{"id":24744,"date":"2013-07-23T18:05:41","date_gmt":"2013-07-23T08:05:41","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=24744"},"modified":"2013-07-23T18:05:41","modified_gmt":"2013-07-23T08:05:41","slug":"the-ultimate-boondoggle-courtesy-of-slack-government-policy","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=24744","title":{"rendered":"The ultimate boondoggle courtesy of slack government policy"},"content":{"rendered":"

\t\t\t\tWorkers, particularly low-paid ones, are regularly sent up in comedy or satire. The 1959 British movie – I’m All Right Jack<\/a> – was an acidic attack on the British trade union movement although it also parodied the stuffy upper-class British industrialists as well. In 2003, a British author Magnus Mills published the book – The Scheme for Full Employment<\/a> – which is a satirical attempt to deride Keynesian full employment policies. Boondoggling and leaf-raking is the term that invokes the ultimate put down by the conservatives who laud the virtues of the private sector and accuse the public sector of creating waste and sloth every time someone proposes that the government introduce a large-scale job creation program to alleviate the dreadful damage that mass unemployment causes. Well the New York Times investigative team has discovered the ultimate boondoggle that has been made possible because of slack government policy. And, it involves our friends in the financial markets – those so-called productive, entrepreneurial free marketeers.
\n
\nThe Scheme for Full Employment<\/em> is narrated by a driver of one of many UniVans, which each day follow a very busy schedule, shifting spare parts around the countryside from depot to depot. Yet, the UniVans are designed to never wear out or succumb to rust.<\/p>\n

The daily routine is repeating. Arrive at the depot, load up with crates of spares, drive around to the next depot, unload, reload a new crate containing spares and so on.<\/p>\n

The van drivers receive a raft of benefits (dry-cleaning allowance, welfare fund, subsidised tea and doughnuts, etc) and a regular productivity bonus, even though there is no measured productivity.<\/p>\n

The book has all the stereotypes. Workers who try to knock of from work early each day, endless debates about work practices, go-slow campaigns and a massive strike.<\/p>\n

There are all sorts of dodges – for example, vans being used for private profit making etc.<\/p>\n

The UK Guardian reviewed the book (March 1, 2003) – Mysteries of the mundane<\/a> – noting:<\/p>\n

\nThe book is a Keynesian fantasy in which citizens are kept gainfully employed by driving a fleet of vans from one depot to another. This doesn’t create much actual work for those involved, but as the narrator shrewdly comments: “there’s a difference between full employment and being fully employed”. The workers can win a productivity bonus even though they don’t actually produce anything, since they always might if they were working in a different industry.\n<\/p><\/blockquote>\n

Margaret Thatcher is channeled in the form of a newly appointed supervisor (a female named Joyce) who hates so-called workplace rorting and full employment policies, which she calls “failed social experiments’ in the book. <\/p>\n

Towards the end, the narrator reluctantly admits that Joyce:<\/p>\n

\n… looked magnificent and, at that moment, I realised the future belonged to people like her.\n<\/p><\/blockquote>\n

Which leaves the reader with the right impression (excuse the pun) about the validity of neo-liberal attacks on government programs that not only provide stable and secure work but also the welfare state in general.<\/p>\n

I should add that I have been associated with several public works programs and also studied a considerably greater number and the Scheme for Full Employment bears little resemblance to any of the real programs over many decades that I am now familiar with. But stereotyping works doesn’t it?<\/p>\n

There are countless other efforts in the arts and literature that deride the rights of workers to expect full employment and decent working conditions. Workers are regularly cast as being lazy, scheming, ingrates who if the capitalists are not taking care of them (a la Atlas Shrugged) then the government is expected to fill the breach.<\/p>\n

No-one does anything for themselves although the workers always display cunning and a kind of ingenuity in the rorts they come up with to take what they haven’t produced through their toils.<\/p>\n

Boondoggling and leaf-raking is the term that invokes the ultimate put down by the conservatives who laud the virtues of the private sector as they create hundreds of thousands of low-skill, low-paid, precarious and mind-numbing jobs but hate, with an irrational passion, the idea that the public sector could employ workers that the private sector doesn’t want and get them to work on community development projects at a minimum wage. And to put a finer point on it … on projects that can leave massive positive legacies to all that follow.<\/p>\n

