Last Friday (February 4, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – January 2022 – which reported a total payroll employment rise of only 467,000 jobs in December and a rise in the participation rate – which often leads to a rise in the unemployment rate as marginal workers outside the labour force sense their opportunities for work are now better. Employment growth accelerated in January 2022 which reverses the recent trend. 0.3 points decline in the official unemployment rate to 3.9 per cent, while participation was unchanged at 61.9 per cent. While the US labour market is still creating work – it is doing so at a declining rate and there are unequal patterns across the industrial sectors. The US labour market is still 2,875 thousand jobs short from where it was at the end of February 2020, which helps to explain why there are no fundamental wage pressures emerging. Any analyst who is claiming the US economy is close to full employment hasn’t looked at the data.
It’s Wednesday, and a quiet day for writing blog posts for me. But I want to comment briefly on the latest economic news that sees the IMF claiming the Australian economy will contract by 6.7 per cent in 2020 and the Treasury estimates that the unemployment rate will rise to 10 per cent (double) by June this year. While this all sounds shocking, the emerging narrative in the media and among politicians is that this is sort of inevitable given the health crisis and the Government’s Job Keeper wage subsidy, which the Treasury claims will constrain the unemployment rate rise to 10 per cent rather than 15 per cent without it is a jolly decent thing for the politicians to have done and keeping the unemployment rate down to 10 per cent is a “tremendous achievement”. Well, apart from the wage subsidy leaving a million workers outside of any benefit and cutting wages for thousands who will receive the support, I fail to see why the unemployment rate should rise at all. The government has options: (a) wax lyrical about achieving a disaster – 10 per cent unemployment; or (b) create jobs via a Job Guarantee and see the unemployment rate fall to 2 per cent or so. For the neoliberals who run the place and their media supporters, a 10 per cent as a “remarkable achievement” and that is the TINA narrative they are pumping out to assuage the population. For the likes of yours truly, a 10 per cent unemployment rate is not a “tremendous achievement” – it is a sign of total policy failure. The government can always intervene and create sufficient jobs that will be of benefit to the society, can be designed to be safe in the current health context, and maintain the connection for most of us with paid work? Even if some of them would require the workers stay at home while being paid. For me that is a no-brainer.
I was coming through the streets of inner Melbourne the other night after playing in my band. I couldn’t believe how many little scooters with those big boxes on the back were buzzing around, in and out of traffic, turning here and there, presumably, delivering food to people who preferred to stay in from the cold weather. I had sort of noticed these ad hoc cavalcades of cheap scooters before but never really assessed the extent of the proliferation. It represents an amazing and highly disturbing trend in our labour market. Okay, that sounds like something someone from another (older) generation might say. He who grew up when there was secure employment and wages and conditions were more tightly regulated. And I have seen Tweets from young people telling us ‘oldies’ to step aside. But what the scooter riders don’t realise is that they will get old themselves one day. And secure, well-paid work coupled with a broad spectrum of high quality public services is what makes that transformation liveable. In mapping out what I think are the essential aspects of a social transformation that we might call a Green New Deal, eliminating precarious work is one of the priorities – it is intrinsic to creating a more equitable society in harmony with nature. This aspect also calls in question the role of a Job Guarantee. Note the capitals – there is only one Job Guarantee but many jobs guarantees. I will explain today why the Job Guarantee will be an intrinsic part of the Green New Deal but by far a minor player in terms of the job opportunities that will be created by the socio-economic shift. Many commentators seem to think the Job Guarantee is sufficient for a Green New Deal. It is not and we need to understand its role in a monetary system to understand why.
In 1946, with the Second World War at an end, the world governments turned to the question of how to maintain the full employment that the prosecution of the War had brought in the peace. It was clear that governments could choose whatever unemployment level they wanted through the manipulation of fiscal and industry policies and so the only question was the political will to maintain the full employment state. In the US, the political debate led to the Employment Act 1946, which demonstrated that the parameters of the conflict between conservative and the more liberal forces over what constituted full employment and what responsibility the currency-issuing government had for maintaining high levels of employment. We can see through successive attempts in the US to legislate for full employment how the economic profession has influenced the political process and how we have reached the point today where governments pay lip service to fulfulling their responsibilities as the fiscal agency to maintain sufficient jobs for those who desire to work.
I was in the airport lounge yesterday and as one does I picked up the right-wing Australian Financial Review (which purports to present financial news and comment but is in reality a propaganda machine) and read an Opinion piece, which would serve as a classic demonstration for statistical students of how to confuse causation with correlation. It would also serve as a classic piece for macroeconomics students on how to completely misunderstand the role of fiscal policy and the dynamics that are associated with it. All round an excellent learning piece – in the right hands. But in the hands of the normal reader, not versed in these matters, the Opinion piece is a trashy piece of dangerous propaganda, which serves to indoctrinate the readership into believing that the correct policy path is, in fact, exactly the opposite of the responsible policy path for governments. It still amazes me how this sort of rubbish can parade as serious public offerings to the economic debate. It was an appallingly ignorant article. One of the worst you might read.
