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Posted: April 01, 2005 Government and the JG Part 4 This is Part 4 of a series of blogs I am writing which are progressively examining (paragraph by paragraph) the letter from Federal Minister for Employment and Workplace Relations to the ALGA outlining why the Federal Government is afraid to give the most disadavantaged workers in Australia a job at federal minimum award wages (FMW). As brief background, recall that CofFEE's Job Guarantee plan has been endorsed by the Australian Local Government Association in a resolution carried last year. The ALGA wrote to the Federal Minister and received a reply from the Federal Minister for Employment and Workplace Relations Kevin Andrews on August 13, 2004 outlining why the Government rejects the Job Guarantee. This letter is now published by the ALGA HERE. The Minister's next argument is the old furphy about costs. He says ... A CD-JG would significantly increase outlays for long-term unemployed people, and the returns for that investment are not certain. The guaranteed jobs would need to be financed through increases in revenue (higher taxes) or funding cuts in other Government programmes. This line of argument fundamentally misunderstands the options open to a fiat currency issuing national government, such as the Federal Government of Australia. The only real cost of the introduction of the Job Guarantee for all would be the extra goods and services that the previously unemployed persons consumed with their extra incomes. That is the true cost of the policy change. The extra budget outlays are ‘costless’ in the sense that the Federal government is not financially constrained. If the Job Guarantee was confined to long-term unemployed persons only, then the real costs are miniscule. If the scheme was generalised to all unemployed then the Job Guarantee would be marginally more costly but still rather small. The first question to ask is: where are the unemployed now? Answer: in the public sector! That is, in the sense that we currently support large and would not facilitate major increases in consumption of real goods and services which is the true cost (in resources) of the policy change. Next, you should ask, what are the unemployed doing now? Answer: crudely, nothing much. But it is more complex than this. Their joblessness, however, actually means that they are doing a lot of things. They are running down any assets they might have accumulated in the past. They are increasing their chances of being involved in family breakdown, in mental health problems, in crime, in alcohol and substance abuse, in social exclusion, in poverty, or all of the above. That is, they are 'doing a lot' of things that add costs to the individuals involved and society in general. Society carries a huge cost when unemployment is high as it is now. But moreover, they are not contributing positively to output. The daily losses in national output of having someone uneployed are huge and seem to be forgotten by the Minister. I just did a quick calculation - a rough 'back of the envelope' sum to compute the daily output loss in dollars. The following table provides the results using Australian Bureau of Statistics data from December 2003 to September quarter 2004 (I checked them for some provisional data for 2004 proper with little difference noted in the outcomes). Real GDP was $769,285 million over this period. Total Employment was 9,315.4 thousand and total unemployment was 579.3 thousand. So the Table tells us the extra employment in thousands that would be generated if the unemployment rate over this period had have averaged 2 per cent, 3 per cent and 4 per cent. As a rough guide, labour productivity (measured in GDP per person employed) was around $82,582. As a very conservative estimate, imagine if the Job Guarantee workers were only half as productive. So for each one employed they would contribute around $41,291 per annum in real output (50 per cent of total productivity). Then as a first blush the daily output losses that the Australian Government is prepared to endure are very significant (not to mention the unmeasured social costs noted above).
Further, the claim that the the Job Guarantee would need to be financed through increases in taxes or spending cuts in other Government programs is spurious. The Federal Government is not financially constrained and can increase net spending if it desires without first seeking any extra revenue. Interested readers might like to read a recent paper that I wrote with my colleague Warren Mosler (available HERE) which sets out fairly clearly what the role of net government spending and taxes play in a modern monetary economy. Once this material is absorbed one would never make the sort of claims that the Minister sets out above. Given the huge national and individual costs of on-going unemployment, it is impossible to argue a case that the introduction of the Job Guarantee would not provide significant returns to the Australian economy. One has to conclude that arguments against introducing the Job Guarantee are not motivated by 'cost' factors at all. One suspects that the Government is getting very poor advice from its Departments who either have some ideological barrow to push or who just fail to understand the options facing a fiat currency issuing federal government. Whatever is the motivation, the Government's inaction is costing hundreds of thousands of Australians the chance to make a living independent of welfare and is also preventing all of us from enjoying the extra GDP, the extra community services that would flow from Job Guarantee output, and the reductions in crime, family and mental breakdowns and the rest of the social pathologies that accompany the unemployment tyranny. More in my next blog on the topic! Blog entry posted by bill |