I last considered the put-downs against public sector employment programs in this 2009 blog – Boondoggling and leaf-raking …<\/a>.<\/p>\n

But more stark is that when large-scale public sector employment programs are most needed, the private sector is not even producing those low-skill, low-paid, precarious jobs that stamp out relatively useless plastic items or whatever.<\/p>\n

While these free market zealots see the massive waste of public sector job programs they fail to see that:<\/p>\n

1. National income is being produced which multiplies into more income via increased spending throughout the economy.<\/p>\n

2. The massive loss of national income from mass unemployment.<\/p>\n

3. The huge intergenerational damage that entrenched unemployment to individuals, their families and the broader society.<\/p>\n

This article appeared in the – Sunday Morning Star<\/a> – on October 13, 1935 – “Boondoggling” and “Leaf Raking”<\/a>. It is self-explanatory.<\/p>\n

I suspect most people who deride public sector job creation (especially large-scale public works programs in times of acute stress) have never actually seen one in action or needed to seek employment in one.<\/p>\n

\"\"<\/a><\/p>\n

<\/div>\n

But clearly we didn’t learn much in 50 years. This article – Public Works Isn’t ‘Leaf Raking’<\/a> – which happened to be published in The Virgin Islands Daily News on January 28, 1997 (thanks Google) is interesting.<\/p>\n

\"\"<\/a><\/p>\n

<\/div>\n

The writer was commenting on a journalist’s take on public works programs introduced by President Jimmy Carter to combat the high US unemployment in the late 1970s.<\/p>\n

The journalist:<\/p>\n

\n… threw out all the old cliches about “make work”, “leaf raking”, “boondoggles”, “colossal waste” and on and on.\n<\/p><\/blockquote>\n

And in doing so, presented “an effective job of painting a picture of modern armies of Great Depression-type deadbeats leaning on shovels or picking up chewing gum wrappers”.<\/p>\n

The aim of the article was to disabuse the reader of falling prey to these stereotypes.<\/p>\n

US academic, Nancy Rose has been a strong defender of public works programs for many years. All credit to her. In this 2001 article – Workfare vs. Fair Work: Public Job Creation<\/a> – her research leads to the conclusion that:<\/p>\n

\nWhile opponents frequently accused New Deal programs of being useless “make-work,” the opposite is true. They literally changed the face of America. Participants not only performed useful work. Most of it would not otherwise have been done, and the country would have been poorer as a result. Workers built and repaired 1 million miles of roads and 200,000 public facilities, including schools, playgrounds, courthouses, parks and athletic fields, swimming pools, bridges, and airports, drained malarial swamps, and exterminated rats in slums. They created works of art, gave concerts, set up theaters throughout the country, even in small towns, set up nursery schools, served over 1.2 billion school lunches to needy children, gave immunizations, taught illiterate adults to read and write, and wrote state guidebooks–classics that are still in use. They sewed 383 million coats, overalls, dresses and other garments, and, using surplus cotton collected by the Agricultural Adjustment Administration, made more than a million mattresses that were given to destitute families, as were the garments.\n<\/p><\/blockquote>\n

She also notes that there “were programs for youths, who were especially hard-hit by the Depression”. It will undoubtedly the case that the majority of those youth who were employed in the Civil Conservation Corps (CCC), not only added to the health of the land they worked and left their children and grandchildren “a legacy of land, water, and forestry preservation”, but also became productive adults capable of avoiding welfare support.<\/p>\n

In October 2000, the Monthly Labor Review (a journal published by the US Bureau of Labor Statistics) published an article – Public-service employment programs in selected OECD countries<\/a> – which analysed why such programs failed and why they succeeded.<\/p>\n

It noted that:<\/p>\n

\nPublic-service employment programs play an important role in many OECD countries; they may be the only effective way to aid those among the long-term unemployed who are less skilled and less well educated.\n<\/p><\/blockquote>\n

The BLS says that well-designed programs “cost less, serve local communities’ needs better, pro- vide work experience closer to the “real economy” than is typically the case in more traditional public-service employment programs, and often do a better job integrating skills training with work experience”.<\/p>\n

