Today I am reflecting on employment guarantees. I ran into a mate in a computer shop in Melbourne yesterday, totally by accident. He happens to be one of the big players in the job services sector – the unemployment industry. We exchanged our usual pleasantries and then we got angry together about the government policies – the usual interaction. Then I said well what we need is all you guys and the related charities (such as the Brotherhood of St Laurence, the Smith Family) and other groups (such as Greenpeace, Amnesty International etc) all getting out of their comfort zones and agreeing that being angry is stupid and that action is required. These are the people who lobby government. Academics only create ideas and write them out. I suggested that these groups use their significant public profiles to organise a coalition of support for the Job Guarantee and really push it hard – if only to expose the denials and failures of the orthodoxy that besets us all. Anyway, that conversation just happened to dove-tail with an article I read last week about employment guarantees in practice that I found interesting and which was exposing the deniers for what they are – ideological sycophants. That is what this blog is about.
Today marks the beginning of – Anti-Poverty Week – in Australia and elsewhere. The overwhelming reason people are poor is because they are unemployed (or underemployed). There are related reasons associated with poor housing etc, but the fact remains that if we eliminate mass unemployment by providing enough work for all those who desire it and ensure there are jobs for those with multiple disadvantages then we will reduce poverty overnight. While poverty is persistent, it wasn’t always thus. I have been to many meeting where policy makers, usually very well adorned in the latest clothing, plenty of nice watches and rings, and all the latest gadgets (phones, tablets etc), wax lyrical about how complex the poverty problem is. I usually respond at some point (trying my hardest to disguise disdain) by suggesting the problem is relatively simple. The federal government can always create enough work any time it chooses at a decent wage to ensure that no-one needs to live below the poverty line. Read: always! It can also always pay those who cannot work for whatever reason an adequate pension. Read: always. If we run out of real resources which prevent those nominal payments (wage and pensions) translating into an adequate standard of living, then the government can always redistribute the real resources by increasing taxes on those who have “too many” resources at their disposable. Too many is a relative concept in this context. The so-called complexity of the problem is just code for an unwillingness of the policy makers to use the capacity they have as currency issuers. There is nothing complex about announcing that the government will pay a living wage to anyone who wants to work – just turn up tomorrow and the wage begins. If that announcement was made then we would know who wants to work for a wage and those who do not. For Anti-Poverty Week – the best thing the government can do is announce the unconditional job offer.
The fiscal austerity imposed on the southern European nations such as Greece and Spain has been imposed by the Troika with two justifications. First, that the private sectors in these nations would increase spending as the public sector cut spending because they would no longer fear the future tax hikes associates with rising deficits (the Ricardian argument). The evidence is clear – they haven’t. The second argument was that massive cost cutting (the so-called internal devaluation) would improve the competitiveness of the peripheral nations, close the gap with Germany and instigate an export bonanza. It was all about re-balancing we were told. The evidence for that argument is clear – it was a lie. The massive impoverishment of these nations and the millions of jobs that have been lost and the destruction of a future for around 60 per cent of their youth (who want to work) has all been for nothing much. As was obvious when they started.
This is a short background blog which will support the release of my Fantasy Budget 2013-14, which will be part of Crikey’s Budget coverage leading up to the delivery of the Federal Budget on May 14, 2013. The topic of this blog is the state of the Australian labour market and is an overview of the detailed monthly reports I provide to coincide with the release of the Labour Force data by the Australian Bureau of Statistics. To review these monthly reports please see the blogs under the – Labour Force – category.
I left out the word not between the words “are” and “things” and replace the “or” with “and” between buy and summon. Otherwise this would have been the latest piece of insight offered by the outgoing EU Council President Herman Van Rompuy, who appears to be intellectually stretched when it comes to the most basic macroeconomic concepts despite regularly making comments that appear to be of a macroeconomic nature. Let me remind him: spending equals income and output. Growth in spending when there is massive (and rising) excess real productive capacity will generate growth in income and output. Growth in income and output almost certainly generate growth in employment. And, just in case we might be worried that any crowded-in productivity growth reduces the employment dividend and, cogniscant of the fact that there are millions of relatively unskilled workers without jobs in Europe at present, governments around the region could employ all of them if they introduced an unconditional Job Guarantee. Governments can create extra real growth and jobs anytime they choose unless the economy is already at full employment. Then they would not want to anyway. So the question that Mr Van Rompuy should be answering is why he is overseeing government machinery that refuses to give the governments this capacity. That is a question none of them will answer.
