Cash transfers are not squandered on booze but do not replace the need for jobs

Some years ago I was asked to design a framework for the implementation of minimum wage system in South Africa as part of an ILO project my research group was involved. We were evaluating the first five years of the Expanded Public Works Programme in South Africa, which was a cut-down employment guarantee program (limited by supply-side constraints on public expenditure largely conditioned by the bullying of the South African government by the IMF). One of the issues I had to deal with was the belief among many economists that the existing cash transfer system introduced by the South African government after 1994 should be expanded into a full-blown Basic Income Guarantee and that any notion of employment guarantees should be rejected. Our work demonstrated quite clearly (in my view) the flawed logic in this argument. The cash transfer system was productive as it stood but was no reasonably extensible into a widespread income guarantee without significant negative consequences. The creation of an employment guarantee scheme to absorb the social transfers and leave them as supplemental to cope with varying family structures was a much better option. That conclusion holds for less developed nations and advanced nations alike.

The post-apartheid South African administration, unfortunately, adopted a neo-liberal economic understanding of the world and the policy apparatus that is concomitant with that understanding.

The most explicit example of this is seen the transition from the Reconstruction and Development Programme (RDP) to the Growth, Employment and Redistribution Programme (GEAR). The RDP was envisaged to be the cornerstone for building a better life of opportunity, freedom and prosperity.

In 1996 RDP was superseded by GEAR, which adopted explicit economic growth strategies that were oriented towards private sector investment and assumed the role of the public sector and government programmes to be minimal.

The GEAR strategy pursued fiscal discipline by minimising deficits and maintaining high real interest rates, which constrained economic and employment growth.

The failure of GEAR was never more evident than in the discrepancy between the economic modelling, which predicted that a 6 per cent growth rate would create an average of 270,000 additional jobs annually in the formal sector, and the outcomes, which saw formal sector employment, stagnate and fall.

The IMF had their hands all over GEAR.

It was no surprise to me when I started working in South Africa that the richness of real resources that the nation possesses were not being (and have not been) used to benefit the greater population.

The neo-liberal economists who had the ear of the government continually emphasised the primacy of the private market place and uses ‘private costs and benefits’ as the basis of resource allocations, largely ignoring the broader and more inclusive concept of ‘social costs and benefits’.

In the case of South Africa, this translated into the hard to understand combination of a government running fiscal surpluses and more than 60 per cent of the population without adequate housing or income.

The surpluses were justified by the erroneous claim that they are fiscally responsible management, a central misnomer of neo-liberal thinking which remains stuck in a time when fixed exchange rates and commodity money was the norm.

In a flexible exchange rate world and where the government maintains sovereignty over its currency, these notions are clearly inapplicable. The application of them results in dysfunctional outcomes which we see in the stark reality of the South African situation.

I attended meetings where various well-dressed and full-of-bling (expensive watches, rings etc) officials, reading from the IMF and World Bank bible, told me that the massive unemployment in South Africa is a complex and manifest problem.

A lot of head shaking was common – complex, manifest – too hard basket.

The mass unemployment was constructed by these officials as being ‘structural’ in nature, and that view dominated the political awareness and the sort of policies that might be brought to bear.

I argued that by any standards, the unemployment problem in South Africa was a demand deficiency situation rather than a structural problem. There was scant evidence that the South African economy was generating enough work in areas unsuited to the skills of those who are seeking work in those areas.

This means there is not sufficient demand for labour being generated overall.

The South African economy was clearly not producing enough jobs and, in those situations, the labour queue then reflects the distribution of skills with the least skilled in the most disadvantaged position in the face of job scarcity.

I also considered that there was not a shortage of meaningful job opportunities that could be pursued in South Africa if there was a willingness to fund the employment. The private sector was (and is) clearly unable to generate the level of employment commensurate with the willing labour supply.

This chronic state is a prima facie justification for a direct public sector job creation.

It is a state common to all countries without exception.

The EPWP is an on-going scheme in South Africa that aimed to reduce poverty and unemployment. It was an excellent idea, being effectively an employment guarantee.

However, the job targets have been too modest to do anything but put a small dent the dual problems of poverty and unemployment.

The work duration is too short and/or irregular, and while daily wages vary considerably, the low monthly/annual wages detract from programme impact.

The work opportunities are short and thus provide no continuity of income for EPWP participants.