Anyway, I was reminded of Mill’s “The Scheme of Full Employment” when I read a New York Times article over the weekend (July 20, 2013) – A Shuffle of Aluminum, but to Banks, Pure Gold<\/a>.<\/p>\n

Except this is a real world example of the total failure of a system of activity to produce anything of value other although it employs people.<\/p>\n

It is a long article but the nub of it is as follows.<\/p>\n

Goldman Sachs and other hedge fund types have been granted a massive profit-making machine courtesy of government regulative changes in their favour.<\/p>\n

Nothing productive is created in the upshot.<\/p>\n

The NYTs article tells us that every time a US consumer buys a can of drink they “pay a fraction of a penny more because of a shrewd maneuver by Goldman Sachs, JPMorgan Chase and Morgan Stanley etc that ultimately costs consumers billions of dollars”.<\/p>\n

The Article says: <\/p>\n

\nThe story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman subsidiary stores customers’ aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again.\n<\/p><\/blockquote>\n

Sounds like boondoggling to me. Sounds like those UniVans tripping between depots down- and uploading the same cargo and moving off to the next depot.<\/p>\n

The motive in the UniVan scheme is to employ people which is admirable. The motive in the GS scheme is to lengthen “the storage time” of the metals.<\/p>\n

Why? Obvious. GS earns rent on the storage sheds they own and the manipulation of supply “also increases prices paid by manufacturers and consumers across the country” for the metals.<\/p>\n

The capacity of GS and others to inflate the prices by manipulating the storage time that customers (owners of the metal) have to tolerate comes courtesy of “loosened federal regulations”.<\/p>\n

The Federal Reserve Bank gave these financial firms “special exemptions” and the US Congress approved regulative changes that allowed these banks to make billions by purchasing storage sheds and manipulating supply.<\/p>\n

The Article documents how GS bought a company specialising in the storage of metals (25 per cent “of the supply of aluminum available on the market is kept in the company’s Detroit-area warehouses”).<\/p>\n

Before the purchase, customers “used to wait an average of six weeks for their purchases to be located, retrieved by forklift and delivered to factories. But now that Goldman owns the company, the wait has grown more than 20-fold – to more than 16 months”.<\/p>\n

The aluminium market is governed by rules set by the London Metal Exchange. The rules, designed to reduce the capacity to rig markets, require that “at least 3,000 tons of that metal must be moved out each day”. The intent was that the metal would be moved into the hands of customers.<\/p>\n

But GS, through its subsidiaries, worked out that they could move it from one warehouse to another and still fall within the regulations governing the sector. The customer who owns the metal then pays higher rents for the extended (unnecessary) storage times and passes it own to final users as higher prices.<\/p>\n

An industry specialist told the NYTs that the practice imposed “a totally artificial cost” which represented a “drag on the economy”.<\/p>\n

It gets murkier, because the industry overseer, the London Metals Exchange gets “1 percent of the rent collected by its warehouses worldwide”. It just happens that the Exchange created the regulations that the banks are exploiting at a time when GS, Barclays and Citigroup owned the Exchange.<\/p>\n

Importantly, the NYT article says that:<\/p>\n

\nAll of this could come to an end if the Federal Reserve Board declines to extend the exemptions that allowed Goldman and Morgan Stanley to make major investments in nonfinancial businesses – although there are indications in Washington that the Fed will let the arrangement stand.\n<\/p><\/blockquote>\n

So this is an elaborate public sector facilitated scam that adds nothing to the real sector – other than the forklift driver salaries etc – and reduces the real income of the majority of Americans to the benefit of a few 1 percenters.<\/p>\n

That is the sort of “make work” program that would not be in the Job Guarantee Handbook of Best Practice.<\/p>\n

The more general point the NYT article makes is whether banks should be allowed to own non-financial businesses, which is also an issue that MMT has addressed.<\/p>\n

I will leave it to you to read the full article (it is long) to appreciate their argument.<\/p>\n

Please read the following blogs – Operational design arising from modern monetary theory<\/a> and Asset bubbles and the conduct of banks<\/a> for further discussion.<\/p>\n