It is a holiday today and so my blog will be relatively short. The Mahatma Gandhi National Rural Employment Guarantee Act 2005 (MGNREGA) was proclaimed on September 7, 2005. It aims “to provide for the enhancement of livelihood security of the households in rural areas of the country by providing at least one hundred days of guaranteed wage employment in every financial year to every household whose adult members volunteer to do unskilled manual work …” The program is an example of supply-determined job creation, which renders it less effective than it might otherwise be if it was redesigned to become a demand-determined scheme. The latest data shows that as the relevant labour market starts to slow down in terms of employment creation, the number of workers who are unable to access jobs at all within the MGNREGA are rising and the proportion of workers who cannot access the full 100 days of guaranteed work remains high (as does the hours gap).
Back in 2010, in the early days of the GFC, the then Australian Labor government was weathering a conservative storm for daring to introduce a large-scale (and rapid) fiscal stimulus. The package had several components but the most controversial were the decision to introduce a homeinsulation program to create jobs quickly but leave a residual of green benefits (lower energy use in the future). The program had problems but still produced fantastic macroeconomic benefits. It was little wonder that the program stumbled operationally given its complexity and the degraded capacity of the Federal public service, which has been degraded by several decades of employment cuts and restructures under the neo-liberal guise of improving ‘efficiency’. However, that mantra might be finally turning. An article in the right-wing Australian Financial Review (June 14, 2015) – Time to end outsourcing and rebuild the public service – made the extraordinary argument for that publication that public service employment had to increase to allow the government to do what the Federal Communications Minister calls “the legitimate work of the public service”. Wonders never cease.
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.
The new European Commission president Jean-Claude Juncker is a federalist. He claims in his new role that his first priority is “to put policies that create growth and jobs at the centre of the policy agenda of the next Commission”. Juncker was also the Prime Minister of Luxembourg and the head of the so-called Eurogroup (2005-2013) which comprised of the Eurozone Finance Ministers, the European Commission’s Vice-President for Economic and Monetary Affairs and the President of the ECB. Juncker and the Eurogroup were vehemently pro-austerity. He also reaffirmed last week at a – Meeting in Brussels of the Alliance of Liberals and Democrats for Europe, that “we need to keep austerity going”. Remember he was Angela Merkel’s choice for the EC Presidency! But there is new talk of federalist type fiscal innovations in Europe under the new Commission. The problem is that they are just neo-liberal smokescreens and will do very little to change the underlying problems that have prolonged the crisis and will ensure there is a repeat down the track.
Earlier this week I looked at the latest vacancy data for Australia released by the Australian Bureau of Statistics – Latest Australian vacancy data – its all down to deficient demand. I also took the time to update my data for the US Bureau of Labor Statistics – US JOLTS database, which provides detailed information about job openings and quit rates. The results for the US are similar to those found in Australia. But the data is apposite given the decision by the State of North Carolina to cut unemployment benefits – thinking that this act of cruelty will somehow reduce their appalling unemployment rate. It won’t.
You won’t see much debate or coverage of the desirability of making full employment the central goal of economic policy these days. The politicians, infested with neo-liberalism, do not admit they have abandoned full employment as a policy goal. Instead, they lie and wheel out various flawed analyses that try to make out that full employment now occurs at much higher rates of labour underutilisation in the past. Norway tells us that that proposition is a lie. In Australia, the government still tries to suggest that a state where more than 14 per cent of available labour is idle in one way or another represents close to full employment and a justification for fiscal austerity. We believe them because we have been seduced by the lies and our educational systems have downplayed critical scrutiny. But until we cut through the swathe of lies and misinformation we won’t get back to the bountiful state of full employment where not only workers enjoy higher incomes but dignity becomes a priority. Whatever else the liars say, full employment is still a state of very low unemployment and zero underemployment.
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.
Over the last week, a Londoner and a Glaswegian have publicly embarrassed themselves with statements made about the current economic situation. One is an academic historian who hasn’t fully understood history. The other a politician who is seeking to deny the obvious and somehow blur his own culpability in driving the British economy back into a double-dip recession. I guess the smokescreen approach works if yesterday’s Greek vote is anything to go by. I saw a headline in Bloomberg this morning which said that “Greece avoids chaos …”, which prompted me to wonder what chaos might look like if it is not hospitals unable to get access to essential supplies, a government killing its private sector by cutting spending and not paying legitimate bills, and an unemployment rate creeping towards 25 per cent and 50 per cent for youth. The Greeks were bombarded it seems with wilful lies and even then the conservatives on just led the vote count from their main anti-austerity rival. In all the denials and bluster, what I know categorically is that in the real world where we all live – sustaining rates of youth unemployment above 50 per cent – is definitely not protecting the grandchildren.
