I am still catching up after being away in the UK last week. I will…
Recessions are always a problem and can always be avoided
There was an article in the Fairfax press this morning (December 1, 2015) – ‘Australia headed for recession’: Yanis Varoufakis, former Greek finance minister – which featured the erstwhile finance minister stating the obvious. Last week’s investment data, which I analysed in this blog – Australia – investment spending contracts sharply, recession looming – makes it clear that unless is a substantial shift in the austerity mindset of the fiscal policy makers then the continued and accelerating contraction in private capital formation will drive the economy into recession. That conclusion is not rocket science – it is staring us in the face. When tomorrow’s National Accounts data is released we’ll know more about the trajectory of the economy in the September-quarter. But it is clear that real GDP growth is declining, and the non-mining sector of the economy is not taking up the slack that has been created by the end of the commodity prices boom which drove the mining sector strongly for several years. What was objectionable about the Fairfax article was the assertion by the erstwhile finance minister that “the recession itself would not be the problem … because some recessions are necessary”. No recession is necessary and they are always extremely damaging especially to those who disproportionately bear the consequences – aka the most disadvantaged citizens in the society.
To state another obvious fact, which I like to think is the most basic macroeconomic principle of all – spending equals income which is the result of output and employment.
Those who wish to claim that growth can come with spending cuts are in denial of reality.
The following graph shows the Private sector investment to GDP ratio from March-quarter 1980 to the June-quarter 2015. The long investment cycle associated with the mining boom is now over and the investment ratio is back to the levels that we saw at the onset of the GFC when uncertainty was manifest.
The recovery in 2011 was largely driven by the Chinese fiscal stimulus that allowed its economy to continue growing at robust rates despite the loss of export revenue as a result of the global recession.
The most recent slump is associated with the collapse in commodity prices (although we need to be careful not to overstate this given that the levels are still well above historical levels).
So it is fairly obvious when there is a contraction in investment spending of more than 20 per cent over the last 12 months that the economy will reduce its real growth rates in the absence of any new spending source.
The Australian government is pinning its hopes that export volumes will be so large that despite the drop in prices total earnings will continue to grow. That is, they hope that the mining capacity built over the last decade or more will start delivering greater volumes of output which will be sold on world markets (principally in China).
However is same forces that have led to the decline in base metal commodity prices (Chinese slowdown) will probably cruel export demand overall, even though prices have dropped.
The Fairfax article, essentially an interview with the former Greek Finance Minister, rehearses the same (obvious) point.
It notes that all nations, including Australia, are “caught up in the same global pattern of weak aggregate demand and excessive corporate savings”, the latter, “which are being handed back to shareholders via buybacks and dividends instead of being re-invested in additional capacity or productivity enhancement”.
The former Greek finance minister then juxtaposes two types of recession: a) “a short, sharp shock”; or b) and “entrenched, or secular, low or zero growth pattern … such as Japan”.
He was quoted as saying:
The recession itself would not be the problem … because some recessions are necessary. Some recessions are a bit like bush fires that clear out the forest, and help with the regeneration. The fear would be that this is something more secular, something more like stagnation, and a systemic crisis.
I’m not saying that is going to happen, but if I were a politician here, this is what I would be worried about.
I was surprised to read that from him. I wonder who he thinks would not find a recession “a problem”.
Certainly not those in the tens if not hundreds of thousands who would lose their jobs.
Certainly not the children who are forced to grow up in jobless households and who, according to the research findings, inherit the disadvantage of their parents and take the costs into their adult lives in the form of unstable work patterns, low pay, unstable personal relationships, increased incidence of physical and mental illness, and other pathologies associated with such a dislocated status.
Certainly not those who lose their savings as a result of income losses associated with joblessness and are driven closer to or into poverty.
It is true that some recessions follow a V-like trajectory where typically investment spending contracts, which drives up unemployment and leads to a rather sharp decline in real GDP growth. This is exacerbated by a slowdown in consumption spending as a result of the income losses associated with the rising joblessness.
As long as there are no balance sheet implications (that is, excessive debt stocks) then investment typically recovers fairly quickly, perhaps via government stimulus programs, and real GDP growth picks up again.
This pattern is what is often referred to as a “short, sharp shock”.
The problem is that the labour market behaves in a very asymmetric manner. When real output contracts employment drops fairly sharply and unemployment rises sharply.
However, when output growth returns firms do not immediately take on new staff but rather make other adjustments, such as increasing the hours worked or the intensity of work, to meet the new demand for sales.
In the downturn, firms not only lay off workers but they also, in some circumstances, particularly when hiring and firing costs are high, ‘hoard’ labour. Hoarding involves reducing work intensity or hours of work. These adjustments are reversed first when real GDP growth picks up.
Eventually, firms start to take on new labour.
Further, firms take advantage of recessions to restructure their workplaces and in this neo-liberal era that is being typified by a replacement of full-time jobs with part-time jobs.
The first graph shows the behaviour of total employment from August 1988 to September 1995. The graph depict what we call ‘butterfly plots’ in that they chart a variable some time before its peak value and then trace the adjustment path through the trough and into the next upturn. The analogy is with the wings of a butterfly.
The peak occurred in July 1989 and the trough occurred in November 1991. So the employment downturn lasted 28 months, a very severe recession in Australian historical terms.
But note the response was very slow for an extended period before employment growth.
But that is only part of the story. The next graph (three panels) shows the 1991 recession in Australia in terms of the response of full-time and part-time employment by gender. The vertical blue line is the peak.
What you observe is that male full-time employment took around six years to reach the level of the 1989 peak and then tapered off slightly after that. There was a massive substitution of part-time jobs for male full-time jobs.
Are similar, but less intense, pattern was observed for females. Overall (panel three) the 1991 recession was characterised by a qualitative shift in the labour market which reduce the quality of work on offer and the recovery essentially substituted underemployment for unemployment.
Consider the following graph, which shows the evolution of underemployment in Australia from February 1978 to the August-quarter 2015.
Look what happened in the 1991 recession. That process was driven, in part, by the substitution of full-time jobs for part-time jobs, particularly for males as employers took advantage of the weak labour market conditions to casualise labour and ensure that precarious employment conditions persisted into the recovery.
The former Finance minister sits firmly with many mainstream economists who claimed that recessions are associated with ‘cleaning up’ or in the terminology introduced by American economist George Perry as “taking a pitstop”.
[Reference: Perry, G. (1990) ‘Comments’ in Blanchard, O. and Diamond, P. (1990) ‘The Cyclical Behaviour of the Gross Flows of U.S. Workers’, Brookings Papers on Economic Activity, 2, 85-155].
Perry’s “pitstop” model of recession suggests that managers take time during recessions to streamline their processes. However, he noted that declining productivity during a recession is contrary to this view.
And as we have noted above, employment also recovers very slowly following the trough.
George Perry (1990: 153) wrote that:
If the amount of job creation and destruction is relatively constant in the temporary jobs, then the destruction is taking place in the long-duration jobs. This view provides a harsher picture of what happens during a recession than one would get if the change in job composition were ignored.
This would appear to be what happened in the 1991 Australian recession and largely explains the sudden step-jump in underemployment.
It is a common feature of modern recessions where labour market protections are typically eroded by austerity-type policy.
I wrote about this issue some years ago – including in this Working Paper (subsequently published in journal form) – Employment dynamics and full-time job destruction in Australia.
