Modern Monetary Theory (MMT) is a cousin to Monetary Sovereignty (MS), in that both concepts acknowledge the indisputable fact that the U.S. federal government’s ability to spend is not constrained by the availability of funds.
In short, the Monetarily Sovereign federal government cannot run short of dollars. It cannot “go broke.” It neither needs nor uses tax dollars.
Similarly, no agency of the federal government (Medicare, Medicaid, Social Security, et al) can run short of dollars unless Congress wants it to.
Even if all federal tax collections were $0, the government could continue spending, forever.
This is true of all sovereign issuers of a sovereign currency.
Federal taxes do not pay for federal spending.
The federal government pays for all spending by creating new dollars. Federal tax dollars are destroyed upon receipt.
Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”
Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
Quote from Ben Bernanke when, as Fed chief, he was on 60 Minutes:
Scott Pelley: Is that tax money that the Fed is spending?
Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.
Statement from the St. Louis Fed:
“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”
Press Conference: Mario Draghi, President of the ECB, 9 January 2014
Question: I am wondering: can the ECB ever run out of money?
Mario Draghi: Technically, no. We cannot run out of money.
Sadly, MMT believers go astray with two false beliefs: MMT’s Jobs Guarantee and the belief that federal deficit spending can cause inflation.
I. JOBS GUARANTEE
Briefly, JG is just what it sounds like: The government guarantees it will find or provide (it’s not clear which) a job for anyone who wants a job.
We have published many articles describing the foolishness of that proposal. Rather than repeat the many, many reasons why the JG is naive, wrongheaded, and damaging, we’ll just provide you with these references:
How the MMT “Jobs Guarantee” ignores humanity.
MMT’s “Jobs Guarantee”: The final nail in the coffin of this naive, foolish program
One more reason why the MMT Jobs Guarantee is a con job
The MMT Jobs Guarantee con job
More proof the MMT’s “Jobs Guarantee” can’t work
Another word on MMT’s Jobs Guarantee and “The Rise Of Bullshit Jobs”
Life in a Jobs Guarantee (JG) World
The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)
Now, circumstances have arrived to demonstrate reality in the face of MMT’s academic ignorance.
All those people quitting jobs, where are they going?
Kristin Schwab, Oct 28, 2021You may have heard the news that last week’s initial unemployment claims fell to a new pandemic low. But even though layoffs are decreasing, it’s also true that lots of workers are leaving their jobs and lots of employers are still having trouble filling them.
So, where are the workers who are leaving jobs going?
Right now, it is statistically more difficult to become a receptionist than to get into Harvard. That’s according to data from ZipRecruiter, where Julia Pollak is chief economist.
“I have a lot of bad news for job seekers in certain occupations. Some are much more competitive even,” Pollak said.
Some of these jobs are specialized or senior roles, but a lot of them are what Pollak calls pleasant jobs with predictable schedules, such as in customer service or communications — and fields like airport security.
Guess what, MMT? People aren’t simply mindless pegs to be fitted into crap-job holes as JG would do. Human beings have desires. They want — no, demand — good jobs: Good pay, good conditions, good futures.
MMT’s JG program, designed by academics who have not experienced reality, relies on people being so desperate they will take any job offered.
When people are selective about their lives, JG falls apart.
“So, jobs where you have some degree of prestige, perhaps a uniform and a union looking out for your interests,” Pollak said.
The growing interest in jobs that are more stable and offer better pay and benefits makes sense when you compare them to jobs that require similar skills and are begging people to come back — think less predictable or less protected industries like trucking and restaurants.
Imagine that, MMT, people want stability, better pay, and better benefits, not what a federal JG bureaucracy offers them.
“If you’re a worker at a restaurant and suddenly the restaurant is short-staffed, it’s going to be that much harder for you to actually manage your shift,” said Daniel Zhao, an economist at Glassdoor.
People are tired, burned out and fed up. And a lot of them are looking for a new work-from-home lifestyle. Glassdoor said searches for remote roles is up more than 350% in the last year. Whether everyone can get one is a different story.
The paternalistic Jobs Guarantee was a depression-era solution, that is as appropriate as a hand-crank calculator in today’s computer age. Sadly, MMT still doesn’t get it.
Instead of JG nonsense, we finally are leaning toward Step #3 of the Ten Steps to Prosperity: Social Security for All.
II SOCIAL SECURITY FOR ALL
The following article calls it, “Guaranteed Basic Income” (GBI). Different name, same fundamental concept: Instead of finding crap jobs for the poor, simply give people money.
Guaranteed basic income is coming
By Alice Yin and John Byrne Chicago Tribune, The Tribune’s Gregory Pratt contributedThousands of struggling Chicago residents will receive monthly cash payments from the city of Chicago as it becomes home to one of the largest guaranteed income programs in the U.S.
Mayor Lori Lightfoot’s $31.5 million basic income program is just a sliver of the total $16.7 billion budget, which will be buoyed by federal COVID-19 relief funds and won City Council approval Wednesday.
Few details of the pilot have been hammered out yet, except that 5,000 households will receive $500 per month for a year — with no strings attached. The lowest-income residents who suffered financial blows from the COVID-19 pandemic will be the focus.
When the funds go out, Chicago will join a contingent of American cities that have warmed up to the concept of guaranteed income.
Once deemed a pipe dream in mainstream politics, the idea of handing unconditional cash directly to those in need has particularly gained steam during the coronavirus-fueled recession, when most Americans saw multiple rounds of stimulus checks and other temporary social safety net expansions.
However, guaranteed income pilots have launched before the pandemic too, such as in Stockton, California, under former Mayor Michael Tubbs.
The program doled out $500 monthly payments to a small subset of low-income families. In June 2020, Tubbs started the coalition Mayors for a Guaranteed Income, which now has more than 50 mayors on board, more than two dozen of whom are piloting the concept in some form.