One of my commissioned tasks as an outside consultant was to evaluate the role that EPWP played in reducing income insecurity and promoting employment, and how it interacted with the existing system of social grants (cash transfers), and to design the improvements or changes in programme design that would enhance the impact of the EPWP wage income on poverty alleviation.

In part, I was to come up with a framework for assessing the appropriate minimum wage for a minimum level of employment.

So I got to know a fair bit about how cash transfers play out in poor communities and the role they have to play in poverty reduction.

I concluded that while cash supplements could improve the fortunes of a poor citizen, they were not to be prioritised over the provision of meaningful work by the state.

In another context, this discussion plays out in the conflict between basic income and employment guarantee proponents.

Cash transfers and Basic Income Guarantees

Cash transfer programs have been a popular way for less developed nations to alleviate poverty and support economic development. However, they have always been resisted by policy makers in favour of in-kind transfer programs because of the fear that if an impoverished family is given cash they will (especially the male members) immediately squander the funds on non-essentials including booze, gambling, drugs etc.

These so-called ‘temptation goods’ (or ‘demerit goods’) are considered to be damaging, which is one reason why economists argue they should be regulated.

There was an interesting 2014 study by two World Bank economists (David Evans and Anna Popova) – Cash Transfers and Temptation Goods A Review of Global Evidence – published as Policy Research Working Paper 6886, May 2014, which received recent attention in the media.

The World Bank paper examined the role of cash transfers in Latin America, Africa, and Asia in the light of criticisms by economists and others who claimed that such public handouts only end up buying “alcohol, tobacco, or other ‘temptation goods'”.

They performed a meta analysis of 19 quantitative research studies “on the impact of cash transfers on temptation goods, as well as 11 studies that surveyed the number of respondents who reported they used transfers for temptation goods.”

The conclusion:

Almost without exception, studies find either no significant impact or a significant negative impact of transfers on temptation goods … concerns about the use of cash transfers for alcohol and tobacco consumption are unfounded.

What does that mean?

That poor people use extra cash resources (whether provided conditionally or unconditionally) to improve their life’s chances by spending more on nutrition (where available), education and health care.

In fact, the research points to the conclusion that spending on demerit goods declines as people have more cash.

There was a recent Yahoo Finance article (December 10, 2016) – Here’s what happens when you give cash to the extremely poor – which drew on these findings.

The journalist (Ethan Wolff-Mann) argued that a major constraint limiting the use of cash transfers was the:

… visceral reactions in people, as it runs contrary to the values in society-that people should earn their money, and anything else is unfair.

This fetishization of self-reliance, however, is only one part of why people chafe at giving money directly to those in extreme poverty. A more common refrain: They’ll squander the money on booze, cigs, and drugs.

Clearly, the research evidence does not support the latter claim as discussed above.

The Yahoo Finance article believes these research findings, which come from studies of poor nations:

… could be vital for the new economy.

Where is that heading? Into the mire of Basic Income in all nations, that’s where!

The point is that the research does not support a case being made against cash transfers on the basis that the recipient will squander the funds.

But to then generalise those results to claim they justify a full-blown Basic Income is a step too far.

The Yahoo Finance author chooses to get on board the ‘second machine age’ wiping out all jobs bandwagon and chooses to quote the not to be relied on Lawrence Summers “by mid-century about a quarter of men between 25 and 54 will not be working at any moment.”

The answer is – why haven’t I seen it already! – “to provide a basic income for everyone to supplement income from low-paying jobs that have become the hallmark of a shrinking middle class.”

Apparently, there are now a US study (Economic Security Project where involves “a few dozen people getting $2,000 per month for a year” to see what they do.

Well, that is just $US24,000 per annum.

There was a Gallup Poll (July 1, 2013) – Most in U.S. Have Enough to Get by, but Many Lack Cushion – which concluded that:

About seven in 10 Americans, including a majority of those making more than $24,000 a year, say they have enough money to do what they need to do. However, it is not until Americans reach $48,000 a year in annual income that a majority say they can handle a substantial purchase or unexpected major expense.

Only 43 per cent said that they had enough to “buy things you need” if they earned less than $US24,000 and only 21 per cent claimed they would be able to make a major purchase.

The study concluded that “most Americans … do not have much cushion for financial emergencies”.

The amount is above the Federal minimum wage, which is hopelessly low in the US. So I don’t see an annual income of $US24,000 where a person cannot deal with a major expense as being anything to build a new progressive and prosperous society upon.

I have written a lot about Basic Income and employment guarantees in the past. I do not support a Basic Income. For past blogs go to the Job Guarantee category.