This is not to say that firms make positive changes during a slowdown in sales. For example, there is evidence that firms increase their R&D expenditure when their income is falling as a way of it positioning themselves when the next boom occurs.
A related theme that continually crops up in the literature criticises government intervention during recessions because it is claimed that such intervention interferes with market forces and leads to a sub-optimal allocation of investment resources.
The argument is that by artificially protecting employment that the current state of the private market would eliminate, government intervention stifles new investment in more productive areas.
The upshot is that inefficient industries are protected by the ‘artificial’ full employment engineered by government deficit spending.
The former Greek Finance minister’s comments about “bush fires” is consistent with this line of argument, although I would not want to link him with some of the crazies that preclude any government intervention during recessions.
This line of argument was also used by the Austrian School economists and other conservatives to rebut the work of Abba Lerner in the 1940s. Lerner’s Functional Finance insights clearly showed that government deficit spending could prevent the worst damages that fluctuations in private spending could engender (that is, eliminate recessions).
He also clearly demonstrated that a government intent on maintaining the well-being of its citizens could maintain full employment in the face of private spending fluctuations, which left to their own would drive the economy into recession with high unemployment.
The evidence is that any costs arising from the so-called “insulating effects” of government intervention are dwarfed by the destructive consequences of a recession that is left to follow its own course.
There is never a reason to allow a recession to occur. The costs are extremely high both in economic terms (lost national income) and personal terms, which go well beyond the income losses that unemployed workers endure.
The dynamic “cleansing effects” that are claimed to accompany recessions are likely to be offset by the labour market effects.
Further, a strategic government can enhance these dynamic effects and still maintain full employment when private spending collapses.
There are two dimensions to this. First, a government can make strategic investments in sectors that are likely to deliver high wage, high productivity performance in the future.
For example, is now clear that the renewable energy sector can offer significant employment across a wide range of skills as well as helping nations adjust to climate change challenges.
Is clear that in the coming future carbon-based energy is going to be increasingly replaced by renewable energy. Strategic investments in this area in times of economic stress could accelerate or ‘crowd in’ private investment in these highly desirable sectors.
Second, Modern Monetary Theory (MMT) espouses the introduction of a Job Guarantee (JG), which is an unconditional offer of a public-sector job at a socially-inclusive wage rate, to anyone who could not find alternative employment elsewhere.
The fact that the JG wage creates the wage floor for the economy means that private employers who are seeking to invest in new areas as part of a recovery can always attract the labour out of the JG pool.
The JG does not lock workers into industries that will never be efficient in some future recovery but rather sustains workers who would otherwise be unemployed.
Sure, the fact that the JG attenuates the loss in national income of the private spending collapse does mean that some firms that are on the margin of survival will probably be able to maintain solvency through the recession.
It might be argued that these firms would be better going under as they are less efficient than the most efficient firms in the economy. But if that becomes a benchmark then where do you stop driving firms into bankruptcy.
The emphasis on government should be on protecting the well-being of its citizens using the capacities as the currency-issuer to advantage.
Conclusion
Recessions are incredibly costly and totally unnecessary. The claims that they offer a bush-fire type “cleansing” to drive higher productivity in the future and increased material living standards are often made but not very strongly evidenced in the research literature.
Governments can always maintain full employment if they choose and should do so given the highly damaging effects that recessions have on individuals, which span many generations as a consequence of the inheritance of disadvantage by children in jobless households.
I am surprised that a progressive economist (so-called) is buying into the mainstream myth that recessions are not a problem.
That is enough for today!
(c) Copyright 2015 William Mitchell. All Rights Reserved.
Ive said it before. I wish MMT would drop the job guarantee. It distracts from the main key message that must be promoted full on (Govt debt is bad). Without this MMT will lose this critically important debate.
Beliefs about jobs that we held in the past are no longer applicable today. Let them go. Not everyone needs to work today. But people must receive enough money to buy goods and services from people in work.
What i would prefer is things like
-The retirement age needs to be dropped say to 50 / 55 for people who are happy to leave work or work reduced hours. This will open worthwhile real jobs to the young
-Double or triple pensions. This will create real jobs.
-Spend more on things like housing. Or clean 4th generation nuclear energy
-Have cheaper education or training programs.
But the key is to attack this lie that Govt debt is bad. Not be diverted by a dated belief that we all need to work. Or that Govt’s must provide jobs for all.
“I was surprised to read that from him”
I wasn’t. In fact I would expect this sort of nonsense from Yanis.
Many on the left think he is on their side. He isn’t. He’s strongly in favor of Greece staying in the Euro. And he still supports this current sell out Greek Govt. He’s a wolf in sheep’s clothing.
RJ,
I think you’re being a bit harsh re MMT’s Job Guarantee (JG). It’s there for several reasons, not just to provide employment. Another key role of the JG is to provide an important anti-inflation mechanism. There’s also no reason to think that providing a job guarantee means we can’t also do things like build affordable housing or increase pensions or provide free/cheap education or research zero-carbon energy production technologies. There’s also solid evidence that indicates we do need to work, at least in the sense of being able to make a meaningful contribution to our communities.
Dear Professor;
“Those who wish to deny that growth can come with spending cuts are in denial of reality.”
Is this really what you intended to say?
Thanks Bill, I read that article this morning and was shocked to hear him say that. It almost feels like he has a motive to be able to have a career in commenting on the Australian economy by saying the things the VSP want to hear. Sad to hear him say that. There’s very little wage growth and inflation so I can’t understand why he would believe that.
I’m just wondering if the “recession we had to have” of the 80s was really avoidable? My understanding was that wage growth had far exceeded inflation and productivity and the expectations that high inflation would continue were major issues. The unions had become too powerful I understand. In that instance how could you break the back of inflation without some sort circuit breaker? Would a JG really work back then with really high inflation and wages growth?
Jason H – again you need to read history more thoroughly. “The recession we had to have” was the brain child of a particularly ignorant and arrogant Treasurer we had at the time – one Paul Keating. There was no need for that recession. The economy then just needed the application of some basic MMT principles. Plus a little something called ordinary sense. Note that I don’t refer to sense as “common”.
When Keating finally realized his ambition of becoming Prime Minister by displacing Hawke the Australian electorate responded appropriately by giving Keating the bums rush. Unfortunately that allowed another political turd,one John Howard, to get his claws on to power. Such is life.
“Not everyone needs to work today. But people must receive enough money to buy goods and services from people in work.”
How are they going to get the money if they don’t work? Does resentment not happen in your world? Because it certainly happens everywhere else in the world.
In human society you have to be seen to be making a contribution if you want access to the output of the society. That is fundamental to the way that humans are. It is innate to our being and the basis of why humans share things when other apes tend not to.
Plus people want something to do and need something to do with their day. This ‘work is a dirty word’ attitude from many of the left is a disgraceful attitude. The sort of thing you’d expect from the layabout aristocracy. There is much to do and huge social benefits to people from doing it. And yes it will have to be organised, because a good chunk of the population likes to be organised. Hence why there is never a shortage of recruits for the armed forces.
The private sector and the standard public sector is incapable of employing everybody no matter what tweaks and bobbles you put in place. And that’s because of the job matching problem. If you advertise for a brain surgeon, then not everybody unemployed can be a brain surgeon. So you will always end up with a list of jobs and a list of people looking for jobs if *you create the jobs first*.
The Job Guarantee is different. It takes the person wanting a job in front of them and tailors a job position for them – something the individual can do that they find worthwhile *and* that the rest of society finds useful. Nothing else in the economy does that. Only the Job Guarantee creates jobs for the people.