Though Lightfoot has touted her proposal as the largest in U.S. history, Los Angeles is in the process of implementing its own guaranteed income pilot targeting 3,000 households with $1,000 a month for a year.
Andrew Yang, a Democratic presidential candidate in 2020, has also championed a more far-reaching version of cash assistance known as universal basic income, which would go out to all adults regardless of means.
Rather than insisting on the Puritanical demand that people must labor in order to survive (i.e JG), more enlightened city governments recognize that at least at some basic level, poverty is harmful to the whole nation, and Americans have a right to live.
The irony is that monetarily non-sovereign cities (which are financially limited) are doing it rather than the Monetarily Sovereign federal government, which is financially unlimited.
But that is why the efforts are so small, with just a few thousand households receiving benefits.
Not all Chicago aldermen were on board with Lightfoot’s plan. Her overall budget passed 35-15, with some of the opposition pointing to the basic income program.
Southwest Side Ald. Matt O’Shea said after the vote that the pilot won’t work because “in two years, we won’t be able to afford it.” He’d rather see resources spent on boosting child care and “getting people back to work,” he said.
“Just giving money out to people when there’s tens of thousands of jobs in our city right now, that’s not something I can support,” O’Shea said.
But that is the whole point. There are “tens of thousands of jobs” people don’t want. Arrogant academic snobs claim the “underclass” should be grateful to work crap jobs for crap wages.
Those are Gap Psychology words. They serve only to widen the Gap between the rich and those below. JG is cruel and ignorant. It dooms people to failure. It is bad economics.
Giving people money turns them into consumers whose spending helps the entire economy.
Apparently, people are tired of the “work ’til you drop” routine. They have the strange desire to lead pleasant lives, no matter what the rich tell them. If people won’t work, it’s not because of laziness, as the rich love to claim. It’s because the jobs are unattractive.
Back in March, when aldermen held a hearing on a proposal over direct monthly checks, caucus chairman Jason Ervin said it would be a “slap in the face” to proceed with guaranteed income before setting up a reparations programs for descendants of slaves.
That’s a perfect example of the old, “We can’t do this before we do that” stalling routine.
It’s like this: “We can’t feed them until we clothe them, and we can’t clothe them until we house them, and we can’t house them until we educate them, and we can’t educate them until we give them free healthcare, and we can’t afford to give them free healthcare until we raise taxes — and we can’t raise taxes because no one wants that.
“So we can’t do anything. Sorry.”
One of City Council’s loudest voices for direct cash assistance has been Northwest Side Ald. Gilbert Villegas, who said his mother received a monthly $800 stipend through the Social Security survivors death benefits program after his father died.
Villegas introduced a proposal ordinance this spring that largely resembled Lightfoot’s plan of $500 monthly payments to 5,000 households, but it did not pass.
Villegas’s mother received benefits from a federal agency, that is funded from an unlimited source. City governments are not unlimited sources.
Still, Villegas said he’s prepared to go all-in on helping work out the details of Lightfoot’s program. He wants an eligibility threshold of households earning 300% or less of the federal poverty level, and Chicago Public Schools families should be prioritized, he said.
The problem with income eligibility programs is they are expensive to administer, unfair to those who barely miss out, and subject to cheating.
Though most guaranteed income programs are still nascent, researchers have examined the effects — with limitations. The current pilots in place are narrow in size and duration, said Carmelo Barbaro, executive director of the University of Chicago Inclusive Economy Lab.
Still, there is promise in further investigating the results because unlike other safety-net programs, direct cash assistance is simpler to implement, he said.
“Broadly accessible and unconditional cash transfers like Chicago’s guaranteed income pilot are intended to address those limitations of existing programs,” Barbaro wrote in an email. “The cost of such programs is higher, but the benefits could also be higher.”
No deductible, comprehensive Social Security for All is affordable for the federal government (as are all federal expenses). It would be simple to administer, and massively beneficial to the economy.
University of Pennsylvania professor Ioana Marinescu, an economist who has also studied such programs, said the early signs show that some of the outcomes feared by critics may not have materialized.
A 2014 research review on the effect of cash transfers on alcohol and tobacco purchases, for example, found virtually no change in or even a decrease in spending on these so-called temptation goods.
“There’s advantages to cash in terms of flexibility,” Marinescu said. “There could be drawbacks if you’re worried that people misuse the cash. But that doesn’t seem to be the case based on the empirical evidence.”
The rich like to portray the poor as ignorant sloths who will use any extra money for drinking, gambling, smoking, and drugs. That gives the rich a fake excuse to widen the Gap and thereby make themselves richer. Republicans, the party of the rich, invariably vote against money for the poor.
(The Gap is what makes the rich rich. Without the Gap, no one would be rich. We all would be the same. The wider the Gap, the richer the rich are.)
The lack of money is the biggest problem in any economy. The best way to cure that problem is to give people money.
The rich hate it, and invent excuses for not doing it, because they don’t want the Gap between the rich and the rest to be narrowed.
III Inflation
Contrary to popular myth, inflation never is caused by “too much” federal deficit spending. Inflation always is caused by shortages of key goods and services.
Today’s inflation is related to shortages of energy, labor, food, and computer chips.
Inflation actually can be cured by additional federal spending to pay for scarce goods and services.
In Summary
- The Monetarily Sovereign federal government has infinite access to dollars. Neither the government nor any agency of the government can run short of dollars unless Congress wants that to happen.
- Federal taxes do not “pay for” federal spending. Federal spending is paid for by the creation of new dollars, which the government has the infinite ability to do.
- Federal spending does not cause inflation. Inflation is caused by the scarcity of key goods and services. Federal spending can cure inflation by paying for scarce goods and services.
- America is not short of jobs. America is short of good jobs. Modern Monetary Theory’s Jobs Guarantee will solve zero problems, and in fact exacerbate a “crap jobs” economy.
- Poverty, the lack of money, is bad for the American economy. Poverty is not cured by bad jobs, but rather by putting money in the hands of the impoverished. This creates new consumers, whose purchases grow the economy, which grows businesses that are able to provide attractive jobs.
