employment programs are most needed, the private sector is not even producing those low-skill, low-paid, precarious jobs that stamp out relatively useless plastic items or whatever.
While these free market zealots see the massive waste of public sector job programs they fail to see that:
1. National income is being produced which multiplies into more income via increased spending throughout the economy.
2. The massive loss of national income from mass unemployment.
3. The huge intergenerational damage that entrenched unemployment to individuals, their families and the broader society.
This article appeared in the – Sunday Morning Star – on October 13, 1935 – “Boondoggling” and “Leaf Raking”. It is self-explanatory.
I suspect most people who deride public sector job creation (especially large-scale public works programs in times of acute stress) have never actually seen one in action or needed to seek employment in one.
But clearly we didn’t learn much in 50 years. This article – Public Works Isn’t ‘Leaf Raking’ – which happened to be published in The Virgin Islands Daily News on January 28, 1997 (thanks Google) is interesting.
The writer was commenting on a journalist’s take on public works programs introduced by President Jimmy Carter to combat the high US unemployment in the late 1970s.
The journalist:
… threw out all the old cliches about “make work”, “leaf raking”, “boondoggles”, “colossal waste” and on and on.
And in doing so, presented “an effective job of painting a picture of modern armies of Great Depression-type deadbeats leaning on shovels or picking up chewing gum wrappers”.
The aim of the article was to disabuse the reader of falling prey to these stereotypes.
US academic, Nancy Rose has been a strong defender of public works programs for many years. All credit to her. In this 2001 article – Workfare vs. Fair Work: Public Job Creation – her research leads to the conclusion that:
While opponents frequently accused New Deal programs of being useless “make-work,” the opposite is true. They literally changed the face of America. Participants not only performed useful work. Most of it would not otherwise have been done, and the country would have been poorer as a result. Workers built and repaired 1 million miles of roads and 200,000 public facilities, including schools, playgrounds, courthouses, parks and athletic fields, swimming pools, bridges, and airports, drained malarial swamps, and exterminated rats in slums. They created works of art, gave concerts, set up theaters throughout the country, even in small towns, set up nursery schools, served over 1.2 billion school lunches to needy children, gave immunizations, taught illiterate adults to read and write, and wrote state guidebooks–classics that are still in use. They sewed 383 million coats, overalls, dresses and other garments, and, using surplus cotton collected by the Agricultural Adjustment Administration, made more than a million mattresses that were given to destitute families, as were the garments.
She also notes that there “were programs for youths, who were especially hard-hit by the Depression”. It will undoubtedly the case that the majority of those youth who were employed in the Civil Conservation Corps (CCC), not only added to the health of the land they worked and left their children and grandchildren “a legacy of land, water, and forestry preservation”, but also became productive adults capable of avoiding welfare support.
In October 2000, the Monthly Labor Review (a journal published by the US Bureau of Labor Statistics) published an article – Public-service employment programs in selected OECD countries – which analysed why such programs failed and why they succeeded.
It noted that:
Public-service employment programs play an important role in many OECD countries; they may be the only effective way to aid those among the long-term unemployed who are less skilled and less well educated.
The BLS says that well-designed programs “cost less, serve local communities’ needs better, pro- vide work experience closer to the “real economy” than is typically the case in more traditional public-service employment programs, and often do a better job integrating skills training with work experience”.
Anyway, I was reminded of Mill’s “The Scheme of Full Employment” when I read a New York Times article over the weekend (July 20, 2013) – A Shuffle of Aluminum, but to Banks, Pure Gold.
Except this is a real world example of the total failure of a system of activity to produce anything of value other although it employs people.
It is a long article but the nub of it is as follows.
Goldman Sachs and other hedge fund types have been granted a massive profit-making machine courtesy of government regulative changes in their favour.
Nothing productive is created in the upshot.
The NYTs article tells us that every time a US consumer buys a can of drink they “pay a fraction of a penny more because of a shrewd maneuver by Goldman Sachs, JPMorgan Chase and Morgan Stanley etc that ultimately costs consumers billions of dollars”.
The Article says:
The story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman subsidiary stores customers’ aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again.
Sounds like boondoggling to me. Sounds like those UniVans tripping between depots down- and uploading the same cargo and moving off to the next depot.
The motive in the UniVan scheme is to employ people which is admirable. The motive in the GS scheme is to lengthen “the storage time” of the metals.
Why? Obvious. GS earns rent on the storage sheds they own and the manipulation of supply “also increases prices paid by manufacturers and consumers across the country” for the metals.