The Job Guarantee disciplines the private sector. Because it is open to all people always have an alternative job offer open to them. So if the private sector gets a strange desire for zero-hour contracts, people will leave those jobs and come onto the Job Guarantee.
The Job Guarantee auto-stabilises the economy. Job Guarantee spending stops when people move off the JG into the private sector as the economy starts to move into boom times. That reduces government spending into the economy – and by a relatively large amount because the JG wage is a living wage. The upshot of that is that taxes can be *much lower* than they would otherwise be. And since nobody likes paying taxes (whatever some of the clowns on the left believe) you have a much more marketable approach to macro-stabilisation.
The Job Guarantee is fundamental to the stabilisation proposals that come out of MMT. It’s not some adjunct. It is central. You cannot fix the problems of stabilisation just by ‘doing a bit more government spending’. That approach *always* leads to about 5% unemployment. Millions of people who actually want something to do, denied access to the most basic of human needs – to feel useful.
“Sure, the fact that the JG attenuates the loss in national income of the private spending collapse does mean that some firms that are on the margin of survival will probably be able to maintain solvency through the recession.
It might be argued that these firms would be better going under as they are less efficient than the most efficient firms in the economy. But if that becomes a benchmark then where do you stop driving firms into bankruptcy.”
It’s perhaps important to point at the JG ‘garbage collects’ the private sector constantly – rather than waiting for a recession to do the job.
Crap jobs can’t survive if there is a JG job competing with them. They go out of business much earlier and can’t even get started. That means excessive competition by non-viable entities fails to happen allowing genuine business to flourish. The crops are no longer ‘crowded out’ by the weeds.
And if the JG is there then lobbying efforts by failing businesses to prop up crap companies using the ‘think of the jobs’ line won’t work. They can be rebuffed due to the Job Guarantee and allowed to fail.
You can beef up the work of the competition authorities to make sure that the white heat of competition drives poorly performing businesses to bankruptcy much more quickly – before they can develop into fat oligopolies. Again because the ‘think of the jobs’ line is dealt with via the Job Guarantee.
Once you take ‘business confidence’ out of the equation and no longer have to tiptoe around because of it, then you can turn the capitalism bit of the economy up to 11.
Not sure the capitalist will like that, but that’s the game they want to play.
Dear Daniel D (at 2015/12/01 at 15:02)
No, I meant the opposite. Thanks for the scrutiny. I appreciate it. Fixed now.
best wishes
bill
“How are they going to get the money if they don’t work? Increase the unemployment benefit and pensions.
“In human society you have to be seen to be making a contribution if you want access to the output of the
society.
This is the belief that I think needs to be challenged head on. We live in a different age now where technology means less people need to work to provide enough for all. But if we hold onto dated beliefs like this we will be sure to fail. People can see truth when they see it. So say job sharing, increased unemployment benefits or top up salaries, increased minimum wages, early retirement, free education, students paid to study, paid to do classified good work, investment in housing and other worthwhile Govt investments etc is the way the West must move forward. A job guarantee is one option and only one.
“So if the private sector gets a strange desire for zero-hour contracts”. They can do this due to a shortage of real jobs. It will get worse in the future as robot technology advances even more especially if the Govt continues trying to balance the books.
“The Job Guarantee is fundamental to the stabilisation proposals that come out of MMT”. No it’s not. Its a left wing idea based on dated beliefs. That everyone must contribute. Drop this and accept that this is no longer necessary or desirable. The lowed skill will find it harder and harder to find decent work unless we let them do other stuff. So there is less unskilled workers chasing available jobs.
The key for MMT is to split it into two parts
1 based just on facts. About the money system. About debt. About monetary sovereign Govt debt compared to non Govt debt. About the increasing debt link to savings. And profits. And money. About the link between spending and employment (I know its obvious but people do not get this).
2 Another part should include options. But only when the first part has been won. Then and only then should MMT discuss how this increasing debt COULD be spend. For example a job guarantee as one option only. Increased pensions is another way. More investment in housing, hospitals etc. But this would only be options for a ruling Govt to decide on.
The key is the need for debt increases. And if the non Govt sector does not step up then the Govt sector must. Without this the West is finished
“to make a meaningful contribution to our communities.”
Why can people not do this in other ways. For example attending a course. Creating work for a teacher and learning a new skill or subject. Or traveling the world and learning about different cultures.
This is how I see the West in the future if we aren’t to create a hell where a few have all the money and the rest are poor. Lots of robots and a lot less work. But activities to keep people occupied. Maybe with part time work especially say until they are 50. The highly skilled would work long hours still and be well rewarded for it. But the lowed skilled with fewer jobs for them would work less hours and still receive enough money to live well. And enough money to buy from the workers.
RJ, what I really like about MMT is it’s focus on real resources rather than financial resources as the ultimate limiting factor for economies. A Job guarantee program really seems to increase those real resources available to society, at least to me.
One thing neoclassical economists got right is their belief that there is always work to be done. They wrongly say that this means the market will always pay for this work, and therefore there wont be any involuntarily unemployed people.
But they are right about work needing to be done. Even if we are ever fortunate enough to have robots meet our material needs, there will still be plenty of decent work to do. I like to envision the jobs guarantee program as sort of like what the Peace Corps was supposed to be, but for here at home too.
“This is the belief that I think needs to be challenged head on”
It’s not a belief. it is fundamental to the way humans are (and actually what separates us from Chimpanzees). The reason the right are in ascendence is because those on the left are trying to be too cerebral about this point, and just can’t seem to accept it.
People like to work, they want to work and, importantly, they want to see others working.
If you don’t contribute to society when you can you don’t eat. That is the basis of the way we are as humans. If you don’t deal with that point, then the other side will. They understand how people actually are. And you will get workfare and the elimination of social security.
Plus people without work want to contribute. Saying “you can’t” is actually how we punish people in prison. It’s a cruel idea.
“No it’s not.”
Yes it is. If you don’t have a job guarantee you are not operating on MMT proposals. What you are doing is the usual hand-waving Keynesianism that failed in the 1970s and will fail again for the same reasons it did last time.
The JG is a vital macro-stabilisation device that addresses the very reasons Keynesianism failed last time. The failure to actually deal with people as they are, rather than what the intellectual left would like them to be. And anchoring the financial circuit directly into the real output circuit in a very secure and stabilising manner.
The fundamental difference of the JG, which I notice you’ve skipped completely, is that it provides Jobs for the People *as they are*. Nothing else addresses that. That solves the matching problem in a way that prevents a consequential resentment problem, and avoids exacerbating the epidemic of depression from people who are struggling to know what to do with their day.
This idea that everybody is a magical self-starter is the same sort of claptrap that the right come out with when they expect everybody to ‘create their own jobs’ – by starting a business or becoming self-employed.
One of the reasons entrepreneurs get paid so much is that very few people have the natural talent and skills to be one.
“Why can people not do this in other ways. ”
You probably have a very narrow definition of what work is. Work is something that you do with your day that you find valuable and that other people in society find valuable as well.
Once you know that a living wage will always be paid, you can work on anything that other people accept. It’s the ‘other people accept’ bit that many on the left struggle with – since they are attached to a peculiar individualism that has more to do with libertarianism than anything social or society based.
What other people will accept changes as the society grows and matures. But your daily activity always has to satisfy the jury of your peers.