It all begins putting with money into the hands of the people, which the U.S. federal government has the infinite ability to provide.
Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell
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THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.
The most important problems in economics involve:
- Monetary Sovereignty describes money creation and destruction.
- Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:
Ten Steps To Prosperity:
- Eliminate FICA
- Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
- Social Security for all
- Free education (including post-grad) for everyone
- Salary for attending school
- Eliminate federal taxes on business
- Increase the standard income tax deduction, annually.
- Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
- Federal ownership of all banks
- Increase federal spending on the myriad initiatives that benefit America’s 99.9%
The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.
MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
While what you write is usually pretty good your comments in this article seem to stem from a lack of actual knowledge about the Job Guarantee. If you had read Pavlina Tcherneva’s book about it, or if you have read it and had actually understood it, I would suspect that you would have a better view.
As a social worker with more than 48 years of working with people on the margins, I know that many of them want to work and if there were paying jobs in their communities that would not displace existing workers or violate collective agreements, they would love to do that. The JG proposal is about local needs of which there are many with agencies unable to meet them because of a lack of funding to hire staff. The feds would fund those jobs during downturns in the economy at a living wage.
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Thanks, Herb.
Actually, there is no one JG. There is Pavlina’s JG. And there is Stephanie’s JG. And of course, there is Hyman’s JG. And Randy’s, and Bill’s, and Warren’s.
There is the JG that involves federal job HIRING and the JG that involves federal job FINDING, and of course, the JG that involves federal job SUPPORTING. Which of these JGs do you like?
There is the minimum wage JG, and the above-minimum-wage JG, though the former is impoverishing and the latter is anti-business. Which of these JGs do you like?
I’ve found that every time I have written a critique of JG, I am told that wasn’t the “real” JG. (You can find some of those discussions in the links I presented.)
At first, the moving target was irritating. Now I find it humorously ignorant, a series of desperate attempts to save an ill-considered, wrongheaded hypothesis, that ultimately is based on two words “jobs guarantee,” with little understanding of human nature.
Most of the JGs have one thing in common, they offer jobs that the jobless are EXPECTED to take, simply because they are jobless, regardless of their personal desires — the “beggars can’t be choosers” philosophy.
I often have written about the fact that yes, there are MILLIONS OF JOBS AVAILABLE to the unemployed, but they are the WRONG JOBS. Pick up your local paper, look at the job listings, and tell me how many of them YOU would take unless you were absolutely desperate. Do it. It’s a good exercise.
Then ask yourself, “If there are millions of jobs available, why are people unemployed?” And, “How would JG change that?”
JG, written from the comfortable reaches of naive academia, relies on desperation. But what happens when people are not desperate enough to accept the social worker jobs you enjoy?
And finally, why does MMT invent the requirement that people must labor before receiving money? Is that some sort of moral imperative? Is it an imperative that applies only to those born poor, with those born rich having exemptions? Think about it: Why does MMT prefer the convoluted complexity of implementing a “jobs guarantee” rather than a simple-to-execute “money guarantee”?
I, for one, haven’t had a paying job since 2008, yet I have significant income. Is it a good thing or a bad thing, that I receive money without strings or labor?
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What is it that they propose to do with that portion of the population which is utterly unemployable? You know the kind of people who come in drunk or couldn’t show up on time three days in a row if their life depended on it. I’ve been at places where you had to hire 15 bottom rung laborers just to be sure the 10 you actually needed were there and sober at any one time.
I got shouted down and banned for ‘sophistry’ by the job guarantee groupies on another website. They’re in denial that Pareto and that old boy Joe Juran were onto something with the 80/20 breakdowns where in many settings a vital 20% does 80% of the work month in and month out. That cult leader Bill Mitchell has really got into some of there heads so the way they talk about the goal of full employment is not unlike how Soviet functionaries once talked about electrification or steel production output. It is a false utopia.
In my tangles with the job guarantee crowd I came at it as a partly disabled person on Social Security/Medicare who had formerly worked for some years in a variety of positions on a production floor in the Midwest. When my great grandfather turned 50 in 1937 it was while on a crew building a school gymnasium in some podunk town as part of the WPA. Do the JG groupies realize being in the WPA was a very regimented life not unlike being a lowly conscript in an army. Sleeping in tents with very little choice of what one could or couldn’t do at this or that time of the day or night. Like that would go over very well with the way people are today.
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It’s hard to imagine why people wouldn’t be delighted to labor for federal minimum (aka “starvation”) wage, currently at $7.25 an hour.
One of the many, many, MANY problems with JG is the salary question. If it pays minimum wage, as it says it will, few people will want those crap jobs. And even if people did take starvation wage JG jobs, what has that accomplished for the economy or for the people?
But if JG pays above minimum wage, the people who currently receive private industry minimum wage simply will quit their private industry jobs and take JG jobs.
MMT already has stated JG will not compete with private industry.
JG is a naive, poorly considered (i.e. dumb) idea only an ivory-tower (remember that term?) economist could love.
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“Today’s inflation is related to shortages of energy,”
I read somewhere that something like half of all inflation these last fifty years was due to oil and oil derivatives. If inflation is all about shortages how do big head economists think that destroying money through the federal taxation mechanism or locking it up in time deposits through the T-securities mechanism is ever going to make a difference?
https://www.sciencedirect.com/science/article/pii/S1057521915001477 On the lost century that came from listening to dim bulbs like Larry Summers and his uncle Samuelson and his uncle Arrow.
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Today’s inflation is related to shortages of food, energy, computer chips, and labor.