Underlining the current obsession with fiscal austerity is an equally long-standing obsession with so-called structural reform. The argument goes that growth can be engendered by deregulating the labour market to remove inefficiencies that create bottlenecks for growth even when fiscal austerity is slashing aggregate demand and killing growth. The 1994 OECD Jobs Study the provides the framework for this policy approach. The only problem is that it failed even before the crisis emerged. But with policymakers intent on slashing aggregate demand, which they know will kill growth, they have to offer something that they can pretend will generate growth. The structural reform agenda has zero credibility in the same way that fiscal austerity has zero credibility.
Since I published Wednesday’s blog – MMT is biased towards anti-crony – there seems to have been a fair bit of commentary on other sites some bordering on personal attacks (against me). I’ll steer clear of that level of discussion. I also note that John Carney over at CNBC responded with this article – Can the Government Guarantee Everyone a Job? – saying that if the notion of employment buffers is a central aspect of Modern Monetary Theory (MMT) then “it would mean that MMT is wrong”. I found his response interesting but essentially a rehearsal of the mainstream errors that arise when you haven’t really come to terms with what MMT is adding to macroeconomic theory. So today’s blog is a supplement to the Wednesday’s blog (and many others) and aims to provide some more context especially to those interested in the evolution of ideas and schools of thought. The point is that whatever else happens we are left with a choice – employment or unemployment buffer stocks. MMT provides the theoretical insights to show that employment buffers are superior whether you like them or not.
The International Labour Organisation (ILO) released their updated this week (October 19, 2011) – Global Employment Trends for Youth: 2011 Update – which reminds us of how long the current policy failures will continue to generate negative consequences. That is, the world will be enduring the costs of the policy failures for decades to come by denying our youth the opportunity to fully participate in the economy. The increasing incapacity of our economies to provide sufficient work in hours and quality to meet the requirements of our youth is one of the major characteristics of the neo-liberal era. It is a deliberate, policy-induced outcome – that is, governments are squarely to blame for the malaise. At a time when neo-liberals use rising dependency ratios to justify their attacks on budget deficits but then fail to realise that our unemployed youth are a major casualty of the fiscal austerity – that is, our future workforce. The scourge of youth unemployment is condemning our future workers to a low-wage, unstable and productive employment history.
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.
I have been in Sydney today for meetings. I caught an early train and then back again in the afternoon. Trains journeys are great times to read and write and this blog has been written while crossing the countryside (Sydney is nearly 3 hours south of Newcastle by train). The trip is slower than car because the route is still largely based on the first path they devised through the mountains and waterways that lie between the two cities. The curves in places do not permit the train to go faster. The government is promising however a fast train with a much more direct path (up the F3 freeway I guess). Anyway, several readers have asked me whether I am familiar with the 1943 article by Polish economist Michal Kalecki – The Political Aspects of Full Employment. The answer is that I am very familiar with the article and have written about it in my academic work in years past. So I thought I might write a blog about what I think of Kalecki’s argument given that it is often raised by progressives as a case against effective fiscal intervention.
Overnight a kind soul (thanks M) sent me the latest Goldman Sachs US Economist Analysis (Issue 10/27, July 9, 2010) written by their chief economist Jan Hatzius. Unfortunately it is a subscription-based document and so I cannot link to it. It presents a very interesting analysis of the current situation in the US economy, using the sectoral balances framework, which is often deployed in Modern Monetary Theory (MMT). While it relates to the US economy, the principles established apply to any sovereign nation (in the currency sense) and demonstrate that some of the top players in the financial markets have a good understanding of the essentials of MMT. But the bottom line of the paper is that the US is likely to have to endure on-going and massive employment gaps (below potential) for years because the US government is failing to exercise leadership. The paper recognises the need for an expansion of fiscal policy of at least 3 per cent of GDP but concludes that the ill-informed US public (about deficits) are allowing the deficit terrorists to bully the politicians into cutting the deficit. The costs of this folly will be enormous.
My RSS feed and E-mails have brought some shockers in the last few days from the financial markets – official bulletins from banks that don’t make any sense at all (US about to default-type arguments); hysterical Austrian school logic (from a large player in the Asian markets) and news commentary from a so-called business insider magazine. The latter should immediately close its doors and declare they are not competent to comment on matters relating to banking. Coincidentally, I also received several E-mails in the last few days asking me to comment on the particular Austrian document noted above that has been circulating within financial markets recently. I deal with that later in the post. Anyway, apart from my main research and other writing activities this blog stuff is “all in a day’s work” – Friday March 19, 2010.