The capacity of GS and others to inflate the prices by manipulating the storage time that customers (owners of the metal) have to tolerate comes courtesy of “loosened federal regulations”.
The Federal Reserve Bank gave these financial firms “special exemptions” and the US Congress approved regulative changes that allowed these banks to make billions by purchasing storage sheds and manipulating supply.
The Article documents how GS bought a company specialising in the storage of metals (25 per cent “of the supply of aluminum available on the market is kept in the company’s Detroit-area warehouses”).
Before the purchase, customers “used to wait an average of six weeks for their purchases to be located, retrieved by forklift and delivered to factories. But now that Goldman owns the company, the wait has grown more than 20-fold – to more than 16 months”.
The aluminium market is governed by rules set by the London Metal Exchange. The rules, designed to reduce the capacity to rig markets, require that “at least 3,000 tons of that metal must be moved out each day”. The intent was that the metal would be moved into the hands of customers.
But GS, through its subsidiaries, worked out that they could move it from one warehouse to another and still fall within the regulations governing the sector. The customer who owns the metal then pays higher rents for the extended (unnecessary) storage times and passes it own to final users as higher prices.
An industry specialist told the NYTs that the practice imposed “a totally artificial cost” which represented a “drag on the economy”.
It gets murkier, because the industry overseer, the London Metals Exchange gets “1 percent of the rent collected by its warehouses worldwide”. It just happens that the Exchange created the regulations that the banks are exploiting at a time when GS, Barclays and Citigroup owned the Exchange.
Importantly, the NYT article says that:
All of this could come to an end if the Federal Reserve Board declines to extend the exemptions that allowed Goldman and Morgan Stanley to make major investments in nonfinancial businesses – although there are indications in Washington that the Fed will let the arrangement stand.
So this is an elaborate public sector facilitated scam that adds nothing to the real sector – other than the forklift driver salaries etc – and reduces the real income of the majority of Americans to the benefit of a few 1 percenters.
That is the sort of “make work” program that would not be in the Job Guarantee Handbook of Best Practice.
The more general point the NYT article makes is whether banks should be allowed to own non-financial businesses, which is also an issue that MMT has addressed.
I will leave it to you to read the full article (it is long) to appreciate their argument.
Please read the following blogs – Operational design arising from modern monetary theory and Asset bubbles and the conduct of banks for further discussion.
There also remains a confusion in the community about the causes of mass unemployment. A reader wrote to me the other day claiming that the 100 dogs and X (some number less than 100) bones analogy is false because there is plenty of money in the economy to employ everyone it is just that capitalists are greedy and hogging the money.
The claim, of-course, is a classic confusion between a stock and a flow and in this case, wealth and spending. Two things are obvious:
1. There is massive wealth inequalities and there are haves and have-nots. The haves have immense wealth – a stock. Wealth stocks do not cause mass unemployment (a lack of bones (jobs)).
2. It is flows of spending or saving that drive unemployment. The flows of saving augment the wealth stocks, but the holding of wealth is not the day to day cause of unemployment.
If we take Spain for example, there are 100 dogs and around 71 bones. The dogs are the workers who are participating in the labour force and the 71 bones are the total jobs available.
What determines the number of bones? Total spending or aggregate demand – a flow. Each period, total spending determines how many jobs will be offered (given technology). If there is insufficient spending to generate the jobs that would employ all those who desire to work under the current conditions then there will be jobless workers (boneless dogs). It is the lack of demand that undermines employment.
The 100 dogs and 71 bones parable correctly depicts that situation. The dogs cannot get jobs (bones) that are not available. At least 29 will return each day after searching without a bone (some dogs might be very productive and find more than one bone). It is an easy way of representing unemployment as a lack of jobs. There is no other reason for mass unemployment.
And when there is a lack of aggregate demand after the private sector households and firms (both domestic and exporting/importing) have made all their saving decisions (that is, non-spending), then there is only one sector left that can fill the gap.
The government might try to motivate higher levels of private spending by tax cuts or other means (for example, lower interest rates). But these sorts of incentives are often ineffective when there is high unemployment and a low state of confidence. They become more ineffective when there is a mountain of private debt hanging over the solvency of households and firms.
In that situation, the government has to create the jobs either within the private sector by placing new orders for goods and services produced there or by offering public services through direct public sector employment. Both strategies will increase the number of bones in the economy.
They each have their merits and drawbacks.