There also remains a confusion in the community about the causes of mass unemployment. A reader wrote to me the other day claiming that the 100 dogs and X (some number less than 100) bones analogy is false because there is plenty of money in the economy to employ everyone it is just that capitalists are greedy and hogging the money.<\/p>\n

The claim, of-course, is a classic confusion between a stock and a flow and in this case, wealth and spending. Two things are obvious:<\/p>\n

1. There is massive wealth inequalities and there are haves and have-nots. The haves have immense wealth – a stock. Wealth stocks do not cause mass unemployment (a lack of bones (jobs)).<\/p>\n

2. It is flows of spending or saving that drive unemployment. The flows of saving augment the wealth stocks, but the holding of wealth is not the day to day cause of unemployment.<\/p>\n

If we take Spain for example, there are 100 dogs and around 71 bones. The dogs are the workers who are participating in the labour force and the 71 bones are the total jobs available.<\/p>\n

What determines the number of bones? Total spending or aggregate demand – a flow. Each period, total spending determines how many jobs will be offered (given technology). If there is insufficient spending to generate the jobs that would employ all those who desire to work under the current conditions then there will be jobless workers (boneless dogs). It is the lack of demand that undermines employment.<\/p>\n

The 100 dogs and 71 bones parable correctly depicts that situation. The dogs cannot get jobs (bones) that are not available. At least 29 will return each day after searching without a bone (some dogs might be very productive and find more than one bone). It is an easy way of representing unemployment as a lack of jobs. There is no other reason for mass unemployment.<\/p>\n

And when there is a lack of aggregate demand after the private sector households and firms (both domestic and exporting\/importing) have made all their saving decisions (that is, non-spending), then there is only one sector left that can fill the gap.<\/p>\n

The government might try to motivate higher levels of private spending by tax cuts or other means (for example, lower interest rates). But these sorts of incentives are often ineffective when there is high unemployment and a low state of confidence. They become more ineffective when there is a mountain of private debt hanging over the solvency of households and firms.<\/p>\n

In that situation, the government has to create the jobs either within the private sector by placing new orders for goods and services produced there or by offering public services through direct public sector employment. Both strategies will increase the number of bones in the economy.<\/p>\n

They each have their merits and drawbacks.<\/p>\n

As an aside, these E-mails also urge me (and other MMT founders) to drop the Job Guarantee from our work as it allegedly offends people so much that they will never consider the rest of our work seriously.<\/p>\n

Apparently, the Job Guarantee is a “policy add-on” with no essential conceptual value. I addressed these issues in these blogs – MMT is biased towards anti-crony<\/a> – and – Whatever – its either employment or unemployment buffer stocks<\/a> – for more discussion on this point.<\/p>\n

If you are in doubt I urge you to read these blogs because they provide an understanding of the core historical evolution of the theoretical literature in macroeconomics that is missing in a lot of the amateur blogosphere attacks on the Job Guarantee.<\/p>\n

In those blogs you will come to appreciate the important roles that the Phillips curve construct has played in the development of macroeconomic theory across all approaches (schools of thought).<\/p>\n

Since the Classical economists considered money, implicit in the debates is an idea that later was formalised into the Phillips curve – a relationship between inflation and unemployment. The twin evils of macroeconomics.<\/p>\n

Modern Monetary Theory (MMT) is a unique development because it started out as a dialogue among different people with different backgrounds and experiences. There have been many academic papers and books written by us since the 1990s that were the result of our individual and joint work, long before the popularity of the World Wide Web and blogs. Our audiences then were academic conferences, public forums and meetings, academic papers and Op Ed articles.<\/p>\n

One of the central theoretical issues we addressed were the major constraints on activist fiscal policy imposed by the theories advanced by the then dominant Monetarist school. They put the Phillips curve at the centre of their analysis with the Non-Accelerating Inflation Rate of Unemployment (the NAIRU) occupying the main stage.<\/p>\n

You can read about that evolution of though in the blogs cited above.<\/p>\n

Our task, as academics, was to develop a rival macroeconomic theoretical framework that addressed these issues but still advanced a more complete understanding of how monetary systems worked.<\/p>\n