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“In the late 1980s when the planned economy was in the latest phase of its struggle, even technically advanced projects were attempted to be progressed by sending numbers of unskilled “volunteers” [like they had much of a choice to volunteer or not] to help under the umbrella of Initiative Z. However, the lack of skills among volunteers was often counter-productive, and faulty results of volunteer work, although well-hidden, regularly led to even longer delays. Many participants recalled being ordered to perform “busy work”, such as having to move a large pile of sand from one spot to another 20 meters away with shovels and wheelbarrows, just to witness it being relocated by a machine to its original location the next day.” https://en.wikipedia.org/wiki/Action_Z
That was in Czechoslovakia but Bulgaria from whence came Pavlina most definitely had something nearly identical. Used to know a Ukrainian who had to spend three summers in eastern Siberia on a JG project dumping quarried ballast and laying track for a section of the Baikal Amur Mainline (BAM) basically a big railroad to nowhere that filled some hole in half a dozen five year plans. https://en.wikipedia.org/wiki/Shock_construction_project & https://en.wikipedia.org/wiki/Student_construction_brigade
A question to ask is which came first: MMT or JG? Because as I understand it Wray and Mitchell were both already talking up a theoretical JG back in the eighties years before there ever was an MMT that coalesced around the impetus of Mosler’s Soft Currency Economics paper in the mid-nineties.
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The JG was first proposed by Kalecki in a 1943 paper about about the federal government as Employer of Last Resort (ELR).
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It was naive then. It’s naive now. A few years ago, Randy told me the entire thing could be accomplished without hiring one additional federal employee.
What more can I say?
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Randy is not wrong, just unrealistic.
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And at that point in time when we were still somewhat below 3 billion people did not Kalecki think it wise to stabilize the population growth a bit before worrying about finding employment for them all? https://en.wikipedia.org/wiki/Andrey_Korotayev#/media/File:Population_curve.svg
That graph is a prime example of what ecologists refer to as “overshoot”. WWMVD
https://en.wikipedia.org/wiki/Marthe_Voegeli
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And Kalecki was right. The population does need to be stabilized, although I’m not sure it needs to be done before we start trying to implement an ELR or JG (acknowledging Rodger’s points about the difficulty). They are not mutually exclusive and we can work on both together.
I was involved in the Zero Population Growth (ZPG) movement in college in 1970 and have maintained my belief that we are overwhelming the planet with people. A solution, however, is just as elusive as ever.
Sadly, it seems that the two rules of neoliberalism: (1. Because markets; 2. Go die) are going to reduce the population in some of the worst ways possible, e.g., deaths of despair and our failure to address Covid appropriately causing untold suffering and death.
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It’s a race. Technology vs. consumption.
Technology gives us ever-improved, renewable energy sources and more productive food sources. We just have to stop being foolish about not supporting technology and claiming genetically modified food is harmful.
So, perhaps, the real race is between intelligence and abject stupidity.
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Buckminster Fuller wrote, “Humanity remains in the Dark Ages.” All you have to do is look around you for examples. We still use Roman Numerals; still treat women as second class citizens; still throw money away on Sunday to get into Heaven; still pray to statues; still use words like sunrise or sunset; still think debt and money are real; still think scarcity is the right economic model; still need to go to war; still build collapsible homes with blow away roofs; still pipe our waste downstream or bury it; still cage, torture and execute people in ‘correctional’ institutions; still poison ourselves with smoke and alcohol; still hung up about sexual reproduction, still communicate with four letter words and a 50 word vocabulary; still fear change; still look for political solutions; and still believe people must labor before receiving money.
I no longer wonder why humanity is in trouble.
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Rodger – I’ve been wanting to write this comment for years now. Every time you write about Modern Monetary Theory’s (MMT) Job Guarantee (JG), I think about it.
From your posts, I understand that you have been a very successful businessman and it is to your great credit that you have developed your Monetary Sovereignty theory. Except for a couple of minor details that aren’t relevant to this post, you have developed an accurate and coherent view of the actual workings of the US monetary system, that is, for the most part, consistent with MMT.
I particularly appreciate your constant reminders of Gap Psychology, the 80+ year-old debt time bomb that is yet to explode, and how declining deficit spending has caused the depressions and recessions in US history.
However, you’ve completely missed the boat on the JG.
You have consistently and constantly mischaracterized and straw-manned the Job Guarantee, an essential part of MMT. It is apparent to me that you have not read any of the academic literature about the JG, and you do not understand the concept.
Your very first sentence under I. Jobs Guarantee is absolutely wrong, demonstrating your ignorance of the most basic elements of the JG.
As proposed by MMT, the only role of the federal government will be to fund the jobs and benefits, something you agree it is eminently capable of doing.
It is not the federal government that will decide on which jobs to offer under the JG. That task is delegated to local organizations (generally non-profits focused on civic betterment) that have a much better idea of what kind of work will be most productive for the particular needs of their city or region. One city may need to have its parks cleaned up, another may want to provide more childcare facilities, still another might hire workers to upgrade homes for energy efficiency or install solar panels. Artists, musicians, and writers could be hired to produce works for the free entertainment of the people, just like they were during the Depression.
The wage for these jobs is to be set at a “Socially Inclusive Living Wage” adjusted for the local Cost of Living. This is obviously going to be a lot higher than the current federal minimum wage of $7.25. Fifteen dollars per hour is probably a bare minimum for those places with the lowest Cost of Living. This will have the effect of raising the wages of all those employed by private enterprise, especially those who are being paid less than the Living Wage. Although this will force businesses to raise their prices, at the same time their customers will have much more disposable income to pay those higher prices. A collateral benefit is that workers who are better paid are more productive (according to many studies). Working through the math, overall price increases will be less than the consumer’s additional income, leaving them with more money to save or spend as they wish. This has been demonstrated by studies including one that showed that a minimum wage increase led to higher employment, not lower as predicted by mainstream economics. Local sales also increased.
You have misunderstood the concept of a buffer stock. I started writing this comment several months ago, when you last wrote about the JG, in which you referenced a web site that did not directly address the buffer stock of employed/unemployed. If you were serious about understanding the JG, you would be reading and linking to the academic developers of MMT and the JG, such as Bill Mitchell, instead of a web site that makes a spelling joke in its URL (mbaskool, seriously?).