As an aside, these E-mails also urge me (and other MMT founders) to drop the Job Guarantee from our work as it allegedly offends people so much that they will never consider the rest of our work seriously.
Apparently, the Job Guarantee is a “policy add-on” with no essential conceptual value. I addressed these issues in these blogs – MMT is biased towards anti-crony – and – Whatever – its either employment or unemployment buffer stocks – for more discussion on this point.
If you are in doubt I urge you to read these blogs because they provide an understanding of the core historical evolution of the theoretical literature in macroeconomics that is missing in a lot of the amateur blogosphere attacks on the Job Guarantee.
In those blogs you will come to appreciate the important roles that the Phillips curve construct has played in the development of macroeconomic theory across all approaches (schools of thought).
Since the Classical economists considered money, implicit in the debates is an idea that later was formalised into the Phillips curve – a relationship between inflation and unemployment. The twin evils of macroeconomics.
Modern Monetary Theory (MMT) is a unique development because it started out as a dialogue among different people with different backgrounds and experiences. There have been many academic papers and books written by us 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.
One of the central theoretical issues we addressed were the major constraints on activist fiscal policy imposed by the theories advanced by the then dominant Monetarist school. They put the Phillips curve at the centre of their analysis with the Non-Accelerating Inflation Rate of Unemployment (the NAIRU) occupying the main stage.
You can read about that evolution of though in the blogs cited above.
Our task, as academics, was to develop a rival macroeconomic theoretical framework that addressed these issues but still advanced a more complete understanding of how monetary systems worked.
A key conceptual (theoretical) vehicle for challenging the dominant orthodoxy was to use the Phillips curve to show that a capitalist system augmented with a specific public sector design element could full employment with price stability.
As my colleague Randy Wray noted in a – Speech in 2011 – the concept of the Job Guarantee (that is, our work on employment buffer stocks):
… 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.
That is a major aspect of our theoretical approach as is the juxtaposition of unemployment and employment in a buffer stock framework.
A complete macroeconomic framework has to be comprehensive. A description of how banks actually work is useful but is not a macroeconomic theory. A theory of “state money” is not a macroeconomic theory in the way that that term is understood. These are components of a whole.
One might not be very interested in the “Phillips curve” aspects of MMT and prefer to focus on some other aspect of our work – such as, study how bank works 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 among macroeconomists of all persuasions today.
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.
In other words, the Job Guarantee is not just a tacked on policy preference. Is it an intrinsic part of our Phillips curve framework.
Conclusion
While the authorities allow the GS “warehouse dance” as it is called, they bow to the pressures from the conservatives who prefer to keep the disadvantaged citizens suspended in a void of joblessness. Sometimes, they will cycle the pool through clearly irrelevant training programs.
The “warehouse dance” is a classic case of how the deregulated market fails and expends real resources with no welfare gains to show.
But when we talk about public sector job creation, the free market zealots express a major distrust the ability of the private sector to structure interesting and attractive jobs to lure workers away from Job Guarantee positions.
Remember, that the Job Guarantee provides buffer stock employment to anyone who wants such a job at any time at any fraction of a working week. It is an unconditional fixed wage offer to anyone by the Government. That is a very powerful aspect of the proposal as it means the Government ‘hires off the bottom’ rather than the top and can never be a source of inflationary pressure.
The private sector can employ the JG workers any time they choose. All they have to do is provide a better “market” opportunity. That would encourage dynamic efficiencies because the incentives would be there in the private sector to improve productivity and on-the-job training to ensure that the wages paid were profitable.
Others argue that the JG workers might never want to leave the Job Guarantee despite the fact that the private sector has complete scope to hire out of the Job Guarantee workforce by simply offering attractive employment conditions.
To think that the workers would never be lured out of the Job Guarantee is to display a staggering lack of confidence in market forces.
Moreover, what a shocking thing it would be that the workers who have been unable to find work because the economy has failed to produce enough jobs (due to deficient macroeconomic policy) might actually enjoy working for the safety net wage.
Wouldn’t that be something to regret! It is better to keep them unemployed doing nothing and feeling the various social stigmas that are continually placed on them by Government and the media than to give them a job that is adding value to our communities and get them off the welfare rolls! Why is it better? Because they might like the jobs!
And of course, the market will solve the problem – isn’t that what the government is preventing by creating jobs itself!!
But then these brilliant “market forces” generate schemes that see forklifts shifting tonnes of metal from one pile to another each day.
That is enough for today!