A key conceptual (theoretical) vehicle for challenging the dominant orthodoxy was to use the Phillips curve to show that a capitalist system augmented with a specific public sector design element could full employment with price stability.<\/p>\n

As my colleague Randy Wray noted in a – Speech in 2011<\/a> – the concept of the Job Guarantee (that is, our work on employment buffer stocks):<\/p>\n

\n… turned the Phillips Curve on its head: unemployment and inflation do not represent a trade-off, rather, full employment and price stability go hand in hand.\n<\/p><\/blockquote>\n

That is a major aspect of our theoretical approach as is the juxtaposition of unemployment and employment in a buffer stock framework.<\/p>\n

A complete macroeconomic framework has to be comprehensive. A description of how banks actually work is useful but is not a macroeconomic theory. A theory of “state money” is not a macroeconomic theory in the way that that term is understood. These are components of a whole.<\/p>\n

One might not be very interested in the “Phillips curve” aspects of MMT and prefer to focus on some other aspect of our work – such as, study how bank works etc. There is nothing wrong with that – our time and patience is limited after all.<\/p>\n

But it still remains that the body of theoretical work now known as MMT does directly and intrinsically address the major macroeconomic debate about the trade-off between inflation and unemployment – which I would add – is still the dominant discussion among macroeconomists of all persuasions today.<\/p>\n

And the way MMT does that is intrinsic to the theoretical framework and logically consistent with it. It is crucial to understand that notions of price stability all have some buffer stock underpinning them. As noted above, the mainstream NAIRU theories deploy a buffer stock of unemployment to control price inflation.<\/p>\n

In other words, the Job Guarantee is not just a tacked on policy preference. Is it an intrinsic part of our Phillips curve framework.<\/p>\n

Conclusion<\/strong><\/p>\n

While the authorities allow the GS “warehouse dance” as it is called, they bow to the pressures from the conservatives who prefer to keep the disadvantaged citizens suspended in a void of joblessness. Sometimes, they will cycle the pool through clearly irrelevant training programs.<\/p>\n

The “warehouse dance” is a classic case of how the deregulated market fails and expends real resources with no welfare gains to show.<\/p>\n

But when we talk about public sector job creation, the free market zealots express a major distrust the ability of the private sector to structure interesting and attractive jobs to lure workers away from Job Guarantee positions.<\/p>\n

Remember, that the Job Guarantee provides buffer stock employment to anyone who wants such a job at any time at any fraction of a working week. It is an unconditional fixed wage offer to anyone by the Government. That is a very powerful aspect of the proposal as it means the Government ‘hires off the bottom’ rather than the top and can never be a source of inflationary pressure.<\/p>\n

The private sector can employ the JG workers any time they choose. All they have to do is provide a better “market” opportunity. That would encourage dynamic efficiencies because the incentives would be there in the private sector to improve productivity and on-the-job training to ensure that the wages paid were profitable.<\/p>\n

Others argue that the JG workers might never want to leave the Job Guarantee despite the fact that the private sector has complete scope to hire out of the Job Guarantee workforce by simply offering attractive employment conditions.<\/p>\n

To think that the workers would never be lured out of the Job Guarantee is to display a staggering lack of confidence in market forces.<\/p>\n

Moreover, what a shocking thing it would be that the workers who have been unable to find work because the economy has failed to produce enough jobs (due to deficient macroeconomic policy) might actually enjoy working for the safety net wage.<\/p>\n

Wouldn’t that be something to regret! It is better to keep them unemployed doing nothing and feeling the various social stigmas that are continually placed on them by Government and the media than to give them a job that is adding value to our communities and get them off the welfare rolls! Why is it better? Because they might like the jobs!<\/p>\n

And of course, the market will solve the problem – isn’t that what the government is preventing by creating jobs itself!!<\/p>\n

But then these brilliant “market forces” generate schemes that see forklifts shifting tonnes of metal from one pile to another each day.<\/p>\n

That is enough for today!<\/p>\n

(c) Copyright 2013 Bill Mitchell. All Rights Reserved. \t\t<\/p>\n","protected":false},"excerpt":{"rendered":"

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