Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
As I frequently have mentioned, Monetary Sovereignty (MS) shares many fundamentals with Modern Monetary Theory (MMT). There are differences however, among which are the prevention and cure for inflation and one of the tenets of MMT, called “Employer of Last Resort” (ELR).
(Sorry for all the acronyms, but they save typing.)
This post discusses ELR. MMT would like the federal government to become the ELR. There is a bit of history for this in the Great Depression’s Works Project Administration, which employed many people during the depression. However, WPA was not an ELR in the way MMT suggests, which is to offer a job to anyone who wants one.
Monetary Sovereignty has several questions about the MMT version of ELR:
1. What are the jobs? Many reasons for individual unemployment, including:
a. Unavailability of a specifically desired job
b. Unavailability of jobs that pay “enough.”
c. Unavailability of jobs near home
d. Job seeker’s lack of qualifications or over-qualifications for available jobs
e. Job seeker’s personal background, including age, education, personality, illness, criminal history, etc.
2. Where are the jobs being offered? Unemployed people can be found in every city, every county and every state. Is it possible to offer appropriate jobs for every unemployed within a reasonable distance from every location?
3. What does each type of job pay? Income needs are different for different people in different locations. Working takes time away from job-seeking, so people, requesting help from ELR, elect to reduce efforts to find a better job. If the jobs pay too little, do they extend poverty? If they pay too much, do they encourage sloth and/or compete with private companies?
4. What mental and physical skills are required? ELR probably would pay more for jobs requiring certain mental and physical skills than would less demanding jobs. Can ELR jobs be matched to every type of mental and physical skill?
5. Who supervises each type of job? How will ELR hire supervisors for every type of job, from blue collar to white collar, in every location? And how will ELR supervise those supervisors? Who will make the rules and set the criteria?
6. Who hires? Similar to #5, who will evaluate and hire employees for every type of job in every location.
7. Why are people fired, a who does the firing? What are the criteria? Who supervises? What happens to people who are fired for any of the dozens of reasons why people are fired, from insubordination, to lack of attendance, to inability? Are they given another job?
8. How does this affect private companies that provide the same products and/or services being provided by ELR agencies?
Providing money to the unemployed would stimulate the economy, but I suggest the MMT device for providing money – i.e., providing a job – would create a giant bureaucracy filled with bully straw-bosses, plus jobs that provide neither satisfaction nor opportunity for meaningful growth, and jobs that interfere with the job-hunting process. It would doom us to a nation filled with non-productive equivalents of fast food servers and Walmart greeters.
Rather than attacking unemployment directly, by offering government, make-work jobs, I suggest the government stimulate the overall economy (via increased federal deficits), enabling the private sector to offer more jobs. A stimulated private sector will provide more meaningful and economically beneficial jobs than will a government bureaucracy offering jobs to anyone who wants one.
Because you adherents of MMT have given much thought to ELR, I welcome your comments. I admit to the possibility I may have overlooked a key issue.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports
60 thoughts on “–Why Modern Monetary Theory’s Employer of Last Resort is a bad idea.”
While not an economist, I am a huge fan of both your Monetary Sovereignty blog and all the other specifically “MMT” blogs. While it seems you guys are on the same page 95% of the time, I do make sure to keep in mind that you have a unique and distinct take.
I think this is an excellent opportunity to promote internal discussion amongst your followers and really hammer out some details.
I’m going to enjoy reading the follow up to this post.
My replies, which are entirely built on my practical perspective and not as economist or anything like that:
1. Cleaning streets, repairing infrastructure, cooking food for schools, helping out elderly, volunteer work, etc- public service.
2. See 1. Everywhere there is a lot of work to be done!
3. All get the same, and they should get just enough for people to have a regular living. Probably just bellow minimum wage.
4. None excepting health.
5. Have the local authorities do it (town mayors, sheriff, volunteer organisers, etc.)
6. See 5.
7. People could even be paid by day (maybe it makes it easier, I don’t know). You work and do your job in one day, you receive. You don’t work, you don’t receive.
8. See 1. Since they will be doing public services that nobody is paid for, no crowding out.
You would have to create a massive bureaucratic infrastructure to do what you suggest.
Who would hire and supervise? (Town mayors? Sheriff? Let’s get real.)
Would they replace union labor? (Why not)
Would they be paid less than the union workers for the same work?
Who would be paid to train them?
Would they be allowed sick days? Holidays?
Could they be fired? Why and by whom? Then what?
How far from home would they be required to work?
In essence, it’s a make-work that has only one justification, and that’s the moral/Puritanical one: You don’t want to see people receiving money for nothing.
Paying people minimum wage and expecting them to do meaningful work is unrealistic. The nation would be better served by simply giving people money so they could spend it while looking for a job. The spending would make more jobs available. I’d rather have a computer scientist spend his time looking for a job than picking up papers from the highway.