The Job Guarantee is the structure and mechanism by which that tension is defused. It helps people find an activity that suits, but in a way that is acceptable to others. And then it helps sell the social benefits of the work activity to help diffuse the resentment issue.
In a lot of ways the JG has a huge social care element. You wouldn’t deny the disabled the attention of support workers and assistance getting through their day. So why deny people who want to work the attention of support workers and assistance getting through their day?
It’s the intellectual disgust of work that is the problem. And it is something those on the left need to get over if they ever want to get into power again. One of the many sacred cows they will have to sacrifice to build an electable platform.
I wasn’t entirely surprised to see Varoufakis saying that recessions are sometimes necessary and clear the brush away, although one might be forgiven for thinking of Andrew Mellon and his comments in the Thirties about the rot in the system and how it had to be cleared away. I rewatched the episode of Question Time which Varoufakis was on and found him to be uneven in his responses. He seemed to take delight in having friends among the conservatives, including George Osborne, whom he has mentioned is on the side of Greece. He contended that Osborne hasn’t imposed austerity in the UK, which he compared to the situation in Greece, but that he was instead engaged in a class war.
Not only does he have friends within the conservative ranks, he has said at other times that he would take ideas from anyone, mentioning Friedman and von Hayek in particular. Can someone be so eclectic that they lose focus?
He was also disingenuous when he contended that Thatcher reinvigorated the Conservative Party and hoped that Corbyn would do the same for the Labour Party. When he was in England during Thatcher’s time in office, he has said that he left England because he couldn’t stand Thatcher. And she didn’t reinvigorate the Tories, she facilitated it being taken over by neoliberal ideology to its own detriment. No longer were compassionate conservatives in charge, nor were they wanted, and they still aren’t. Ken Clarke’s removal from his Justice position is a case in point. Clarke was on QT with Varoufakis and he said, as one would expect him too, that he was a believer in free market economics. Varoufakis chimed in quickly with the rejoinder, “So am I”. What the hell was this supposed to mean?
In replying to a member of the audience who said that if he continued to borrow money that he would go into debt, Varoufakis correctly replied that his personal experience wasn’t a good model for the economy as a whole, quickly alluded to the paradox of thrift, but then didn’t further elaborate on this. The chap could be seen to be asking “Why not?”. Also, the issue of taxation was implicitly raised during the discussion more than once and Varoufakis had nothing to say about it. This has been the case on other occasions.
Were I asked what Varoufakis’s economic position was, I would be at a loss to say. He appears to be willing to deploy almost any argument to further his pan-European democratic agenda and to garner support for Greece against the Troika. I can fail to see how this will prove to be a good strategy.
“I would not want to link him with some of the crazies that preclude any government intervention during recessions.”
This ‘crazy’ wrote this in 1939!
“Hutt responded at length that there is nothing uneconomic or necessarily inefficient about an idle resource. It is the decision of the owner to hold back when faced with a long-term plan, a judgment call concerning risk, a high reservation wage, or a demand for larger cash balances. This is certainly true as regards labor. In a changing economy, people move from sector to sector, something choosing periods of unemployment over employment at low wages. This makes sense for them. For this reason, it makes no sense to craft policies designed to achieve “full employment” since this means overriding human choice.”
The choice to starve in the 1930’s!
I should have written that I fail to see how Varoufakis’s strategy will be a good one.
Very surprising to see Yanis say that. He should read his Keynes…
https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch22.htm
“The preceding analysis may appear to be in conformity with the view of those who hold that over-investment is the characteristic of the boom, that the avoidance of this over-investment is the only possible remedy for the ensuing slump, and that, whilst for the reasons given above the slump cannot be prevented by a low rate of interest, nevertheless the boom can be avoided by a high rate of interest. There is, indeed, force in the argument that a high rate of interest is much more effective against a boom than a low rate of interest against a slump.
To infer these conclusions from the above would, however, misinterpret my analysis; and would, according to my way of thinking, involve serious error. For the term over-investment is ambiguous. It may refer to investments which are destined to disappoint the expectations which prompted them or for which there is no use in conditions of severe unemployment, or it may indicate a state of affairs where every kind of capital-goods is so abundant that there is no new investment which is expected, even in conditions of full employment, to earn in the course of its life more than its replacement cost. It is only the latter state of affairs which is one of over-investment, strictly speaking, in the sense that any further investment would be a sheer waste of resources. Moreover, even if over-investment in this sense was a normal characteristic of the boom, the remedy would not lie in clapping on a high rate of interest which would probably deter some useful investments and might further diminish the propensity to consume, but in taking drastic steps, by redistributing incomes or otherwise, to stimulate the propensity to consume.
According to my analysis, however, it is only in the former sense that the boom can be said to be characterised by over-investment. The situation, which I am indicating as typical, is not one in which capital is so abundant that the community as a whole has no reasonable use for any more, but where investment is being made in conditions which are unstable and cannot endure, because it is prompted by expectations which are destined to disappointment.
It may, of course, be the case – indeed it is likely to be – that the illusions of the boom cause particular types of capital-assets to be produced in such excessive abundance that some part of the output is, on any criterion, a waste of resources; – which sometimes happens, we may add, even when there is no boom. It leads, that is to say, to misdirected investment. But over and above this it is an essential characteristic of the boom that investments which will in fact yield, say, 2 per cent. in conditions of full employment are made in the expectation of a yield of, say, 6 per cent., and are valued accordingly. When the disillusion comes, this expectation is replaced by a contrary “error of pessimism”, with the result that the investments, which would in fact yield 2 per cent. in conditions of full employment, are expected to yield less than nothing; and the resulting collapse of new investment then leads to a state of unemployment in which the investments, which would have yielded 2 per cent. in conditions of full employment, in fact yield less than nothing. We reach a condition where there is a shortage of houses, but where nevertheless no one can afford to live in the houses that there are.
Thus the remedy for the boom is not a higher rate of interest but a lower rate of interest![5] For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.”
The graph Total employment: Australia August 1988 September 1995 seems incomplete. It cuts off at August 1995
Neil Wilson, thank you for your input in your comments about the JG. It’s really good input for me to understand and use in my own arguments and explanations.
RJ, I got the impression you blame the left for JG but in my experience it’s seen as a really right wing concept when I’m trying to sell it. Neil has said what I would have liked to have said better than I could :-). I imagine a JG being able to cover all of your ideas potentially of humans time but as Neil has said the psychology of working is incredibly important to human beings. We need a purpose fundamentally and to be valued by other members. The most obvious thing that springs to mind is that as automation takes over we can slowly increase the amount of annual leave we get and reduce hours if work to go and do all the things you mention like travel etc. The key part being society needs to accept it and then evolve to make the best use of humans time.
Podargus, thank you for your input it’s appreciated even if I don’t always respond directly. My concepts aren’t as black and white as they may appear here as it’s hard to get into the intricacies of the discussion in a forum I find. My history is not the best I admit and I blame the Australian (catholic?) education system for that as we should have much more local history education. Admittedly I was in primary school during Keating’s time so I wasn’t in the best position to have understood the happenings. I’m looking back using recent learning about the history of inflation in a book I’ve studied. I would argue there were real issues then more in the political science area that are not as simple as MMT would believe (some other chalkenges) but I definitely believe MMT is the way of the future. There will always be a constant political battle to fight regardless of how well MMT works in Practice which is where I’m usually coming from. I’m trying to nut out the practical challenges I foresee.