I am taking the easy way out today. I have a number of meetings today and also several deadlines coming up for work that I am doing. As a result, I decided to re-cycle some work I did on Friday (early), which was written for the Fairfax press daily newspaper – The Age – as a commissioned Op Ed contribution. Friday was ridiculous when I think back – I had to squeeze more than Archimedes would recommend if I was dealing with liquid into the time available. So today, what comes around goes around – to my favour. The Op Ed was 800 odd words on a complex topic so today, by way of reference, I thought I would add a few sentences to the 800 words to provide more explanation of the points. The background was that a few high profile firms announced fairly large job cuts last week in Australia which lead to a stream of media headlines and calls for government assistance, both short-run in the form of cash bailouts and longer-term, more protection (tariffs etc). The macroeconomics of the situation, however, has not been seized upon by the media, which goes to the heart of the problem. The debate tends to focus on aspects of an issue, which are less important, and, ironically, in this case, are changes which are largely beneficial (structural change), but, ignoring the issues which cause the most damage (those relating to output gaps).
I have been in Brussels this week as an invited speaker at the – Jobs for Europe: The Employment Policy Conference – being staged by the European Commission (September 6-7, 2012). One of the five main topics is “Pathways to full employment: job guarantee, social economy, welfare to work”. I gave a presentation yesterday on the Job Guarantee. The video of the presentation is available below.
I read an interesting study today from the Brookings Institute (published August 29, 2012) – Education, Job Openings, and Unemployment in Metropolitan America – which aims to provide US policy makers “with a better sense of the specific problems facing metropolitan labor markets”. The paper concludes that “the fall in demand for goods and services has played a stronger role in recent changes in unemployment” than so-called structural issues (skills mismatch etc). This is an important finding and runs counter to the trend that has emerged in the policy debate which suggests that governments are now powerless to resolve the persistently high unemployment. The simple fact is that governments have the capacity to dramatically reduce unemployment and provide opportunities to the least educated workers who are languishing at the back of the supply queue in a highly constrained labour market. The only thing stopping them is the ideological dislike or irrational hatred of direct public sector job creation. Meanwhile, the potential of millions of workers is wasted every day. Sheer madness!
There was an interesting paper published by the World Bank (March 1, 2012) – Does India’s employment guarantee scheme guarantee employment? – which offers some insights into how the Indian employment guarantee works. I thought it was an odd title because by definition the NREGA scheme is an employment guarantee. The relevant issue is a guarantee to whom. The World Bank research confirms the outcomes of my own work on the Indian scheme that it’s conditionality reduces its effectiveness. Those who gain jobs benefit but there is a shortage of jobs on offer relative to the demand for them. Modern Monetary Theory (MMT) shows that an unconditional, demand-driven employment guarantee, run as an automatic stabiliser, is the most superior buffer stock approach to price stability. Conditional (supply-driven) approaches not only undermine the job creating potential but also reduce the capacity of the scheme to act as a nominal anchor.
In their rush to create justifications for reducing the footprint of government on the economy (and society), economists have invented a number of new “approaches” to economic development, unemployment and poverty which rely on an increased private sector presence. Concepts such as social entrepreneurship and new regionalism emerged as the governments embraced the so-called Third Way – neither free market (right) or government regulation (left) – as a way to resolve unemployment and regional disadvantage. Microcredit was another version and the 2006 Nobel Prize was awarded to the Grameen Bank in Bangladesh and its founder. The media held microcredit out in various positive ways but gave the impression that it was another solution. Insiders knew it wasn’t but the I have always argued that the best solution for poverty is to initially create decent paying jobs. I have also argued for many years that only the national government has the capacity to really intervene in this way. For it is was “profitable” in the free market sense, the private sector would have already done it.
The US President delivered his long-awaited speech outlining the proposed American Jobs Act today to a packed Congress. The room was full of self-serving, anti-intellectuals masquerading as the representatives of the people of America. Eventually, this sham will be clear to all and the “American people” will “demand action”. If they don’t then the neo-liberal domination of policy which has led to the crisis and the extended malaise will continue to impoverish them. Bold action was needed from the President at least to demonstrate leadership so that the democratic forces could start to pressure the T-pots. Unfortunately, the President doesn’t seem to understand that it is easy to create jobs. A government just has have the will to do so.
Its all weather today with severe winter storms giving grief to people (and some friends) in the US at present. Closer to home Northern Queensland, fresh from being flooded, will be hit later tonight by Tropical Cyclone Yasi which is now classified as a Category 5 and will have winds up to 300 kms per hour. My friends up in Townsville are staying calm though. Down here in Newcastle it has been around 40 degrees Celsius for the third day now with no real change coming. So weather extremes – and yes I think they are becoming more pronounced but I am an economist so that is just my uninformed (non climate change sceptic) opinion. But today I am writing about a speech the Australian Prime Minister gave to CEDA yesterday (February 1, 2011) that exposed her lack of understanding of how the macroeconomy works. The problem is that I suspect no-one else in the room who listened would have thought that her message was fundamentally inconsistent. The lesson is that cannot have more jobs by cutting spending despite what the Prime Minister thinks.