The concept of buffer stocks was first elucidated by Kalecki in a 1943 paper on the federal government as the “Employer of Last Resort (ELR)”. See this post by Bill Mitchell: http://bilbo.economicoutlook.net/blog/?p=17564. The idea that the concept of buffer stocks ignores human needs, ambitions, or preferences is simply false. It’s an economic concept that has no moral content other than the power imbalance between capital and labor. Prof. Mitchell’s term for the wage level in the JG is a “socially-inclusive wage rate”, which means enough money to lead a life free of the social oppression of poverty and participate fully in society, exactly the result you promote with your 10 Steps. The JG proposal also includes some of the benefits in your 10 Steps such as free health insurance. It should be Enhanced Medicare for All, but that’s a different discussion.
“When I advocate a Job Guarantee, I always emphasize that it is funded nationally (at the level of the currency-issuer) and organized locally (at the level of community need and knowledge).” – Bill Mitchell, 11/12/2020.
The basic idea of a buffer stock of employment is to bring otherwise unemployed folks into the productive workforce. The basic idea of a buffer stock of unemployed is to allow business owners to hold the cudgel of being fired over the heads of their employees. If the workers refuse to accept poverty-level wages, the employer can always threaten to find others who are desperate enough to work for those lower wages. The JG eliminates that possibility, helping to narrow the power gap between capital and labor. The “sack” is no longer a threat. There is always a job at a Living Wage available for all those willing and able to work. The JG proposal also includes on-the-job training.
There is a good economic reason for a JG as opposed to a straight cash income supplement, related to inflation (not hyperinflation). Inflation is caused by two mechanisms. The first is cost-push inflation which usually happens when the price of necessities such as food and/or energy (sound familiar?) are pushed up too fast by the producers or by problems in the supply chain, as is currently the case.
The other mechanism is demand-pull inflation where there is too much money chasing too few goods. This is the type that most people think of. It can occur when overall spending in the economy (federal, non-government, plus (gross) exports) is more than the real resources available for purchase and use. This can bid up the price of scarce resources. This also means that simply increasing deficit spending to overcome shortages of food and energy, as you advise, is not enough by itself. If there are no additional resources available, more spending will simply increase inflation.
If you only give people more cash (Step 3), their additional spending, along with government spending, and gross exports, can exhaust the real resources available. On the other hand, if you put these people to work at a Living Wage, the result will be an increase in the production of goods and services available for purchase, reducing or eliminating the threat of demand-pull inflation.
For those unable to work a direct income supplement equal to a Living Wage would be appropriate. However, as your post makes clear, the vast majority of people desire productive, rewarding work, so the cohort receiving direct income supplements would be relatively small, and would have no significant effect on price levels.
A Job Guarantee is not inflationary, per se, because the government is buying off the bottom of the market – offering a fixed price for a resource that has zero bid in the market. The government is not competing with private employers. As private employers need more workers, they will be hired from the JG buffer stock of people already employed and they will have to be paid a higher wage and better benefits, and provided on-the-job training where necessary, something that was common in the past.
I’ll stop here. If you want to continue this discussion, I’ll be glad to do so, but please read the Bill Mitchell post linked above before you respond. Then we can discuss the JG as actually proposed by the academics who developed it, not the one you have imagined that does not match reality.
Adding, I have read the comments and your answers above. You are still not getting it right, no matter whose JG you are referring to.
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Hi John.
Thanks for telling me how wonderful I am, before telling me I have failed to read about what I am writing about.
Also, thank you for informing me about Bill Mitchell’s JG, which by the way is different from Randy Wray’s JG (which specifically says that it will pay minimum wage.) Have you read it?
My overall complaint about JG is its lack of reality. It assumes magical control without real control. That is, it assumes all these goals can be achieved by merely telling local governments, “We’ll pay you ‘Socially Inclusive Living Wages,’ to hire people to do whatever you damn well please,” and somehow that all will work out.
It’s ludicrous.
“. . . the only role of the federal government will be to fund the jobs and benefits”
And what, exactly, are the mechanics of that? How does Bent Elbow, Nebraska, and every other town in America, set up systems for hiring, supervising, and firing people to clean parks, provide more childcare facilities, upgrade homes for energy efficiency or install solar panels, and support artists, musicians, and writers to produce works for the free entertainment of the people” without it becoming a totally corrupt process?
No supervision from the federal government? Really? Wait until Chicago, IL gets hold of that. In the immortal words of Paul Powell, “I can smell the meat a’cookin.’” Every neighborhood cousin, uncle, sister, and brother will have a “job” doing something that requires no effort — thank you very much.
Aside from the massive red tape, how would this be better than merely giving people money?
The notion of “buffer stock” relies on people being so desperate they will accept any job and or employers being so desperate they will hire living creatures.
But, today, there are millions of jobs available and millions of people not working.
Why is that? Why doesn’t “buffer stock” fill those jobs?
I’m delighted you referred to the Depression, which I assume means the WPA, PWA, Federal Project Number One, etc.” These were FEDERALLY EMPLOYED functions, that PAID BELOW MARKET RATE and intentionally were INEFFICIENT (so as to hire as many people as possible.)
As for a “Socially Inclusive Living Wage,” puleeeze. No one knows what that means. It’s total bullshit.
Tell me the Socially Inclusive Living Wage” in your town, and I’ll tell you why you’re wrong. Let’s begin with songwriting. What is the Socially Inclusive Living Wage of a songwriter?
The unions hated the WPA as did the companies whose businesses were destroyed by low-pay government workers. While the WPA accomplished many things (art and the Hoover Dam for instance), its main accomplishment was to put money into the pockets of the people, which could have been done much faster and better by simply giving money to the people or by federal spending to accomplish specific goals.
Oh, and by the way, I hope you notice that the WPA was eliminated, but Roosevelt’s other great invention, Social Security, remains with us. Hmmm. Do you wonder why?