Dear Neil
You state that people should be employed and be seen by their fellow citizens to perform a useful activity. I agree, but that may be a weakness of JG. The people employed by it may be perceived as performers of useless work. The important thing is not only to perform work but to perform productive work. It may not be easy for the managers of JG to find productive work for all the participants, given the numbers involved.
Let’s take your country. The population of the UK is now over 60 million. Let’s assume that the labor force is 30 million and that at a certain point in time 5% of them are jobless. The British JG then has to hire 1.5 million people, many of them not highly skilled. Will it really be possible to find useful work for all of them, or least work that will be regarded as useful by the rest of the population? There is a real danger, in my view, that the employees of JG will be seen by their fellow citizens as people who receive a salary for performing useless work, and that would defeat one of the purposes of JG: to insure that all able-bodied citizens can make a contribution and be regarded as productive members of the community.
Regards. James
“People like to work, they want to work and, importantly, they want to see others working.”
Hang on Neil, there’s something dodgy in this assumption that has a faint whiff of the totalitarian world of evolutionary psychology.
Research shows clearly that those IN work have better mental health and better physical health. I f you mean by the phrase ” they want to see others working” in the contemporary sense that they ‘resent’ someone not working while they are , then that is the result of cultural, ideological factors NOT something about human nature. If you mean that phrase in the sense that those in work feel COMPASSION for those out of work because of the above stated implications for the unemployed then that is a different meaning. You don’t make the distinction which I think you should-thus not differentiating between nature and ideologically influenced cultural effects. In any case resorting to the NATURE argument is ALWAYS dodgy due to our inherent inability to make this distinction.
There’s a famous quote from an American Indian Chief: “My young men shall never work, men who work cannot dream; and wisdom comes to us in dreams.” It’s a question of what one means by work, I’m pretty sure that it didn’t mean sitting on your arse doing ‘diddly squat!’ Neil, your disagreement with R.J seems to be based on Straw Men. AT present we have system where work means ‘not being on benefits’ (or on as few of them as possible) it isn’t welded to a concept of what is ‘needed’, ‘socially useful’, or ‘fruitful activity.’ Producing transient crap that creates hideously unsatisfying work, is environmentally appalling and psychologically debilitating for those employed.
Marx’s great insight is that economics is a system of social relations and that human beings need personal development- our society is very poor at doing the latter due to the collapse of educational and leisure facilities since the ‘scourge of monetarism’ from the 80’s onward. We need to challenge the notion that work can only be assessed by ‘productive output’ with everything else ‘dismissed’ as ‘value added’ (often the most important bit).
@Simonsky
“At present we have a system where work means ‘not being on benefits'”. Really? Really, that’s how work is defined where you live? That is not my experience, so I’m curious.
“There is a real danger, in my view, that the employees of JG will be seen by their fellow citizens as people who receive a salary for performing useless work”
People are known to be able to change their minds. There are plenty of useless work being done in private sector today. So if one is to point finger at someone in a JG then learn those in a JG to point finger back. It’s quite easy and doesn’t require any special skills.
I personally don’t believe a single bit in that “real danger” based on how Sweden used to be like a few decades ago.
It’s how it’s seen in practice by 99.99% of the people, technical definitions don’t matter.
The jury is still out on how we understand the word and how is influenced culturally. What is perceived as ‘work’ is highly culturally influenced, the bias is there and you can see it in this debates, which would not be understandable for people of now disappeared (destroyed) or assimilated cultures, or some isolated minorities. There will be always people who will be against people on the JG, no matter how you spin it, before or after it’s implemented, for whatever reason, because they are contending ideologies. When there are contending ideologies it means that is not a matter of “human nature” (what the hell is that anyway? no one knows), but certain individual traits product of interaction between nature and nurture.
Ultimately we will have to transcend some of these biases or fail as a specie (odds probably against us transcending and ultimately failing, as we can see already with global problems that are not being solved due to the lack of collective awareness and organizational capacity). The problem of “work” can’t be solved only with JG’s, and it’s going to get worse as time goes, if anything JG is just a band-aid to a system which is going to either evolve and change (and JG would be one of the steeps in that evolution) or collapse (most likely outcome right now). Is the same for many other prevailing socially influenced obsessions like the “church of growth” etc.
I don’t see the JG being a cure against anything permanently, and the worse thing is a single chance to get it right, because if it doesn’t, it will be attacked and rewound just like the welfare state and classic keynesianism was substituted by neoliberalism. Knowing the sort of people that is in charge of institutions and the ruling elites and how strong the neoliberal kool aid is, it will be made to fail probably.
That is because no one, even MMT’ers, have put a serious plan on how to implement this at worldwide scale and make it work with perceived non-meaningless jobs, putting people to “work” is the easiest part, the actual organization and provision of resources to do meaningful tasks is the challenging part. And that’s where a JG would first meet the stiff opposition of the prevailing ideas (“who is going to pay for this”, “we cannot afford people doing useless stuff and spending valuable resources”, “the government is useless”, “this is communism, let the market sort it out”, “if people is not working they should just re-skill”, etc. etc. etc.). And the people in a position to decide about it is in the camp of easily throwing others under the bus, because that’s the world they want.
James Schipper. “The British JG then has to hire 1.5 million people, many of them not highly skilled.”
Or worse some of them are highly skilled and finish up doing menial work.
I am fortunate to have worked almost all my life (retired now), but I was unemployed for a couple of months in the recession of the early-nineties. In those days, in order to get unemployment benefit, you had to attend an interview with the Job Centre once a fortnight and, more importntly, you had to attend job-seeking courses and demonstrate that you have been looking for work. This was a full-time job in itself.
If unemployed people are automatically enrolled on JG, they are less able to spend time looking for work to suit their skills or to re-skill.
I was successful in finding work, but had written hundreds of letters and attended many interviews. Could I have done that had I been required to go and dig holes somewhere? (That’s flippant before someone says it).
One thing the Chancellor said last week was that Job Clubs would be reintroduced. All he then needs to do is to stimulate the economy so there are jobs for those people to fill. Unfortunately, he won’t do so by aiming for a budget surplus. I am betting on a recession to start 2022.
As Bill says, recessions can always be avoided, then there is no need for JG in the first place.
Jerry-I’m in Britain where a particular form of austerity is at work and trying to prove it works:
1) There has been a systematic vilification and social marginalisation of those on benefits (America already has this stance in its DNA).
2) The scapegoating of those on welfare as ‘scroungers’ increasing the debt burden has created a cultere where:
a) Those on unemployment benefits are forced to look for jobs that don’t exist/take jobs they can’t live of and they don’t want.
b) To escape the persecution of the benefit system , many declare themselves ‘self-employed’ despite the fact they are often earning around £11,000 a year.
By doing this the Government declared ‘austerity was working’ and unemployment down.
No do you see what I mean? Pushing people into crap , precarious jobs or spurious ‘self-employment’ is really another way of seeing work as ‘not on benefits.’
Why is there any dead “bush” to “regenerate” in the first place? Aren’t the “efficient markets” supposed to do this job?
Perhaps government could be doing more to ensure that true competition actually exists in the market place itself? A JG introduces a competitive force that does not currently exist, and offers workers a measure of empowerment and democratic choice about what they will expend their time and energy on in addition to just their “rational choice” as consumers. This would create something that more closely resembles free market conditions.
“People are known to be able to change their minds. There are plenty of useless work being done in private sector today. So if one is to point finger at someone in a JG then learn those in a JG to point finger back. It’s quite easy and doesn’t require any special skills.”