Back to South Africa, where this debate has been playing out for years now.

In the period after 2000, there was a dramatic increase in provision of social grants (cash transfers) in South Africa, which targeted the poor and disadvantaged have been effective in reducing the burden of poverty.

Many researchers and policy commentators seized on this type of data as the basis of their advocacy for the introduction of a Basic Income Guarantee (BIG) as the primary policy weapon against poverty.

They have highlighted the fact that there is a lack of employment alternatives available to most poor South Africans and that the social assistance grants system has demonstrated an ability to reduce poverty in that country.

These advocates note that the current social assistance schemes in South Africa provide no support to able-bodied people of working age who do not have children and who have never been able to build any unemployment insurance credits.

The myths propagated by the BIG proponents include:

1. Full employment is now unattainable – the ‘second-machine age, robots are taking over’ paranoia is just the latest iteration of this claim.

An earlier iteration was that the state can no longer afford to guarantee jobs.

A BIG is a palliative at best.

It is based on a failure both to construct the problem of income insecurity appropriately and to understand the options that a government which issues its own currency has available to maintain full employment.

There are no economic constraints in South Africa or elsewhere to achieving full employment. Only ideological and political constraints exist.

In fact, each policy response (BIG or Job Guarantee) requires that the same ideological and political barriers, relating to philosophical notions of citizenship and individual rights, be confronted and overcome.

But when compared to a full-scale public sector employment programme, the BIG is a second-rate option and is inherently inflationary.

BIG advocates construct the problem of income insecurity incorrectly – full employment can be achieved.

But, on top of that, the mainstream BIG literature advocates the introduction of a BIG within a ‘fiscal neutral’ environment, presumably to allay the criticism of the neo-liberals who eschew government deficits.

Another, probably more reasonable conclusion, is that the BIG advocates actually believe that governments that issue their own currency have financial constraints.

It is clear that much of the debate about the viability of the BIG is conducted on the false premise that a currency-issying government is financially constrained.

Once we recognise that there is no financial constraint on government spending, many of the problems created by BIG theorists can be avoided.

The payment of a BIG to all citizens would signify a further withdrawal by the State from its responsibility to manage economic affairs and care for its citizens.

It is a dire future where young people are seen as passive recipients of a social security benefit (BIG) rather than be encouraged to develop skills and engage in paid work.

The failure to engage in paid work cannot be narrowly construed as an inability to generate disposable income which can be addressed through a benefit, but entails a much broader form of exclusion from economic, social and cultural life, which has highly detrimental consequences.

BIG advocates fail to explain how its availability will promote meaningful engagement on the part of the disadvantaged, who have limited income earning opportunities.

The universal availability of the BIG, does not overcome the stigma associated with voluntary unemployment of the able-bodied, who do not have caring or other responsibilities.

Work remains central to identity and independence, and persistent unemployment remains the central cause of income insecurity.

While the introduction of an BIG has superficial appeal – by allowing individuals to subsist without work – the model fails to come to grips with the failure of macroeconomic policy to provide paid employment opportunities and secure incomes for all.

In short, a BIG:

1. Creates a dependency on passive welfare payments;

2. Creates a stigmatised cohort;

3. Does not provide any inflation buffer.

4. Does not provide any capacity building. A BIG treats people who are unable to find adequate market-based work as ‘consumption’ entities and attempts to meet their consumption needs.

However, the intrinsic social and capacity building role of participating in paid work is ignored and hence undervalued.

It is sometimes said that beyond all the benefits in terms of self-esteem, social inclusion, confidence-building, skill augmentation and the like, is a priceless benefit of creating full employment is that the “children see at least one parent going to work each morning”.

In other words, it creates an intergenerational stimulus that the BIG approach can never create.

So while social grants (cash transfers) have proven useful in alleviating the worst of poverty they should not be seen as being extensible into a full blown BIG.

Social grants should supplement employment guarantee income to allow for family structure – so that no individual, no matter what family structure they live in – faces poverty.

In general, a properly calibrated Job Guarantee wage will ensure that anyone who works is able to avoid poverty.

That wage would be made available to all those who are able and willing to work irrespective of whether the State is in a position to provide immediate work.

I have always recognised that the duration of planning processes, administrative inefficiencies or other factors may lead to there being difficulties in providing enough immediate employment opportunities across all regions to absorb the number of workers who would take up the offer.