You said, “If you only give people more cash (Step 3), their additional spending, along with government spending, and gross exports, can exhaust the real resources available. On the other hand, if you put these people to work at a Living Wage, the result will be an increase in the production of goods and services available for purchase, reducing or eliminating the threat of demand-pull inflation.”
I’m sorry that you don’t believe in Capitalism’s ability to “increase production of goods and services.” Seems to work better than other “isms.”
Anyway, could you give me one historical example of too much government spending causing inflation?
I have read Bill Mitchell, or more accurately, I have struggled through Bill Mitchell, because the man writes as though he is more interested in impressing than in communicating (though that is all-too-common in economics). I try to present facts to inform the average reader as opposed to academic dreams to impress other academics.
You cannot imagine how sad your comment felt for me. Twenty-five years of writing, and a regular reader indicates he doesn’t get what I’ve written. I had been debating about whether to return to my first love, painting, and you may just have thrown me over the edge.
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You’re welcome for the compliment, however, your continuous mischaracterization of the Job Guarantee makes it appear that you haven’t read the academic literature on the JG. Since you have, I stand corrected. My apologies.
Yes, I have read various JG proposals. The fact that there are several is not a criticism, it’s an indication of a vigorous debate about the best way to implement it. Randy Wray, as much as I respect him, is not the final authority.
I get it, Chicago is corrupt, tell my something I don’t know. So are many other places. In almost all of your posts you promote the idea that any and all federal money injected into the economy is a good thing, regardless of how much actually goes to productive activities. No-show jobs have been around forever, nothing is going to stop that.
As for the necessary supervision of the JG workers, that’s just additional jobs that would be funded by the federal government. Yes, corruption is a problem, always and everywhere. It’s not a good reason not to do something.
Do you honestly believe that simply sending folks checks won’t end up creating just as big a federal government bureaucracy as a JG? Both could easily be done with the current bureaucracy, but neither one will be if they are ever implemented. Besides, that’s just more employment and more money coming into the economy. Isn’t that what you want?
In addition, the Democrats will insist on means-testing a UBI, the Republicans will insist on a work requirement, and Wall Street will insist that all payments go through ATM cards so the banks can get their skim.
A JG better than just giving people money because it creates more goods and services which helps to limit inflationary pressures.
Although Capitalism may work better than other “isms”, it still fails to employ all those who wish to work. Besides, the whole point of capitalism as it exists today is to make the rich richer, not to employ everyone who wants to work. Capitalism is the reason that millions of people refuse to work right now.
The buffer stock concept does not actually “depend” on desperation. It exists right now as a buffer stock of the unemployed (although many are desperate) that gives employers a hammer to beat down wages since there is almost always someone else willing to take the job even at crap wages. As for the low paying “crap” jobs, they become a lot less crap if the workers are being paid a decent living wage. That’s the whole point, it raises the minimum wage to a point that no one has to worry about making ends meet. I promise you that millions of the folks who won’t go back to work at the currently offered wages for those jobs would do so if they paid enough.
There was a psychologist many years ago, whose name I can’t remember right now, who recommended that the harder, more physically taxing jobs should be paid more than those that are easier, essentially paying folks according to their efforts.
I agree with you that a UBI won’t lead to lazy people who refuse to work, at least not a whole lot of them. Most people want to do something productive with their lives and would probably like to work anyway if they can get hired at a decent wage.
Figuring out how much is a Socially Inclusive Living Wage is not that difficult. The government publishes Cost of Living indices for most areas of the country.
I’m sorry I made you sad, that was not my intent. However, I do believe I understand what you have been saying about the JG, I just don’t think it’s right.
Maybe you should go back to painting if the criticism is too much to bear.
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Thankfully, there is zero chance America will adopt Bill Mitchell’s JG, or Randy Wray’s JG, or John Zelnicker’s JG, or any of the other mutually exclusive, ever-changing proposals named “JG,” I have seen.
WPA and its children, siblings, and cousins are gone for good reason. Darwinism takes its toll on cripples.
By contrast, Social Security remains with us, universally loved, and if Dumb Trumpers renounce their seeming joy of self-flagellation, SS will be available to more and more people in the future.
That said, John, if you enjoy being “buffer stock,” who am I to rain on your parade?
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I’m not buffer stock, I work for a living.
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If every working age adult has a Guaranteed Basic Income to afford him/her basic consumption goods (food, clothing, shelter etc.), who’s going to do the production, processing, and distribution of those consumer goods?
Outsource everything from China, Mexico, or Cambodia and we will just become 100% consumer economy?
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Apparently, you believe the old “If you give ’em money, they won’t work” trope. That is, no one has any ambition, and everyone will be satisfied to lounge on the dole?
Is this how you feel, personally? Once you can afford “basic consumption goods (food, clothing, shelter etc.)” you don’t want to work for more?
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That’s why it’s important to put a figure on it. What’s the reasonable amount for the GBI proposal? Will it vary by region? By state? By
city? Or will it be uniform across the board?
The main concern, I guess, from MMT perspective, is to not be able to lose our productive ability or capacity.
I’m certainly not an expert here, but I’ve noticed that most jobs in the production, processing, and distribution of consumer goods are, in the way our capitalist system is currently structured, either low wage, boring, tedious, or unfulfilling or all of the above.
So, if we have, for example, a $2,000 GBI for every adult, many will probably be dropping out of those “crappy” jobs, greater perhaps than the Great Resignation we are currently seeing in many sectors.
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Yes, if we gave everyone, say $100,000 or $10, the results would be negative. So the right amount is between those two numbers. At https://mythfighter.com/2017/02/06/ten-steps-to-prosperity-step-3-monthly-bonuses-for-all/ you’ll see:
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Those most likely to be unemployed in Bent Elbow, Nebraska at any given time are likely also the last people you want watching kids or looking after the elderly.
https://en.wikipedia.org/wiki/Joseph_M._Juran#Pareto_principle If an actuary and a few statisticians went back a couple of decades and crunched the numbers I dare say 20% of the population would have accounted for 80% of this unemployed “buffer stock” [or reserve army of labor to use an older term] when averaged out over two or three year periods.