Right, but the private sector useless jobs (a huge chunk of them are, yes), are something individuals decide to pay for, while public sector jobs (whether they are for public servants or JG employees) are “paid by everyone” (as their meme says). That’s why public servants are nowadays being constantly under attack, stigmatized, and under permanent cuts (expect for police and military to protect the crooks, ofc).
If that happens with a relatively small part of the workforce, which is performing usually necessary services, what would happen with a force of “useless unemployed that need the state welfare”, because don’t think that the neoliberal mindset is going to change because they are performing “some sort of work” (whatever that means). And a big part of the population thinks like this (their opinions will change as work is destroyed and not replaced though, hence again, this is mostly cultural).
This is why starting with some of the more obvious necessary changes it’s necessary (earlier retirement, increasing income share by force if necessary, reducing working hours, etc.) as there is an obvious case that productivity gains are not being shared across the population, and this is something most people would benefit from (unemployed or employed).
Simonsky, I see that I misunderstood your meaning. Thank you for clarifying it for me.
Doesn’t matter one bit weather you get paid doing useless job in non gov sector or in gov sector. The difference is that it’s not pointed out that it’s useless.
The trick used is making people believe useful things are being done hence they’re being paid and that is possible due to cause being mixed up.
But that can of course also be pointed out and used against them, if they enjoy pointing fingers at others. You will have quite a few in a JG from time to time able to point fingers if necessary. If a JG is creating real value you can always say I’m creating real value, what are you doing?
If you don’t contribute to society when you can you don’t eat. That is the basis of the way we are as humans. …
…
Plus people without work want to contribute.
I’d say the latter point is the core and not merely the nice to have, and the satisfying people’s sense of justice part is an add on. catering to morality should be generally regarded with suspicion.
giving people the opportunity to contribute is also the main contrast to BIG/UBI which posits that not everyone that wants can even contribute.
A lot of people have a lot of very reasonable concerns about a government jobs program. About the chances for implementing it, and about public reaction to it, and reaction to the beneficiaries of it. Well, I have a question too- Which is less likely- the idea that government austerity will prove to be expansionary or the idea that a government full employment policy will prove to be expansionary? I think the first is less likely, yet that is the idea that was deployed throughout Europe (at the very least) for the past five years. I don’t remember the debates about the public’s reaction to that policy being all that important in the decision to implement it. And it was a stupid, cruel, hopeless idea. A Jobs Guarantee program is the complete opposite of a stupid, cruel, hopeless idea. Good ideas can work if they are given a chance.
I suppose JG isn’t meant to replace neoliberal NAIRU mass-unemployment. It should be a complement in a more expansionary economic policy? Where “unemployment” in JG is at much lower levels than today’s NAIRU mass unemployment. As it was in the golden post-war decades?
I suppose it will be difficult to have fair pay in a JG system if it is at mass-unemployment levels. It will come under political attack.
Guess the public also need to be educated that with production of gods demanding smaller and smaller part of the economy, as have happen with agriculture that 150 years ago employed the majority of the work force (today <2%), service sector will be a larger share and especially that have been traditionally supplied by public sector. It will be so by definition even if public service sector doesn't grow.
@RJ
The JG scheme advocated by MMTers is voluntary and does not abolish welfare. The JG is the solution to cure permanent & involuntary unemployment. Nobody’s concerned about the willfully unemployed. Put first in place proper macro-policies to maximize private sector employment, and the nrs employed by the JG are going to be fairly small. And the good thing is they’ll no longer be perceived as liabilities in the workplace by employers, so they will be able to get jobs in the private sector in future. The JG is a policy & political choice; however, if you disagree with it, that’s your call. At the end of the day, Post-Keynesianism/MMT is not a political ideology.
Thanks Simonsky, Neil and others.
I have a very strong anti reaction whenever I hear job guarantee mentioned. It’s reeks to me of big wasteful Government, possible corruption when a few benefit at the expense of those it was supposed to help, the risk of another Govt department poking their noses into our affairs and anti private enterprise. And dated beliefs that we need to move beyond where people are forced to work in soul destroying expensive government jobs rather than say attending a privately run course or helping out at the local church or charity and being paid for it.
I also think that MMT is moving onto an area they should stay well out of. Focus on proven facts about money and debt. Discuss issues about what sort of society we want to live in. Build a strong case for a fairer more caring society. These two areas will be huge battle.
But stay well clear of expressing any firm opinion on how to spend the money resulting from the increased debt. Only provide options. A job guarantee would only be one. People will soon vote out Govt’s if they spend (waste) all this money on wars. Or high paid consultants etc.
But it’s an area that smarter brains than me need to consider. Including exactly how a job guarantee would operate to ensure it wasn’t abused. Where it does more harm than good.
Watching the V man on ‘ideas at the house’, despite an impressive grasp of the financial and political dynamics he is still a bit lost on how to fix an economy and imagines (like Piketty, who he otherwise disagrees with) it cannot be done unilaterally, though to be fair the Greeks lacking sovereign currency were in a bind.
There is no need for most recessions (other than as external shocks), and certainly not depressions. But at this point Oz certainly will experience and indeed needs a huge correction in land/house prices, no counter cyclical stimulus measure will be effective this time. Until the huge tax breaks such as negative gearing are eliminated, and value capture/LVT are implemented this is an inevitable misallocation that will always create boom and bust cycles to some extent.
Nigel H.
The J.G. is one of the tools too fight recession.
I too think the JG is an outdated idea. With current technology, the majority of us could be living the lives we want to instead of working jobs we hate. The money could come from an income guarantee or a whole new economic system. Capitalism hasn’t been around that long and I doubt it will last that much longer. The more jobs technology replaces, the more “bullshit jobs” have to be created just to keep the current system going, because as Bill points out, spending = income. Improvements in technology should be allowing us all to work less without it affecting our lifestyle. Neil’s fiction that people want to work for an employer contradicts both my personal experiences and surveys I’ve seen on job satisfaction. There is a lot of meaningful work being done that isn’t even counted because it’s not work-for-labour, such as raising kids, caring for relatives and so on.
It seems to me some of the best work in history was done by rich white men who had the luxury to sit about and do nothing if they chose to, but they didn’t. They came up with the theory of evolution, solved the problem of gravity, invented calculus, drew the Mona Lisa, built on previous theories of philosophy, starting the discipline of economics, etc etc. Imagine what it would be like if we were all in that position and how much creativity has been lost due to people being stuck doing monotonous repetitive work that they hated doing. The idea that we all want to be wage slaves is just silly, and it turns me off MMT.
“If you don’t contribute to society when you can you don’t eat.”
Anyone who’s had teenaged children will know the temptation of adopting this approach! But it could be quite counterproductive. Why not see what we can do by offering a totally a voluntary JG scheme first? As an additional option to the schemes which already exist?
I see absolutely no conflict in integrating both government infrastructure spending, which the US and many advanced economies dearly require due to the obsessive privatization they’ve been subjected to for 35 years, and direct monetary gifting to every citizen 18 and over. There is a scarcity of individual incomes in ratio to total costs and so total prices in each moment of the economy. This is true by cost accounting convention that all costs must go into price, and is missed by virtually every economist largely probably because very few of them have been businessmen themselves and so they do not have reality on the fact that equipment and facilities have to be replaced/upgraded and these along with other routine expenses are additional costs over and above original financing that will end up being charged to the individual in retail prices. MMT has excellent monetary insights and additional infrastructure employment is needed, but if one does not address the empirical facts of the cost inflationary nature of the productive process itself the system will remain inflationary. Businesses incur more costs than they have original financing to distribute to all employees and owners. Anecdotally some businesses are capable of making enough profit to survive such a systemic fact, but macro-economically the system is unstable and increasingly onerous as capital costs for high tech and eroding aggregate demand due to the disruptive effects of innovation and AI increasingly become realities. The system requires additional individual income to be stable. Let us integrate both additional employment and direct monetary gifting and accomplish the needed stability.