(c) Copyright 2013 Bill Mitchell. All Rights Reserved.
Nancy Rose’s point that the WPA did all sorts of productive work in the 1930s is true, but it’s a dodgy basis for advocating JG. Reason is that in the 1930s there was loads of unemployed skilled labour, so it was easy for the WPA to find suitably skilled people to build bridges etc.
In contrast, the real niche for JG does not come in dealing with unemployment where there’s loads of skilled labour available: i.e. where the best way of cutting unemployment is simply to raise demand. I.e. the real niche for JG comes where there is a SHORTAGE of skilled labour: where a straight rise in demand won’t solve the problem.
Concentrating lots of recently unemployed individuals a la WPA in specific projects (building bridges or whatever) will lead to inefficiencies with JG: projects employing only or primarily the relatively unskilled will be very inefficient. Far better is to allocate those people to existing employers: that way you get a more normal mixture of skilled, unskilled, capital equipment, etc.
@ Ralph Musgrave,
How can we allocate unskilled labor to employers who have explicitly rejected them?
“rather, full employment and price stability go hand in hand.”
They do once you extend the definition of ‘full employment’ to be the ‘loose full employment’ envisaged by the Job Guarantee.
A lot of the arguments I see are down to people seeing ‘full employment’ as either fully engaged in the private sector, or fully engaged in the private and standard public sector.
Job Guarantee adds a third category of job that is included in ‘full employment’. It sits between the private sector and the public sector – buffer stock employment.
Only when you add buffer stock employment – people engaged in often non-essential, or not always profitable, activities that other people still consider worthwhile and therefore worthy of a wage – can you get full employment with price stability and sustainable effective demand over time.
And it all boils down to one simple underlying factor within the psychology of human beings. We only feel the need to share with others who have, given their circumstances, appeared to pull their weight in whatever shared task we are undertaking.
It is refusing to address that underlying psychological need that causes all other income support, citizens income, universal pensions and income guarantee schemes to fail.
If we work, we need to see you work. Then you will be cheerfully allowed your corn. Otherwise you are going to be resented, and those among us who are agitating to have your corn removed will be supported. And we may not work as hard or as long due to our resentment of those getting ‘something for nothing’ – driving inflation.
It has to be a Job Guarantee in our current societies. Or you have to change all the humans for something else first.
“projects employing only or primarily the relatively unskilled will be very inefficient.”
They are supposed to be relatively inefficient. That way they can be easily ‘crowded out’ by a resurgent private sector, or a beefed up public sector. In fact it has to be designed with a ‘back off’ process so that the private sector can request that JG ‘gets off their patch’.
A Job Guarantee would indeed dig out a canal with manpower and spades – because it has lots of manpower available and little or no capital equipment. Then if some private operator with a JCB sees an opportunity to profit from digging out the canal, it can ‘outbid’ the current project and take over. The Job Guarantee crew then moves onto burying electricity cables, or whatever.
One of the great uses of the Job Guarantee would be ‘inertia breaking’ on loads of projects. Show that something has support and people want it done. That immediately reduces the risk and brings in a flood of private sector operatives who can see the profit potential once the project has ‘broken ground’.
As well as the issue of increasing the subsidies of private profit, and increasing concentration of equity because of the oligopoly effect of larger companies who can better engage with state bureaucracy, there is also the problem that the rest of the private sector are unlikely to be able to ‘bid away’ these subsidised position with their private sector competitors.
So you get stuck with permanent subsidies favouring larger companies, driving further ‘rentier’ profits, increasing the oligopoly issues of larger firms and creating displacement issues.
The Job Guarantee needs to be efficient enough to be supported as meaningful work for your wage and deliver solid public outcomes so that the rest of us will continue to see it as worthwhile.
Paying Tesco out of the public purse to take on millions of people and make profits out of that public subsidy is going to be resented by the population at large and there will be agitation to remove it. It would be immediately seen as ‘not fair’.
It’s a non-starter for that reason alone.
Dear Ralph (at 2013/07/23 at 19:07)
I am not sure that you get out much but in my travels (for work) I find large pools of unemployed workers who would immediately benefit from the introduction of a public sector Job Guarantee. Just around me now there are hundreds of communities without any definable private sector labour market and very high unemployment.
In South Africa, where I did some work with the major public works program, millions of unemployed workers moved above the poverty line as a result of large-scale public sector job creation.
My understanding of the data in the UK, where you live, is that there are millions of low-skill workers who would benefit.