This is particularly the case in the less developed nations (such as South Africa) that I have worked in. Less so in advanced nations with sophisticated infrastructure.

But where the work was not immediately available and consistent with the poverty alleviation objectives of the Job Guarantee, the minimum wage should still be paid upon the person signing in for work.

Cash transfers could then supplement the Job Guarantee income in addition to social wage supplements (public transport access, housing support, health care, child care etc) to cater for different family structures.

Conclusion

The World Bank research is important because it can be used to dispel myths about alleged vicarious spending habits of impoverished people who might enjoy extra income via state assistance.

The myths are really just one of many used to disabuse governments of running deficits and doing something about poverty.

But in finding that the poor do not go on drunken, gambling, smoking binges with extra cash they receive does nothing to support the introduction of a BIG.

The advantages of being involved in work in our current society are massive and we can be sure the income security that is generated by the introduction of a Job Guarantee would go to advancing personal and family capacities rather than advancing the profits of breweries or, worse, the proliferation of gambling products that are constantly being advertised these days.

That is enough for today!

(c) Copyright 2016 William Mitchell. All Rights Reserved.

Related Posts

This Post Has 26 Comments

  1. One fear that occurred to me with a BIG would be the decimation of education funding for the masses. At least a JG would necessitate education spending. The rich would get educated and the poor wouldn’t and would be slaves to any adjustment in the BIG or worse ending it so people had to work as slaves just to live. It’s not that far fetched at some point in the future. To avoid fighting I just stand by any universal income must come with a JG as well for people who want to work. If not including a JG then the universal income can’t really be supported so I fight for both only. The progressives fight vehemently if you try to say only a JG so I think it’s easier to be heard by just including it with their proposals.

  2. I agree Jason. The BIG would essentially “warehouse” the jobless without a lot of prospects for work and contribution. I cannot quite fathom though why the BIG is to be preferred over the JG unless it is “cheaper”?

  3. “I cannot quite fathom though why the BIG is to be preferred over the JG unless it is “cheaper”?”

    It’s pretty simple really. It is the people advocating for the BI that are the ones that want it. The ‘help the poor’/’freedom’/TINA arguments for it are just convenient excuses used to persuade others.

    As I’ve shown Basic Income, if it is sufficient to live on, ends up with the individual getting paid twice in real terms. Once in terms of the output they are able to purchase and once in terms of their own daily labour which they can self consume. The Job Guarantee represents an exchange of labour hours for the output of others.

    The self consumption is seen by others as theft (or larceny if you prefer) and that leads to resentment and the dismantling of the scheme.

    What that means in terms of those still working is that the BI represents a lower pool of available output to those making the stuff than the Job Guarantee (it is down by those labour hours the BI recipients choose to self-consume).

    More money chasing less stuff available to buy at full engagement is the textbook definition of inflation.

    So you find the BI advocates deal with this in different way – largely by reducing the size of the cash grant so that you can’t live on it. The living wage in the UK is about £10 per hour representing a living wage of £375 per week on a standard work week. The BI proposals I’ve seen are talking about £70 or £80 per week cash grants – less than a quarter of what is required to live over the long term.

    Which means that BI has nothing to do with helping the poor and everything to do with providing a snowflake middle class with a nice cash bung so they can buy newer clothes for their very important social events. The poor will remain immiserated as they always have done.

    Similarly it is very difficult to see arguments for automation holding any sway when state retirement ages continue to rise. If there is technological unemployment then you just retire people earlier. That works because if you’ve been working a lifetime you’re seen by others as having contributed.

    You’ll never find that solution put forward by BI advocates, because it means that they would be excluded from the cash bung group and have to work for a living.

    Ordinary people want to work for a living, entrepreneurs want to work even though they are minted. Real people like working. So the problem is not enough to do. The wage people get then comes as a consequence of that.

  4. I have never felt any form of satisfaction or an improvement in self esteem from working for a wage. In fact, I find it to be degrading, a complete waste of time, and suspect its primary purpose is to line the pockets of the capitalist puppet masters pulling the strings.

    I’d much rather a system whereby I can stay at home, do my own gardening, play guitar and piano, and go cycling every day. Unfortunately, I need a wage so I’m forced to prostitute myself to the system.

  5. Bill,
    Most Americans can not afford major purchases but now lease their shiny new motors – so subprime leases follow on from mortgages as the new financial engineering goal – what could go wrong?

    ps Any sign of this trend in Oz?