For those most likely to be long term unemployed the progression extends a bit further out into tails: 80, 64, 51.2 & 20, 4, 0.8 For other sociological problems this is even more prescient in terms of crime and/or prosecutorial resources. That concentrated 4% would be what some call “high social cost individuals”.
Łobaczewski adopted the term “ponerology”, which is derived from the Greek word poneros, from the branch of theology dealing with the study of evil. Psychopathy is present in about 1% of the population (varies by society with some lower and others higher) but the really sordid stuff sucking up 51.2% of time and resources at the office of the Cook County State’s Attorney is very likely wrought by a percolated eight tenths of a percent of the population.
Given Gap Psychology who do think might be over represented in the top 0.1% and/or in the halls of Congress?
“A form of government interesting to ponerologists is one they have called pathocracy, in which individuals with personality disorders (especially psychopathy) occupy positions of power and influence. The result is a totalitarian system characterized by a government turned against its own people. A pathocracy may emerge when a society is insufficiently guarded against the typical and inevitable minority of such abnormal pathology, which Łobaczewski asserts is caused by biology or genetics. He argues that in such cases these individuals infiltrate an institution or state, prevailing moral values are perverted into their opposite, and a coded language like Orwell’s doublethink circulates into the mainstream, using paralogic and paramoralism in place of genuine logic and morality.”
“There are various identifiable stages of pathocracy described by Łobaczewski. Ultimately, each pathocracy is foredoomed because the root of healthy social morality, according to Łobaczewski, is contained in the congenital instinctive infrastructure in the vast majority of the population. While some in the normal population are more susceptible to pathocratic influence, and become its lackeys, the majority instinctively resist.”
And among Bill Mitchell’s groupies are those who would surely channel their inner Iron Felix and greatly harm a population while thinking they were actually helping it if luck would have it they were ever placed in a position of power over others. https://en.wikipedia.org/wiki/The_Chekist Say as part of a ‘pathocracy’ not unlike the pathocracies that came before it. https://en.wikipedia.org/wiki/Chekism
For in the JG utopia work is a duty and a matter of honor for every able-bodied citizen, in accordance with the principle: “He who does not work, neither shall he eat”.
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*Today’s inflation is related to shortages of food, energy, computer chips, and labor.
So for example why does Powell at the Fed with his toy steering wheel think that money deletion and time deposits [through federal taxes and treasury securities] are ever going to counteract these shortages?
A guy older than you named Heinrich Hora [1931] is getting quite close to a major breakthrough in fusion after quietly chipping away at the technical complexities of the problem for fifty years with a few dozen others. Months worth of simulations on a supercomputer in Japan a few years ago has their non thermal method with the chirped pulse amplification of a pair of lasers to collide Hydrogen with a 15mg Boron-11 fuel pellet yielding 300kWh
There is a huge open pit Borax mine in the California desert that represents something like a third of current world supply. 150 kilos of Hora’s 15mg Boron-11 pellets = 3 billion kWh of electricity. Electricity consumption in the United States was about 3.8 trillion kilowatthours (kWh) in 2020.
How much coal are they hauling around on trains still? I know covered hopper cars have a gross weight capacity of 263,000-286,000 pounds or about 120-130 metric tons. Anyway forty or fifty of those cars could in one trip carry the raw ore needed for refinement down into tiny pellets for a year’s worth of current American energy consumption.
http://www.hb11.energy So why can’t Hora and company get the funding they need to show what is possible? As I understand they only need like a hundred million dollars for a five or six year research program and then a similar amount to building an initial full scale proof of concept power plant. As opposed to the twenty or thirty billion that has been already dumped by a dozen countries into that ITER fusion experiment on the sunny French Riviera. FY2021 USA contribution: $242M https://www.usiter.org/sites/default/files/2021-03/US%20ITER%20Status-February%202021%20%28final%29_0.pdf
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Sadly, fusion has been “within ten years” for almost as long as I have been alive. https://lppfusion.com/technology/brief-history-of-fusion-power/#:~:text=In%20the%201930%E2%80%99s%20scientists%2C%20particularly%20Hans%20Bethe%2C%20discovered,fusion%20reactions%20to%20produce%20useful%20energy%20on%20earth.
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How optimistic are you about hydrogen? From Alberta: https://proton.energy/wp-content/uploads/2021/10/Santander-Equity-Research-Proton-technologies-hydrogen.pdf & https://jpt.spe.org/canadian-operator-works-to-transform-an-oil-field-into-a-hydrogen-factory
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Hydrogen: Not in my limited lifetime, but surely in the future. Creation, storage, and dispensing are enormous problems.
Ironically, the electric car efforts now may slow the development of hydrogen for auto/truck use. But nature has taught us hydrogen is the most energy-dense, pollution-free fuel. Who could not love a fuel that creates pure water when it burns?
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You can bet the electrical power industry will Never give up on clean energy (and a guaranteed source of big money forever). First of all it is a concept w/o pollution concern. They want the same for uranium energy but that is proven too dangerous. So now they think and pray fusion is it, baby!
BUT what is the by-product? What happens to hydrogen and boron after consumption?
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The “ash” from the reaction is helium. Proton – Boron-11 1p + 11B → 3 4He + 8.7 MeV https://hb11.energy/how-it-works/
The strongest laser right now is 10PW (a Petawatt is a million billion watts). When the Japanese ran an exhaustive set of simulations in 2015 they suggested that the perhaps as low as 30PW for a trillionth of a second would be enough. I think Hora and company are saying the sweet spot is somewhere in the 30-40PW range.