I could go on.
I think you should look around a bit.
best wishes
bill
Ben,
I’m not suggesting that employee X who has recently been sacked by employer Y should necessarily be returned to employer Y. Under the JG system I favour, employee X would be allocated to the best available JG vacancy: the vacancy to which X was best suited. That would probably not be their old job at employer Y.
But it’s CONCEIVABLE that an employee would return to their old job. I.e. an employer might regard a particular employee as being an uneconomic proposition on a regular wage, but a viable proposition given the JG subsidy. In that capacity, JG would act as a redundancy delaying subsidy. In other words the employee probably wouldn’t leave their regular job at all before becoming a JG employee. That is the employer would just tell the government agency organising JG: “this employee is no suited to their job or is surplus to my requirements. I’ll be sacking them at some stage. But I’ll keep them on for a few months with the aid of the JG subsidy while the employee looks for a more suitable regular job”.
Neil,
I don’t favour creating less efficient employment than is possible. I agree that JG employees should shift from JG employment to regular employment as soon as the economy “resurges” (to use your terminology), or as soon as a suitable regular vacancy appears even if there is no general “resurgence”. But the speed with which they shift is determined mainly by the wage differential as between JG work and regular work and not by the relative efficiencies of the two types of work. E.g. if someone gets the same wage on JG work as on regular work, they’ll be slow to shift even if the regular work is twice as productive as JG work.
I don’t see “inertia breaking” having a big effect. E.g. the fact that loads of JG workers are digging your canal with spades won’t persuade many private contractors that the canal is viable: private developers or contractors can easily do calculations to work out whether a canal is viable even if there aren’t loads of JG people labouring away with spades to alert private contractors to the possibility of canal building.
Re the PRIVATE employer point, I said nothing above the private versus public argument and I didn’t intend to imply anything on that score. That is, my points are very general: applicable to a “public only” JG scheme or a “public and private” scheme.
Bill,
For reasons I don’t understand, you claim I’m opposed to public sector JG. I certainly didn’t intend to suggested there ISN’T scope for public sector JG.
As you rightly say, there are plenty of public sector jobs that would come into being given JG. They’d be less productive than REGULAR public sector jobs, but never mine. As it happens I think there is MORE SCOPE for private sector JG, but that’s a separate argument: one that I specifically avoided above, as I’ve just pointed out to Neil.
If the regular work is twice as productive as JG work surely they can afford to lure JG workers by paying more?
I would guess the JG is a bit of a psychological lynchpin. I, being one of the sinking workers in todays job market, live in fear every day. I think a JG would alleviate that fear quite a bit. When I see the homeless as I go to work everyday, and hear about other unemployed, I fear for my family and their future. If I can’t believe those people don’t deserve their place, than I can’t believe they are different from me. If merit has nothing to do with it, my fear becomes terror, because but for lady luck, there go I. Therefore I have to continue in my “fantasy world” that those people aren’t like me, I can’t become them, and they deserve it. I guess I even hate them, or at least I feel an irrational anger when I look at them. I think this is why there will never be a JG in the”real” world.
“That is, my points are very general: applicable to a “public only” JG scheme or a “public and private” scheme.”
It is the same issue. You cause problems with the existing workers – displacement effects, union action and cause concentration of power and equity. It’s classic centralisation with all the rigidity and reduction in diversity that entails.
The problem with the view is one of ‘efficiency’, which is highly narrow and largely irrelevant in the case of the Job Guarantee. These people are spare and surplus to requirements at this particular point in time. They need to be engaged doing things that are considered useful so that they can obtain their wage. They don’t need to be doing things supremely efficiently because that may crowd out other operations who have prior call on any capital goods – particularly those in the private sector.
They should be as efficient as possible of course given the capital restrictions.
“private developers or contractors can easily do calculations to work out whether a canal is viable”
No they can’t, and by stating that you are revealing that economist bent to believe that operations can tell the future accurately.
There is always fundamental uncertainty. Getting people to work on something de-risks that operation. Eventually it can get to the point where it is obvious that there is money to be made here, and the public goods created help lower the barrier even more (to return to the canal example, say if the JG workers repair the lock).
When somebody breaks a new market, there is always a flood of copycats coming in afterwards. That is what de-risking looks like – lots of people on the sidelines who rush in once the market is proved to be there. That is why public infrastructure is such a great business enabler – The Internet being the best case of that approach.