  6. Chrislongs it’s even worse I read in business insider that 6 million Americans haven’t paid their car insurance and they’re on subprime car loans in the USA. Another early warning sign possibly of people not being able to fund any demand. How long till the rich work out they need to let the masses have a bit more of the share of the pie? Does the whole system have to collapse before they realise?

  7. bill

    pls tell me when the sister edition will come out i am still waiting for it thank you.

  8. Alan Dunn, I’ve had the opposite experience, after not being able to work for 12 months due to illness I was chafing at the bit to go back. You can always go off-grid and grow your own food.

  9. @Jason H said: “How long till the rich work out they need to let the masses have a bit more of the share of the pie? Does the whole system have to collapse before they realise?”

    Never. Because the rich understand that the government can and will always bail them out if they get in any trouble.

  10. South Africa has many similarities with Australia where the most profitable industry is the plundering of the nation’s natural resources by foreign and local capital and this industry uses its power over the nominally ‘democratic’ system and the mass media to ensure its domination and that royalties, taxes, regulations and the cost of labour are all minimised, thus maximising profit. Both countries have not evolved much from their colonial roots and are in fact degenerating further into corporate colonialism or feudalism.

    This is such a shame given the misery this imposes on millions of innocent people and the fact that both countries could easily offer full employment and a very high standard of living for all and which would perversely provide much more local sales for the capital controlling elites and opportunities for wealth creation.

    It is the same old story of the fight between capital and labour where individual greed of each capitalist enterprise drives wages and conditions ever lower thus harming the collective self interest of capital that would arise from greater consumer demand and sales when wages are allowed to grow with productivity growth.

    The root cause is the same. The grip of money over the democratic process and over the mass media must be broken otherwise the miserable life of the serf in a system of corporate feudalism awaits the majority and critically urgent problems such as preventing further global warming will not be addressed.

    Perhaps the proponents of neoliberalism that support a basic income guarantee are just now putting in place the last few pieces of a system to pacify the serfs sufficiently to avoid insurrection or revolution and it is looking likely to be a BIG, a ‘Ministry of Truth’ mass media, a two tiered system of justice, appalling jails, overwhelming state surveillance of citizens and very well resourced militarised police force. George Orwell’s 1984 or are we already there?

    The Job Guarantee and a more egalitarian world with full employment and higher living standards across the board is not what those that long for the return of feudalism want. This would likely lead to some level of democracy and too much power in the hands of the serfs.

  11. @Andreas Bimba,

    That is what scares me the most. In addition to the economic problems with BIG, I see it as part of a possible entertainment-surveillance state that is looking to be in the making. The elites know that they are unpopular and that the peasants are restless.

    A BIG will be pushed as a way to prop up consumption and to keep the peasants quiet on a steady diet of fast food, video games and online pornography. I don’t understand why so many left-wingers like the BIG proposal. I suspect that Neil Wilson at the comment above is right: it is mostly middle-class types who want a boost in discretionary spending. Most of the poor and working class want jobs not welfare!

  12. This may have been covered elsewhere, but a BIG may be more viable politically than a straight jobs guarantee because a BIG will be a visible benefit to the entire population. Broad non-means-tested benefits tend to have much greater political support than means-tested benefits.

    For example, in the US, Medicaid, which is basic health insurance for the poor, is the subject of frequent attacks and cuts, and is portrayed as a handout to the undeserving. Medicare, which is health insurance for all persons over the age of 65 regardless of income, has historically been considered untouchable. Similarly, some years ago New York City implemented a popular universal preschool program, at approximately $10,000 per student per year, which is available regardless of income. Similar means-tested preschool programs were unable to gather sufficient public support.

    Would a BIG that becomes a job guarantee for unemployed individuals achieve the same result as an ordinary job guarantee, while maintaining the popular support that a broad BIG is likely to get? Or are there issues with a BIG that I’m missing?

  13. Herman I think by losing control over our governments and the democratic process that a very stratified society like that of the European Middle Ages is inevitable, the U.S. is a little further down this path. Christine Milne, the former leader of the Australian Greens details in this article from 2014, after the experience of 25 years in politics, why she thinks Australia’s democracy is broken and has been hijacked by big business and other vested interests.

    http://tasmaniantimes.com/index.php?%2Fweblog%2Farticle%2Fthings-are-crook-in-tullarook%2F

    LG, it is probably not a failure of voters to select a Job Guarantee over a Basic Income Guarantee but more likely yet another case of the elites deciding what candidates or policies are to be presented to the electorate for selection. As Christine Milne writes the elites are currently running the show and their grip must be removed before any meaningful change is possible. I agree with Herman and Neil that most of the poor and working and middle classes want jobs not welfare. Free or low cost government services like universal education, universal healthcare and universal childcare as you say are likely to be popular and many European countries have been providing these services for a long time. The economic and social benefit of each far exceeds the economic cost in any case. Bill has detailed in his article why he thinks the JG is superior to the BIG.