James Schipper,
With respect to productive work it would all depend on what we define as productive or indeed work.
Building guns / weapons ? Is that productive ?
Developing drugs for people that are too stupid / lazy to eat right or indeed refrain from alcohol or drug use ?
Cancer research ? When is enough enough ?
Banks ? Transfer Pricing? Super Annuation ? Human Resources ? Marketing ? Neo – Liberal think tanks – Universities – Butchers ? …I mean we can add to the list until the cows come home – unless of course we slaughtered them for our next bbq.
The fact is that what is deemed as productive or not productive will always be determined by the plutocrats. Hence, if it benefits them it’s productive if it doesn’t benefit them it will be deemed unproductive.
@RJ
“It’s reeks to me of big wasteful Government, possible corruption when a few benefit at the expense of those it was supposed to help, the risk of another Govt department poking their noses into our affairs and anti private enterprise.”
Deconstruct each of those statements:
1. ‘wasteful government’? What ‘wasting’ unlimited numbers (fiat currency) as opposed to real people/communities. The empirical evidence is kids growing up in low-money environment is detrimental to learning, cognition, behaviour, addiction, breaking the law etc. Whats permanent cost versus typing 10^9 (whatever the cost) into an account at a federal bank to give millions of people jobs.
2. ‘possible corruption’ Ok lets assume guaranteed corruption to dismantle your assumptions. Like JG in india with corruption.
Measurably still better outcome than no JG at all.
Its all just framing/context. One could call sotck buybacks corruption (indeed they were illegal in some financial systems historically). Government issuing treasury securities could be framed as corporate welfare too (evidence shows its just splendid financial parasites).
Why not compare the vast number of totally useless financial transactions in late stage ponzi financial capitalism to the JG with corruption.
3. ‘Govt department poking their noses into’
They do that with laws/industrial laws, infrastructure, educations/health system, blue sky research (transistors, wifi, von-neumann architecture, multi-user operating systems, space races and bombs) and democracy itself too. Shameless beyond reproach 😉 that they would have a fall back minimum level of human dignity employment option (again) as opposed to just supply-side snake oil.
4. ‘anti private enterprise’
At this stage (europe) JG is clearly pro-private enterprise.
JG + if you’re useless at everything because you’ve been unemployed for too long then get affordable training whats that? undergrad engineers in 4 years, doctors in 8 years, nurses in 3, business degrees in 3, enviro-scientist 4 years, lumberjack ? interior decorator?
So what if the common denominator blue collar trades person finds themselves on JG maintaining their skills, spending their minimum JG wage as opposed to loosing both on welfare (lets face it auto-stabilisers are below poverty line just about everywhere).
There is an irony that the comments have become a JG debate .As this blogs asserts (quite rightly )
that recessions are unnecessary so is presumably involuntary unemployment.Indeed was not this
the case a cross many developed countries for decades in the post war settlement? No jobs guarantee
and no involuntary unemployment.
That is still a very major goal for me ,jobs for all that want them.i believe people want to contribute,
want to work .One of Bills blogs this year commented on research that the more welfare in society
the stronger the work effort ,contrary to the new liberal narrative(surprise, surprise) but not to
anyone who understands reciprocity. I think bill called it a sign of a society’s sophistication.
No greater sophistication than a universal citizens dividend,no greater desire to contribute would be
achieved ,(maybe not full time work from 18-70),no disincentive from losing benefits for people wishing
to maximize their income and of course a significant and effective spending stimulus to deliver full
employment.
I am certainly not against more state employment ,there is plenty of work which could be organized.
much of it very important and highly skilled.I am not against job guarantees in principal.The problem
for me is how do we get from today’s dysfunctional job market to where we want to be.When the reality
is low paid,insecure work for so many people ,much of it in a bullying environment the appeal of
a job guarantee at a living wage is too great ,the logistics of organizing so many people too challenging
the chaos too much of an own goal .In the current labour market there must be a chance of an
inflationary spiral with the private sector raising wages and prices to compete for workers.I still
think the introduction of a JG would be much easier in a tight labour market(the opposite of today’s)
As for Neil’s assertions of human nature without some peer reviewed science ,with comparative
chimp studies it is not impressive it all sounds positively classical ,human nature and equilibrium.
“i believe people want to contribute, want to work
I’m lucky that I get well paid to do challenging work that I love doing. But there has been times where I have done soul destroying work that bores me just to make money to live. I see the majority of people being in this position. Often with poor work conditions or a poor work environment but they have to stay to earn the money.
So we mainly work just to make money. Many would walk away and do something completely different if money was not the issue. Many though especially those who have the power and influence would have a huge issue with this. Freeing the mob. Where might it lead. I think the job guarantee is built on this. A belief that people must do their part even in boring govt run soul destroying work. Do this or go hungry and miss out.
I want to see a world that lifts people up not keeps them down. Its how we (and if we can or should) move from our current state of affairs to a future I would like to see. From scared debt slaves where a few have all the power and money to a slightly more exciting equal world. Surely with massive recent technology improvements plus a better use of govt debt this could be achieved to some extent. Only dated beliefs will hold us back.
@Cooper
Where does MMT state that all people want to be “wage slaves”? Is a living wage + health care et all offered by a voluntary Job Guarantee slavery? Do you not see permanent and involuntary unemployment a problem? Do you not see that it’s a problem to be in this state, because studies the show that the poorer you are, the less likely you are to vote (aka, have a say in the country’s affairs)?
Where do you see all these robots manufacturing all that you’re buying from your local supermarket’s shelf? You don’t. The bulk of those goods come from foreign countries. And the reason they’re so cheap is because labor in those countries is underpaid and exploited.
I really don’t see why the voluntary JG is a outdated. It’s simply a better incentive. It gives people a choice. You can choose the welfare check, or you can choose a position in the JG, if you’re not able to find work in the private sector. One of the goals of the JG is to make people hireable by the private sector; i.e. to reintroduce the long term unemployed into the private job market. Because employers see them as a liability otherwise.
I’ve no problem with a Basic Income.
People like to invoke “government waste”, “corruption”, et all. Well what about welfare? Isn’t welfare easily abused? It sure as hell is in my country. Even the rich find ways to get their hands on it, faking illnesses and what not. But do I mount a campaign against welfare checks? Hell no.
If you have a problem with the voluntary JG proposed by MMTers, you have a problem with decentralization. You lack faith in local governments and communities deciding on their own. Are you a progressive intellectual or are you a progressive aristocrat? By the way, those upper class brilliant people who made discoveries in science and created art & culture were living off a system of exploitation and gross inequality. The landless masses were left with the toil, and they were left with all the yields, land, and free time.
Don’t get me wrong. I want robots to free humanity of its toil. I believe that in the future, when pretty much everything will be done by robots, government will not only have to pay a basic income to people, but it will also have to pay them to attend science, art, and cultural events. This, of course, is the “dream”. What reality has in store for us, however, might be completely different.