The JG anchor design is to counterweight both the existing higher wage public and private sectors and pull against them to keep them in check and discipline those other two sectors.
I really don’t understand the objection to the three sector model. The employment buffer sector represents those public jobs that are disposable and can be left unfilled during the boom part of the cycle. That is different from a permanent post at the same remuneration in either the public sector, or the private sector. Remember that a permanent post is likely seen as more valuable than a JG job just for the extra stability and possibility of career and salary advancement.
I’m not sure where this idea that JG won’t use the existing public infrastructure comes from. Many may end up with the Army for example or working for councils. But I doubt it would be on the same type of job – if only because that would likely make the permanent staff feel insecure.
Then there is the issue of the ‘well if it needs doing, it need doing permanently’ problem that will occur once the buffer starts to shrink during a boom. That’s less of a problem if you can shelve entire projects as the people move onto other jobs.
Neil,
I’ll take your points in turn. First, if you are saying that allocating JG people to EXISTING employers will cause problems with unions, etc, I agree there are finite problems there. But if JG people get at least the minimum hourly wage, the problems should be manageable.
Moreover, if JG schemes are SEPARATE from existing employers (as WPA projects were) and pay is less than the legal hourly minimum, the unions and the political left will kick up a stink. So I don’t see that the WPA model has big merits compared to allocating JG people to existing employers.
Re “efficiency”, if you ignore that too much and put JG people onto work that is very inefficient, or near pointless, that will dishearten them. They’ll tend to quit and revert to living on unemployment benefit.
Re JG schemes acting as pathbreakers, I don’t know of any examples of this from the WPA. The latter did range of boring, run of the mill jobs, as Nancy Rose correctly pointed out: building bridges and roads, etc. I don’t see JG schemes doing anything groundbreaking like setting up the internet.
My objection to the three sector model is as follows.
JG does not make a huge amount of sense where unemployment can be reduced simply by raising demand: i.e. the niche for JG is at the point where more demand causes excess inflation – though obviously that point is difficult to estimate. Bill once called that the “inflation barrier” point.
Next, JG schemes require a supply of permanent skilled labour, capital equipment, etc, but that skilled labour and equipment cannot simply be ordered up from the existing economy because the latter is at capacity. Ergo, there are two possibilities. Have JG schemes along the lines of the WPA and employ just relatively unskilled labour and no skilled labour or capital equipment. But that makes for VERY INEFFICIENT types of work. Or allocate JG people to existing employers, which results in better output from JG people because of the better mix of unskilled / skilled labour / equipment / materials, etc.
Moreover, the “two sector model” if I can call it that, does not preclude creating (in a recession) “those public jobs that are disposable and can be left unfilled during the boom”. E.g. a UK local authority direct works department could take on a few extra labourers in a recession and have them do relatively peripheral or unproductive work, and then let them go in a boom.
I agree that there is a problem with “well if it needs doing, it need doing permanently”. But if I was economic dictator (and I’m baffled as to why Europe doesn’t want me as economic dictator) I’d solve that problem by making it very clear that the JG jobs with existing employers were TEMPORARY posts.
And it gets better: Today Goldman Sachs claims that it’s the owners – not the warehouse operators – who control the disposition and location of the metal stored in or outside the LME. They have nothing to do with it! And if you believe that, I’ve got a great bank in Cyprus to sell you!
Ralph,
There is a repeat of the same lines again with little change. I will go through them again.
“Next, JG schemes require a supply of permanent skilled labour, capital equipment, etc, but that skilled labour and equipment cannot simply be ordered up from the existing economy because the latter is at capacity.”
Yes it can. It’s called taxation to make space for it. Just like we do with the judiciary, the council services, the police force, the army and the rest of the public infrastructure.
Any way you dice it you have a management and organisation overhead that has to go somewhere and that is permanent provision – so it has to be paid for. It cannot simply be expected to absorbed by the existing public infrastructure because if that was there then it would already be in use.
That’s why when you start the JG, first you just pay people. Why? So that the shortage of effective demand is snuffed out straight away and the existing structures start to increase output up to their capacity and start looking to add more. That immediately reduces the amount of JG jobs that you need to provide, but leaves the private sector short of a boom.
You then get the JG on stream to get those people something to do for their money before the social resentment problems kick in. And you start with beefing up existing public infrastructure with separate divisions, and add in the control layers. Again you get the additional infrastructure in place before the private sector booms.
