A public employment guarantee program, which required workers to attend a government centre each day and do jigsaw puzzles, will have the same impact on national income as when a private company hired workers to build cars to meet market demand and are paid an equivalent wage.
Answer: True
The answer is True.
Last week's quiz discussed the ideas of J.M. Keynes' on public works.
You can refresh your memory by reading the answers - (November 20, 2021).
Effectively, critics of public works programs focus on the seeming futility of that work to denigrate it and rarely examine the flow of funds and impacts on aggregate demand. They know that people will instinctively recoil from the idea if the nonsensical nature of the work is emphasised.
When Keynes said that when private spending was too low to maintain full employment then government spending interventions were necessary. He said that while hiring people to dig holes only to fill them up again would work to stimulate demand, there were much more creative and useful things that the government could do.
So substitute jigsaw puzzles for digging holes and we have a similar situation.
Keynes maintained that in a crisis caused by inadequate private willingness or ability to buy goods and services, it was the role of government to generate demand.
So Keynes noted that:
"To dig holes in the ground," paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services.
Keynes clearly understood that digging holes will stimulate aggregate demand when private investment has fallen but not increase "the real national dividend of useful goods and services".
He also noted that once the public realise how employment is determined and the role that government can play in times of crisis they would expect government to use their net spending wisely to create useful outcomes.
Now, while we might think it more desirable for workers to be employed building products to meet market demand (I, personally do not make that conclusion - it all depends is my view - and jigsaw assembly might be an excellent, environmentally caring way to undertake 'work' for pay), the fact remains that as long as the government is paying on-going wages to the workers to solve jigsaw puzzles then this will be just as beneficial for aggregate demand on a dollar-for-dollar basis (which is why I noted the two workforces received the same wage).
Both sets of workers employed will spend a proportion of their weekly incomes on other goods and services which, in turn, provides wages to workers providing those outputs. They spend a proportion of this income and the "induced consumption" (induced from the initial spending on the workers' wasges) multiplies throughout the economy.
This is the idea behind the expenditure multiplier.
The workers might enjoy solving the puzzles and so job satisfaction is a bonus to the macroeconomic impacts arising from the wage outlays.
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