A debate in development economics concerns the role of cash transfers to alleviate poverty. This was reprised again in the New York Times article (January 3, 2011) – Beat Back Poverty, Pay the Poor – which I hopefully began reading with employment creation schemes in mind. I was wrong. The article was about the growing number of anti-poverty programs in the developing world, particularly in the left-leaning Latin American nations, based on conditional cash transfers. There is no doubt that these programs have been very successful within their narrow ambit. They also are used by some progressives to argue for an extension of them into what is known as a Basic Income Guarantee (BIG). For reasons that are outlined in this blog I prefer employment guarantees as the primary way to attack poverty. I think the progressives who advocate BIGs are giving too much ground to the conservatives.
There were two very different Op Ed pieces in the New York Times on July 31, 2010. On the one hand, the “strategic deficits” man, David Stockman is trying to ramp up a bit of advance publicity for his upcoming book on the financial crisis which I hope goes out to the remainder desks shortly after being published. He is advocating balanced budgets and “sound money” – which is neo-liberal speak for austerity and rising unemployment. On the other hand, Robert Shiller is advocating a “just do it” approach to recovery where the “do it” is defined in terms of public sector job creation. I find the latter argument compelling when you look at the data and what it is telling us about the American lives that are being destroyed by the policy vacuum. I am also sympathetic to Shiller’s line because sound macroeconomic theory points to that solution. Stockman displays an on-going ignorance of macroeconomics although some of this views resonate with me in a positive way.
Today is actually the much promised shorter Friday blog. I had to write an Op Ed piece today for the Fairfax press on my recent evidence before a House of Representatives Committee of Inquiry into regional skills shortages. So I thought I would expand on that Op Ed a little for this blog. In April, my research centre – CofFEE – made a formal submission to this Inquiry. In June I gave formal evidence (see below) and some interesting things came up. A conservative MP on the Committee thought I was insane for suggesting that the public sector might consider creating employment given the high degree of labour underutilisation we have in this country. Some regions have 50 per cent of their workforces idle! Anyway, today I summarise our submission and provide some text from the official government hansard (record) of my evidence.
In Sunday’s New York Times, the Room for Debate series focused on one of my favourite topics – Should Public-Sector Jobs Come First?. The debate turns out to be very disappointing because even the so-called progressive offerings fall short of advocating an effective solution to the jobs crisis. Only one implies an understanding that the policy design proposed should not be compromised by an errant understanding of the way the fiat monetary system operates. Proposals that assume there is a financial constraint on government will almost certainly be second-rate. The debate could have been energised had the NYT sought expert opinion from those that are developing and implementing large public sector employment programs.
In the last few days I have seen more calls from commentators for policy makers to take new initiatives to generate jobs and growth. Some of these calls have come from commentators and research centres that sit on the “progressive” side of the macroeconomic debate. Unfortunately, their proposals are always compromised by their demonstrated lack of understanding of how the monetary system operates. In my view these proposals actually undermine the need to advance an understanding that sovereign governments can create true full employment and should do so as a matter of urgency. By playing ball with the conservatives and choosing to focus on deficit outcomes these progressives divert the policy focus away from the real issues. In short, the federal budget deficit outcome should never be the focus of policy.
Two related articles in The Economist last week (November 7, 2009) caught my attention. The first article – Battling joblessness – Has Europe got the answer – was about how the Continent may be a guide to all of us in tackling unemployment. The second article – Faring well – was extolling the virtues of India’s National Rural Employment Guarantee Act (NREGA). They provide a further basis for discussing employment guarantees.
The OECD, the organisation that has spearheaded the abandonment of full employment in all its member countries since releasing the supply-side blueprint in 1994 – The Jobs Study, has now finally realised that things are very bleak in labour markets across the World and is saying more action is desperately needed. All their rhetoric in the last decade about making labour markets resilient and flexible through active labour market programs has not apparently stopped the major economies from going belly up.
There were two related stories this week from either side of the Pacific Ocean. From the east coast came – Rollout of jobs scheme ‘a sham’ and from the west coast – Stimulus Is Bankrupt Antidote to Failed Stimulus. While the US-based article is a polemic from the right-wing American Enterprise Institute and the second is a journalist’s reporting on Australian political trivia, they both raise interesting issues regarding the way fiscal policy is conducted. The issues raised provide further justification for employment guarantee schemes as a sophisticated addition to the automatic stabilisation capacity that is inherent in fiscal policy and makes it superior to monetary policy.