Coxey’s Army was ahead of its time, and that movement faced repression from a highly reactionary society. The same, I think applies for the Job Guarantee. But we’ll speak more when the robots will liberate 3rd world labor. Until then, most of the products on our shelves (whether we buy them with welfare checks, wages, or a basic income) come from foreign countries in which labor is underpaid and exploited.
@Serban
I’m not saying we can get to the point of robots doing everything tomorrow but we don’t currently have a system that rewards people for making progress towards such a goal. When technology improves and takes over some portion of the work required by society, the rational outcome would be to allow everyone to work less hours and maintain their current lifestyle. But look at what happens now – the capitalist class gets all the gains and lays off workers, and because of the mentality that everyone should work a full-time job and because we need people to buy everything that’s for sale to keep the economy going, we invent bullshit jobs. It seems to me that a JG encourages this mentality. A livable income guarantee makes much more sense in my opinion.
Having or not having a job is really not much of a choice with the feeble amount that welfare currently pays. I agree with Marx that the employer/employee relationship is an exploitative relationship, and yes, wage slavery. Of course you’re going to get some people who love their jobs, but I’m from a working class background and I can tell you I don’t know a single person from that background who enjoys their job. Most just live for the weekend and then they’re so tired at the weekend, they just get drunk because they don’t have the energy to concentrate on hobbies. So on the contrary, I find that it’s people who work in jobs they love who tend to promote the JG, which mainly affects the working class. So I find it funny that you call me the progressive aristocrat.
The burst in creativity that would come from giving everyone incentives to replace all menial work with robots would be incredible. So we’re in this crazy position where workers unions fight against technological change because some might lose their jobs instead of working within a system where everyone could share the productivity gains from technology. I just don’t understand how people can support capitalism and promote the belief that everyone should spend the majority of their lives working for an employer, whether that be private or public.
Neil Wilson
“It’s not a belief. it is fundamental to the way humans are (and actually what separates us from Chimpanzees).”
In fact it doesn’t separate us from chimpanzees, monkeys, dogs, or even* crows. The reality just reinforces your point though.
Which leads me to… Kevin Harding
Here’s a brief article on the subject:
http://www.yerkes.emory.edu/about/news/developmental_cognitive_neuroscience/de_Waal_Evolution_of_Unfairness.html
And an actual study:
http://www.pnas.org/content/110/Supplement_2/10416.full
With a brief quote:
“Humans are not alone in responding negatively to differential treatment compared with a partner. This response is shared with other species and appears to be instrumental in successful cooperation.”
The desire for fairness – and even a core understanding of what ‘fairness’ means – appears common to all reasonably intelligent social animals.
Humans may be able to work around our innate drives, and create a society where a Basic Income type approach would be viable, but we do have to create it, we can’t just pretend that that society already exists.
Meanwhile, the JG solves problems in the context of the societies we actually live in.
* I shouldn’t say ‘even’; crows are amazing.
@Cooper
Yes every objection to a citizen’s dividend is either a culturally inherited austerity mentality and/or a missing of the fact that in the normal and unfettered course of commerce the rate of flow of total costs routinely exceeds the rate of flow of total individual incomes simultaneously created. If we integrate both governmental infrastructure spending and a supplemental income going directly to the individual as well…we will have solved the entirety of the problem. You will need to have a discount mechanism at retail sale to the individual also to guard against the inevitable trend and tendency of businesses to inflate their prices as they see ample demand is forthcoming, but seeings how retail sale is the terminal end of the entire productive process merchants can discover their price, discount it to consumers at a percentage high enough to actually reflect price deflation…and then the central bank, acting truly in the interests of the individual (instead of in the interests of the monopolistic private banks) rebates the totality of each enterprises discounts…back to them.
Voila! Sufficient if not abundant demand, actual price deflation, gracious, not overly intrusive government monetary and economic policy and also greatly needed spending to replace and modernize infrastructure as well.
I’m unable to reconcile “if you don’t want to work, you don’t get to eat” with a voluntary jobs guarantee. No voluntary program can satisfy that attitude.
@Cooper
I, since you’re a Marixst, I now where you’re coming from and why you want to “abolish labor”. Problem is, the left and the right insist that tax-payers fund stuff. The Left maintain that the rich should pay for welfare & health care. The right says we don’t want our taxes to fund lazy bums on welfare. Both sides agree (in their delusion) that the government debt is too high, that the fiscal deficit is too high, that government should balance its budget like a household. So when progressives come out against Workfare, that pisses off the voters who believe in working for a living. Granted, right-wing workfare programs are NOT the type argued for by MMTers. On the contrary, the MMT JG is voluntary & does not abolish welfare. And the real question is, how productive are the unemployed? How productive are the voluntarily unemployed? Is it ok to shift more and more of domestic consumption from imports? Are voters smart enough to realize that a basic income & other federal spending comes from fiscal debits, not from tax-revenue? Are we here smart enough to realize that we can have both a voluntary JG & a basic income? I see no problem of slavery by giving people the right to work. JG programs are not going to be labor-intensive. It’s not about breaking people’s backs on a construction site or below the earth, mining for resources. They will be jobs which the private sector doesn’t want to perform. Like in cleaning up the environment, reforestation, and most importantly social work. Employing people to take care of elders, the disabled – even simple things like reading to children. The JG would ensure a minimum wage floor, under which capitalists cannot go. So it would put pressure on them to offer workers a better deal (better working conditions, better pay, fewer hours).
Personally, I’ve met MMTers who don’t agree with the JG or BIG. It’s a political preference, I guess. People see different means for more or less the same ends. I find it ironic that the Right & the New Left attack the JG proposal. As for me, I’m prey to philosophical pessimism. ^v^
It would be awesome if things turned up as you envisioned.
Have a good one, dude.
The JG is always voluntary in the same way as any other job is voluntary.
Workfare accusations are easily dealt with by simply pointing out that the the JG tailors the job to the person *which no punishment based workfare system ever does*. The JG is there to make sure that there is a job for you as an individual right up to the point where social care issues need to get involved (which then deals with people with chronic mental and physical issues).
Stability leads to instability. And instability leads to stability.
There are four seasons with nature constantly cycling between death & rebirth.
It is an awful mistake to claim recessions aren’t necessary and should even be avoided. Something that grows forever without pause is called a cancer and eventually kills its host. After 30+ years of almost uninterrupted credit/debt growth and propping up of markets the cancer stands ready to destroy its host. There has never been a time of such unprecedented one-sided growth, with the Dow having gone up 17 times its high of around 1000 during the 1970s (33 times its low), a massive bond bubble, creation of an off-the-charts derivatives market, housing bubbles still, to name a few indicators. Even prior to the collapse of the U.S. stock market in 1929 the Dow had only gone up 7 times from its high 25 years prior (12 times from its low).
So yes, I agree with the forest fire analogy, that frequent minor ones are NECESSARY to avoid the massive, destructive ones. We don’t get to choose whether we have forest fires or not, as just as they have occurred for billions of years they will continue to occur. We have demonstrated that we have the ability to postpone them and even to prematurely douse them once they get started, but time will demonstrate that we eventually will get consumed in one.
The key is to find a nice gentle balance between stability and instability in our financial markets. A healthy dose of fear should be forever present in our individual markets keeping greed in check, not the cataclysmic fear of complete economic collapse that is starting to pervade because general stability and greed has reigned for too long now. Let’s work our way back into the natural order of things, let each season unfold completely and not fear death, because the failure of one industry or portion of an economy leads to rebirth and opportunities for others.