Anyway it will happen in two to four years time (pandemic slowed it down some) as China for example is working on a 100PW laser for later in the decade and the Europeans with their 2 or 3 10PW lasers in Prague and Bucharest are preparing to scale up to some multiple of that. It is inevitable.
Part of a Six part series of articles on this stuff: https://asiatimes.com/2020/05/meet-the-father-of-the-hydrogen-boron-laser-fusion-reactor/
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I read it. But I saw no mention of what happens when using up the hydrogen being used as fuel. We would literally burn up the oceans. Sure, we’ll eliminate fossil fuels, air pollution and global warming. But as icebergs, snow caps, and glaciers are restored using evaporated ocean water, we’re also evaporating the ocean for fusion fuel, further dropping the water level. We can’t win.
I think informed people will wise up and rise up as they did with the 3-mile Island & Fukuyama disasters. If not, let’s hope science can reverse the process to somehow remake hydrogen and return the water. Otherwise, all that helium in the air will have us high-pitched talking like Chipmunks.
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When hydrogen burns it becomes water.
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I believe you. I have to look this reaction up though.
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H=Hydrogen. O=Oxygen. H2O=water.
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Got it. But I need the exact details of the reaction, not the molecule.
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From the reader above, is stated “The “ash” from the reaction is HELIUM..”
I went through some but not all the literature. I couldn’t find where it is stated that somehow hydrogen or water is reincarnated. There IS mention of net energy gain, which is important, but no mention of a method for returning the by-product (helium) back to hydrogen or water. I’d like to see that if anyone can list the reference as well as the energy cost involved.
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https://sciencing.com/created-hydrogen-burns-5247283.html
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You’re mixing up two different things Hydrogen-Boron11 fusion and Hydrogen combustion.
When the hydrogen molecule is burned (hydrogen combustion) with oxygen gas, the bonds between two hydrogen atoms are broken as well as those between oxygen atoms to make up bonds between hydrogen and oxygen atoms. In layman’s terms, burning hydrogen results in water: H2 + 1 2 O2 −→ H2O + 286, 000 joules.
HB11 Fusion: 2nd from the bottom in the list of candidate reactions here: https://en.wikipedia.org/wiki/Aneutronic_fusion#Candidate_reactions All of the Helium used today is ultimately a product of radioactive decay within the Earth.
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Well in my own defense I did say ” …no mention of a method for returning the by-product (helium) back to hydrogen or water.” Though, in the end, I failed to clarify which of the two reactions. My concern was with FUSION. There was no mention of how, or if it is even possible, to return helium to hydrogen, being that it is chemically inert. If not, then you have a continuing buildup of helium into the future and at the same time a reduction in precious water if this method reaches scale.
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We would put you into a spaceship with a big bottle. Interstellar space is loaded with helium. (A cubic centimeter of gas in the Orion Nebula contains about 10 atoms of hydrogen and 4 atoms of helium.) https://spacemath.gsfc.nasa.gov/Grade35/5Page11.pdf
So, when you get to the Orion nebula, simply uncork your bottle and bring back some helium and hydrogen. Problem solved. Also, if you go fast enough, you won’t age, so you still will be young when you return with your helium, though the rest of us will be long gone.
Be sure to wear sun lotion. It gets pretty nasty out there.
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I’m afraid of heights.
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I do not enjoy bickering among ourselves over a program (JG) that has little to do with what draws us all together, MMT. I have read countless times by countless MMT economists that MMT is apolitical. MMT is not JG. JG is a Left-wing MMTer’s suggestion to solve a problem. That’s all. Let’s concentrate on educating people about MMT before we start fighting about ideas on how best to spend the money that MMT claims to exist. I think we are putting the cart before the horse.
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I understand your concern. While I agree with the fundamental fact of MMT (The federal government cannot unintentionally run short of its own sovereign currency), MMT falls into the trap of believing that federal deficit spending causes inflation.
That is the phony excuse the conservatives and ignorant liberals use when criticizing such programs as expanded Social Security, Expanded Medicare, tax cuts, free college, etc.
If we blindly go along with MMT’s wrong ideas about inflation, we just will shoot ourselves in the foot. Never go along with a lie for political purposes. You always will regret it.
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I also agree with most of what you believe. But I think that your criticism of the WPA is unfounded. I know from experience that it helped many families through the tough times of the Great Depression, my mother’s family was one. I had uncles that worked under the CCC and that helped a family with twelve children survive. Comparing that time to today is unfair. Unemployment was at 20%. Today we are nowhere near that. The JG is not the same kind of solution that the WPA and the CCC were. And I do not believe that even the proponents would make that comparison. It was more needed at that time and it served its purpose masterfully. It ended when it was no longer necessary. The JG is a modern-day solution to modern-day problems. It is not intended to bring us out of recession or depression it is more in keeping with basic Keynesian tactics to flatten the business cycle curve. It grows during down times and shrinks during good times. I believe that it should not be criticized based on one’s opinion of how people will react to it, because no one knows for sure how they would. We as supporters of MMT should be embracing the fact that someone is thinking in that direction. It is certainly better than nothing. Ironically I had the same c thoughts about the JG when I first heard about it. The debate about wages is legitimate, but the idea of performing work for a community that is not currently being done satisfactorily is worth considering.
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Brian, JG was designed to solve a nonexistent problem: Lack of minimum wage jobs.
Today, there are plenty of jobs available, minimum wage, and even higher wages. In fact, in the 80+ years since the Depression, there always have been plenty of jobs available.
The problem is, they often were not the RIGHT jobs.
So some people struggled to find a job that met their qualifications or income needs.
JG is a Depression-era idea based on the belief that unemployed people should be grateful to accept any job found for them by a federal bureaucrat.
Rather than forcing people to waste their job-hunting time doing minimum-wage, too-often menial labor, the government simply should give them Social Security (basic income), so they can feed their families and pay the rent and maybe go to school.
By the way, “better than nothing” is a poor criterion for a Monetarily Sovereign nation having infinite financial power. We already have “better than nothing.”
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