  14. If participation in a JG scheme is mandatory (be it by some economic circumstance), and only mandatory for some people, then quality of opportunity offered (measured in how the individual feels about the way the time is spent, and customer spending on the output), must be equal or greater, than what people free of this mandatory participation can enjoy, people who are free to only spend their bright waking hours in occupations created by private entrepreneurs (or they could just become entrepreneurs themselves). Because those free people would simply get all the good opportunities then, while everyone else is left wanting.

    Alternatively, a JG scheme that requires the same amount of time commited from every single person who is part of the society, can sidestep that issue, as everyone would have to spend the same amount of time in a relatively less productive/enjoyable manner.

    Or of course, not making a dignified existence within society dependent on participation in a JG to begin with. The purpose of a JG scheme is not with providing people an income, but rather with a job (that is, for people who want one), anyway, so I don’t see why someone would want to connect the two to begin with, unless communism with mandatory labor services for everyone was the goal. Maybe not a terrible goal, but at least put the mandatory participation for everyone first, then.

    Anything else is a speedway to feudalism, royalty, which in practical terms, boils down some people having all the merits of owning things, and the freedom to not work due to that luck to own said things, by some line of ownership succession. While the pie grows potentially for everyone, but the slice is reduced for those who are not owners.

    Anyway, I do believe that as long as there’s improved customer spending power, something easily achieved by the means of a UBI, it is a easy task for private entrepreneurs (and people who want to become such), to create the meaningful jobs and ways to spend one’s time. Whether you want to be the entrepreneur who envisions the realization of a project, where available customer spending allows it, to the extent that it allows it, or the worker who just does the work for such a person, for a compensation that is derived based on how much customer spending is available for a personal profit to be split between entrepreneur and worker. This could be discussed on a level playing field, between worker and entrepreneur, given a UBI.

    As much as I don’t hate the concept of the state creating well paid opportunities to make the country better, by a democratic mechanism, that people or companies are free to take up. Making countries a better place is a good thing. Having a budget for that stuff, and for providing people a baseline merit from respecting the existence of property titles on things that anyone could just as easily originally appropriate and individually benefit from, but that happen to be owned by someone else represented by society already, thanks to lucky circumstances or bitter negotiations, that’s something to consider.

  16. Neither BIG or JG are magic bullets.
    What is crucial for society and Paticularly for a mass consumerist economy
    is a reasonable distribution of goods and services that we all provide.
    BOth BIG and JG can help.
    But let’s base our understanding on monetary sovereign reality.
    There are no contributory state welfare schemes this is neo liberal smoke and mirrors.
    The reality is government creates its own currency.Taxes do not pay for unemployment
    pensions or anything.All recipients of government money lay claims on others labour.
    This is political economy and I believe greater equality should be the goal of politics.
    The so called free market with or without JG Or BIG magic bullets will not guarentee
    egalitarian outcomes.
    Unemployment is a new feature of human development unequal wealth and power
    structures a universal facet of human history. I certainly agree with a state job guarentee .
    Best way to approach that is for the state to expand the middle class offering well paid
    secure employment in Health,Social care,Education ,sustainable scientific development etc.
    Where I believe BIG can have a vital role is in a progressive egalitarian tax and welfare regime.
    The MMT blind spot in the post war settlement is the success of an egalitarian tax strategy.
    Limiting the control of real resources with high rates of tax on high incomes.BIG can provide
    a much needed negative tax rate at the bottom end and lower overall tax rate amongst the
    masses.Currently the highest rates of real taxation are for those on low pay who lose benefits
    as well as pay taxes on moderate income rises.
    BIG can play a role in egalatarian tax regime and undermine the divide and conquer strategies
    of the neo liberal shirker narrative the deserving and undeserving.It can also help lay bare the monetary
    sovereign reality .Taxes don’t pay for anything.