You then implement the auto-stabiliser taxation and spending system so that it stops the private sector expansion at whatever point short of the inflation barrier you fancy – either well short or fairly close depending upon how confident you are in the flexibility of your supply side and what the signalling numbers say – and likely before you exhaust the JG anchoring buffer.
Stopping the private sector short of a excessive boom becomes a policy option because the JG ensures full employment. No longer are you at the whim of the ‘confidence’ of the private sector. You can let businesses bloom and die off reasonably naturally.
You don’t wait until you’re full before you put the infrastructure down, and that is where there is a failure in your logic. Too much considering the issues at a limit you have no need to get anywhere near – because the Job Guarantee means you don’t have to.
“a UK local authority direct works department could take on a few extra labourers in a recession and have them do relatively peripheral or unproductive work, and then let them go in a boom.”
That is exactly what is envisaged in the JG designs, but it would need to be cleverly managed and likely separated to avoid causing resentment issues within the existing public sector employees. Different division or teams.
Similarly with the third sector – where you have to avoid giving the third sector too much power – or when using the armed forces to construct a ‘civilian task force’.
MMT moving into the youtube world 🙂 Warren Mosler explaining some basic tenets concisely here. Spread the word! http://www.youtube.com/watch?v=JGuNpqYBkZk
In addition its nice to see a search for bill mitchell mmt returning a few more results now. Small viewing figures so far but this could become a tremendously important way of spreading the message. Its sad that many people are so lazy they wont spend the time to educate themselves even with a blog like this, perhaps a video message will be easier for them to digest.
Neil,
Your first three paragraphs claim that capital equipment, materials etc for JG schemes can be obtained by raising taxes. Agreed. But it strikes me JG (along the lines of the WPA rather than allocating JG people to existing employers) is in a logical bind there, and as follows.
1. JG can employ exclusively the relatively unskilled and use virtually no materials or equipment in which case it will be very inefficient. 2. At the other extreme, it can employ what economists call “factors of production” (skilled labour, equipment, etc) in the same ratios as a regular employer. But in that case JG simply becomes a regular employer. Or (3) JG can employ SOME skilled labour and equipment, but less than is normal. But in that case JG (at least arguably) falls between two stools. Put another way, it has some of the characteristics of a regular employer, which makes it a bit of nonsense, while at the same time as having a sub optimum ratio of different factors of production.
My conclusion: output for the economy as a whole is maximised where JG people are allocated to existing employers. Reason is that ALL EMPLOYERS have the optimum ratio of factors of production.
“Then it would already be in use..” I’m not 100% sure what you are saying there, but if you’re saying that allocating JG people to existing employers is a contradiction in terms because those JG people would then have regular jobs, then I don’t agree.
A regular employee is one whose wage is fully funded by the employer because the employer regards the employee as justifying the wage. In contrast a JG employee is one who is not too well suited to the job, and which the employer will only hire with the assistance of a subsidy.
And that explains why JG with existing employers works. Under a non-JG system, employers will only take on employees where the latter’s output covers the minimum wage, union wage or whatever. JG enables aggregate employment to rise because it lets employers take on employees whose output is BELOW the min/union wage.
Re your next 5 paras, I don’t really understand them. You’ll have to re-phrase them.
“Reason is that ALL EMPLOYERS have the optimum ratio of factors of production.”
That marginal argument again. I can guarantee you that in the real world they don’t. Neither do they fund those factors optimally according to their contribution.
All of what you write is based on that argument, and that is not how real businesses work. Competition just isn’t that good at honing this ‘efficiency’ thing you keep getting excited about. Businesses are notoriously inefficient. The public sector is legendary for it. The larger they are, the more inefficient they are and they rely increasingly upon oligopolistic effects and regulatory capture to keep going.
And occasionally they hire people like me in to look at their efficiency, then they ignore the report because change is too difficult. I then add to their inefficiency by issuing a large bill for the report they ignored.
The evidence is clear that changing the minimum wage has negligible effect on the amount of employment in the system. Therefore your argument falls at the first fence. We already have employment subsidies via tax credits and the like. Yet we still have loads of unemployment. The Work Programme has failed to get people working with ‘existing employers’ and to stay there for six months even though it is paying a bung to do so.
It’s not just deficient demand that causes that – it just doesn’t work. There has to be an active programme of new job creation because there are simply not enough jobs out there.
Very simply to employ millions of new people you need to put in place the infrastructure to manage them. Once you have relieved effective demand by just paying people the current infrastructure will be largely used up – people who are going to be hired have been hired. There is nothing spare to be used.