  17. Kevin, taxes may not pay for anything but given taxes are still necessary to create sufficient economic space to enable government spending of the magnitude deemed necessary, so as to avoid inflation, there is still an indirect linkage between taxation and spending. I can see no harm in the general population maintaining the belief that taxes fund spending. Ideally all economists should however be trained to understand MMT and macroeconomic reality.

    Progressive income tax, ensuring tax evasion by business and the wealthy is greatly reduced and possibly some level of wealth and inheritance tax will help with improving wealth equality. The high effective tax rate for those on welfare support that perform some paid work must be addressed.

  18. I’m all in favour of having the state run many parts of the economy. I’d like to have nationalized utilities and public transport. I’d like to have a large state-run social care system. But I’m also aware that the private sector can do many things very well. The arguments you give for a JG over a UBI, seem to presuppose that there is a vast cohort of people who can work but who can’t suss out themselves what private enterprise would be worthwhile. A UBI recipient could also be a sole trader or a part of a cooperative or themselves an employer. The UBI could provide increased demand for such self organised production of goods and services. You say that having a JG job provides a sense of self worth. I’d say that self-creating an enterprise that works well can add an extra tier to that satisfaction.
    Basically the pro-JG argument is that there are enough potential capable JG administrators and not enough competent self organizing people to make such JG administrators unnecessary. I worry that you’re wrong on both counts.

  19. Stone, a JG could also be offered to people with a business plan and say a 12 month guaranteed wage to start a business. Again it’s only limited by people’s imaginations. I do agree with your concerns about managing it etc I also have concerns about mass strikes with wage demands beyond productivity from mass public ownership so there is a balance that a JG would ideally give asit essentially would fulfil a major role of unions hopefully.

  20. Stone:Basically the pro-JG argument is that there are enough potential capable JG administrators and not enough competent self organizing people to make such JG administrators unnecessary. I worry that you’re wrong on both counts.

    That bears no resemblance to any JG argument ever. Like most criticisms, it gets things precisely backwards. UBI / BIG / citizen’s dividend is a top-down, administrative, authoritarian idea. By definition. The JG is bottom up, democratic, libertarian, self-organizing, putting decisions in the hands of the individual. By definition. The other major difference is that the UBI / BIG is absolutely nothing but wishful thinking, fascistic wishful thinking. The JG = wishing + doing.

    The JG does what the BIG supporters daydream that a BIG will do. On the other hand, a UBI/ BIG would be entirely destructive, doing the exact opposite of the daydream. That’s why so many billionaires support the BIG. They understand economics. Billionaires understand BIG = Billionaire’s Income Guarantee Now + lots of homelessness Later. But why do BIG supporters trust these plutocrats? Why do they think they are so much smarter than these rich people? They ain’t.

    When I was learning MMT, the BIG sometimes sounded better than the JG to me too. But reading and thinking disabused me of this horrible delusion. But so many BIG supporters are so enraptured by the wonderfulness of their good intentions that they become unable to sit still long enough to listen to proof that these wonderfully wishful good intentions most certainly do lead to hell. Bill and the other MMTers are much too easy on the vile BIG and UBI.

  21. I’m sorry ‘Some Guy’ – I really struggle to follow your line of reasoning. How is it “putting decisions in the hands of the individual” to make payment conditional on that individual doing what the JG administrators deem fit?

    Jason H, you say that in principle a JG could be paid if the recipient comes up with a business plan approved by the JG administrators. I suppose you’re hoping that the administrators have a better sense of what constitutes a worthwhile use of the recipient’s time than the recipient does. My worry is that they wouldn’t.

    My abiding worry about the JG comes from something I was told by someone in the 1980s just after they had returned from China. They said that they had seen a large team of workers (watched over by an overseer), cutting a vast grass lawn, with each person using a small knife to cut the grass. The work progressed at a snails pace and looked back-breaking. Obviously, at that time, China had massive needs for vital work to be done, making full use of its people. Nevertheless, presumably, it was easier to set the workers to such a pointless task instead and so that was what was done. I guess the Chinese overseers were just regular guys trying to do their job. What makes you so confident that your proposed JG administrators would be any more capable or enlightened?

  22. I would like to know what size Job Guarantee schemes are envisaged by MMT economists. Is the JG intended to provide work for all unemployed people that are able and willing to work at some point?

    Roy Morgan Research gives the current Australian unemployment rate as 9.2% or 1.2 million and underemployment as 8.4% or 1.1 million. I suppose it is reasonable to assume that many of the underemployed would also take advantage of the JG as this group usually endure the lowest incomes and worst working conditions. In addition many that have given up looking for work in the current dog eat dog neoliberal job market may also take advantage of the JG.

    This is a lot of people to find meaningful work for by local government. I can see we will have well staffed libraries, child care centres, kindergartens, child health centres, well manicured parks, huge community arts centres, cultural festivals throughout the year, community gardens, fantastic local sport facilities and well maintained local roads. Local renewable electricity generation and distribution, public housing and improving energy efficiency of dwellings could also be added.

    Even with all that activity I can’t see local government employing more than a quarter of those seeking work in a JG and what is worse most of the major problems we face are national or state level issues. For example transitioning to clean energy and environmental sustainability across the board, bringing public transport and rail freight up to ‘world’s best’ levels, improving water and waste water infrastructure, improving urban design to reduce the need to travel so far to work, school and to other services, providing high standard universal healthcare and education and other government services like aged care, much more funding of scientific research, undertaking reforestation, improved agricultural practices to store carbon, protection and reinstatement of the natural world and ensuring we manufacture locally most of the material needs of the sustainable economy.

    I would think that a better approach rather than starting with a massive JG, would be firstly to ensure existing worthy national, state and local level government services are adequately funded, secondly vital areas of infrastructure such as clean energy, public transport and those areas previously mentioned receive adequate funding and after all this economic stimulus, that a JG be used to perform its important economic role of regulating the federal deficit to keep unemployment near to zero. The JG may in fact be quite small if the priorities are reconfigured.

    Economic stimulus of the economy using federal government deficits as well as competent economic and social planning to set the priorities (this rules out the Conservatives who’s reason for being is just to serve the special interests of big business especially the finance sector) should be able to put the overwhelming majority of the unemployed and underemployed into meaningful, productive and adequately paid work as well as to invigorate the whole economy.

    The existential hazard of global warming necessitates governments that are able to harness the economy to transition to environmental sustainability as the first priority, this again rules out Conservative or ignorance based (Trump or One Nation) governments. The JG would set the minimum wage floor and be used to regulate the deficit.

    Successful economic stimulus that produced close to full employment was practised by many governments during and following the Great Depression and the best examples were undertaken by Takahashi Korekiyo in Japan, Hjalmar Schacht in Germany, Joseph Coates and Michael Savage in New Zealand and Franklin D Roosevelt in the United States.

    There is no reason such policies cannot be applied to ensure full employment in the current era even with the so called 2nd age of automation now underway and in fact the need for such stimulatory and economic and social planning is becoming more essential.

    The link below details how unemployment was eliminated in Germany prior to WW2:

    socialdemocracy21stcentury.blogspot.com.au/2011/09/fiscal-stimulus-in-germany-19331936.html?m=1

  24. There is no evidence that welfare is inflationary anymore than government deficits ,QE or OMF.
    It is classical economic hollow common sense with voluntary unemployment at its heart and the
    divisive shirker the undeserving poor it moral reprobate.
    Whatever level of aggregate spending would support full voluntary employment it is that which raises
    costs which is likely to be the most inflationary.Cost push inflation is always the greater risk.
    Again it boils down to whether you except mainstream price mechanism theory or understand
    prices as being fixed by power struggles .
    Yes there is a role for JG but i agree with other posters that a directed public job expansion for
    public purpose allied with adequate fiscal stimulus is the smart route to where i think we all want to go.
    A minimum wage which increases the income of the poor and removes welfare is a real inflationary threat.

  25. All very well but, employers need a nice big pool of stigmatized and impoverished unemployment that their workforce is afraid of dropping into to maintain discipline. We all know the myths that spread when we targeted full employment. No one feared the sack and the unions took over. That’s the lie we were told.

    Capital will tolerate anything but it will not swallow a Job Guarantee

  26. Capital does not comprise the majority of the electorate and in a functioning democracy the will of the majority should prevail. Philip you are right that capital doesn’t want a Job Guarantee just as capital wants balanced national government budgets or even surpluses as a way of limiting the size of the government sector. Perversely a JG, budget deficits and even progressive taxation that redistributes wealth, all enlarge the economic pie and benefit all citizens including capital through increased sales.

    The fact that the establishment parties of the right and left continue to support economically contractionary neoliberal policies proves that capital have siezed political and economic control and we currently live in plutocracies. If we don’t retake control of our democracies then the brutal life of the serf on a planet dying from the effects of runaway global warming awaits.

Leave a Reply

Your email address will not be published. Required fields are marked *

Back To Top