Therefore you need to find work for the rest elsewhere.
That will be in the public sector – alongside the existing structures and it will likely share them where that isn’t going to cause a problem. But it will require additional people managing those temporary employees.
The reason you find the JG in a bind is because you persist with the marginal argument that just doesn’t stack up in the real world of business, and has been dealt a death blow by the empirical evidence loads of time. The private sector drives efficiency by shrinking the buffer down during a recovery. The job of the public sector and the Job Guarantee pool on the other hand is to be effective.
Ultimately what JG workers really do is an advert to the other two sectors, and the public at large, that says ‘hire me – I can work’. What you produce from that labour is then a seen as a bonus
We tried the ‘public sector as implicit countercyclical employer’ trick during the immediate post war years. Because the function was not explicit, it was eliminated by those that simply didn’t understand it was there. Making the function explicit and constantly highlighting what it is there to do is an important part of keeping the structure in place over the longer term – particularly when it shrinks back during a boom.
Bill
What do you of warren’s view that the JG should not disrupt the private sector too much, by setting the fixed wage at a level that would interfere too much with say, the fast food industry ?
(This is my paraphrasing, not Warren’s words)
if a political party put forward a policy of a job guarentee they would get my vote
I would even campaign for them
but if a governemnt used their monetary power to advance the public purpose
in key areas where the market fails they would not need such a guarentee
I am not saying government shouldn’t give such a guarentee
I would not doubt the successes of public works programs over the years
but we are still stuck with wasteful inequalities
what was more important in establishing the growing prosperity of the majority
in the devolved world in the aftermath of ww2
the new deal public works program or the massive fiscal stimulus of ww2
the trained work high capital projects to propagate a war
as Neil Wilson said a formal job guarentee from the state was not made explicit
to establish full voluntary unemployment for a generation
yes I am convinced that such a guarentee can only help
there is much more that needs to be done
transferring our electrical production to more sustainable less harmful modes
renewing our public transport systems
recognizing our current system cannot provide high quality and affordable
healthcare ,education and housing for the majority of our citizens
and the erosion pay against productivity and growth
once we accept the government has unlimited spending power
we can see that the public purpose can be advanced beyond low paid jobs
I still believe in a mixed economy but extending the public sector
recognizing the innate failure of the private sector to advance greater equality
to realize potential including purchasing power of the poor
to make large upfront investment with no guarantees of future profits in vital areas
eg the withdrawal of private funded new nuclear power capacity without government subsidy
yes have a jobs guarentee but a government for the public purpose would not need
to make good that guarentee but if it helps to get there I am all for it
Bill, “The claim, of-course, is a classic confusion between a stock and a flow and in this case, wealth and spending.”
It’s worth pointing out however that stocks of wealth have an overwhelming influence on flows. Those holding large stocks of government debt act to ensure that the value of those wealth holdings are maintained. Austerity is a political inevitability when a vast mountain of wealth is held in the form of government debt that gains maximum value when the economy is mired in an economic depression.
The financial power conferred by those vast stocks of paper wealth is what drives financialization and enables Goldman Sachs to gouge consumers and industry and pay for the political campaigns to ensure that the laws are set to further facilitate more market rigging.
Stone: It’s worth pointing out however that stocks of wealth have an overwhelming influence on flows. Those holding large stocks of government debt act to ensure that the value of those wealth holdings are maintained. Austerity is a political inevitability when a vast mountain of wealth is held in the form of government debt that gains maximum value when the economy is mired in an economic depression.
There is a difference between “value of those wealth holdings are maintained” and “gains maximum value”. The first can be a reasonable aim, the second is so unreasonable, it is never publicly proclaimed. Austerity is never inevitable. All required to defeat it is political action, and all required to achieve that is education in genuine economics. Universal understanding of the difference of these two aims, how one hides behind the other, would be one great benefit.
The financial power conferred by those vast stocks of paper wealth is what drives financialization and enables Goldman Sachs to gouge consumers and industry and pay for the political campaigns to ensure that the laws are set to further facilitate more market rigging.
Then it is a good thing that as history and theory show, full employment, MMT and the JG, functional finance, deficit spending to accomodate savings desires lead to smaller “stocks of paper wealth” (relatively) and less financialization than austerity and unemployment. Government debt holders have nothing to fear from MMT and the JG, will NOT have to “act to ensure that the value of those wealth holdings are maintained”. For MMT & the JG will be the most anti-inflationary economic regime of all time.