Creating a staffed functional managed services infrastructure is a necessary step to implement an effective ELR. Not a problem in my mind. That infrastructure requires significant skill and must be implemented with a continuous improvement capability. ELR employees would either keep their jobs or be hired out. Some may come back and others do something else. Sick days, holidays, and health benefits are necessary. A key element is to provide jobs that enable the job holders to be participants in the country’s economy. I’m hearing a hint of Tea Party sympathy in your questions … //smile
A national, staffed, functional managed services infrastructure, covering every community in America, is not a problem? Let’s see your organizational chart, down to the local level.
And me, Tea Party sympathy? You must be new to this blog.
I look at the thing and think: what would I do?
I would have them employed by local authorities. People would go to the local authority office (whatever that is), they would get assigned a function (let’s say, cleaning a certain street) at the end of the day someone would pass by, check the progress and would pay them. That’s all the supervision you need. It could be easier – imagine helping out with volunteer work – the volunteer associations already have people there and they will be with them all the time, helping them and making them feel more useful.
Union labour? I’m not sure we have that here in Europe. What is it?
Train them? How much training do those stuff need? None, even a child could do those.
The payment by day would exclude the problem of firing, sick days and holidays, and also underemployment. The part of having local authorities hiring them solves the part of the “far from home”
Those people can spend all the time they want looking for a job – but the longer they are without working, the harder it is for them to later to get work and adjust to a work routine, besides the social problems that unemployment (for those people are still mainly unoccupied) entail.
Happy New Year Rodger,
Doesn’t the private sector jobs run into most of the same problems you suggest the ELR jobs do? Because of state laws/taxes/etc., many private corporations won’t operate in certain places. “Bully straw-bosses” are in the private sector as well. What if the private sector doesn’t need the skills the unemployed person has? No federal minimum wage job pays enough in NYC, regardless of whether it’s public or private sector.
I think the ELR is fine if it focuses on general skills. Many people can do janitorial work or physical labor. Also, you will need a support apparatus in place for the program, so things like secretarial work and management can be done. The military is a great example for an ELR model (minus the physical aspects): They technically exist for the sole purpose of fighting wars, but there are so many necessary support occupations in the Army that a person can do almost anything, to include finance and HR work. They get full, free healthcare, a pension, and stipends for food/housing/etc. depending on the need.
And as far as location goes, a program can be set up in each state. In fact, a work program, or many work programs, could be contracted out to the state governments (via a yearly block grant based on the states’ unemployment statistics) and/or the private sector (there are plenty of staffing companies out there that would happily snatch up government money on a “per placement” basis).
As far as pay goes, federal jobs come with “COLA” (cost of living adjustment), and the ELR program could have that as well. Plus, the program could have mandatory time set aside for it’s employees to conduct private sector job searches if they wish (just like the military has time set aside from their support positions to train for war). In fact, that could be part of the ELR program’s mission, along side general work.
And if employees are derelict in their duties, they either have to prove it’s through no fault of their own (i.e. major medical issues diagnosed by a federally employed doctor, just like the Army), or be thrown off the dole (either temporarily or permanently, depending on the circumstances). While it may sound mean to throw someone off assistance, I don’t think it’s a problem here as they have been given an opportunity. In the end, it was their choice. Also, as it could be set up as an hourly job, you could simply just not pay them for the hours they missed instead of fire them. Money is a motivator.
In the end, ELR is about maximizing output. Just giving money to people doesn’t maximize their individual output. It’s like laying off a police officer, then paying him welfare. Why not just tell him he can work part-time for the money? At least he keeps his skills fresh for when a similar position opens up in another city/state.
And markets aren’t perfect, so the private sector can’t maximize output. Even with the private sector maximizing potential, there is still aggregate demand out there to be met. You would still need an ELR program that provided government jobs to fulfill that, even if it was just smaller.
Actually, my idea of the ELR does two things:
1. Provides general skills work (in all locations) at an acceptable wage for your area.
2. Finds you private sector placement (which is aided by the ELR via job training and recruitment/placement services).
I think it’s a great idea.
You are describing a monstrous bureaucracy. Your example of the Army is both bad and good. The bad part is the fact that once you join the army, you essentially are a slave, with no hope of leaving for the term of your service.
They send you anywhere they wish, and don’t need to do anything for your family. Is that what you suggest for civilians out of work?
Your example of the Army is good because of the bureaucracy. I read somewhere that there are 50 support people for every fighting man (or woman). The number may be wrong, but the point is, government programs involve huge bureaucracies — always.
I say it’s a good example, because bureaucracies hire lots and lots of people, which could help solve the unemployment problem.
Just kidding. Bureaucracies are bad employment methods for many reasons.
Anyway, why pay people to do make-work, when you can pay them to look for a job. Would you really pay a scientist to make soup? No? Then who will you get to hire him as a scientist.
This whole process is way, way more complex than MMT makes it out to be. Hiring, supervising and firing is quite difficult, and not something the government is particularly good at.
I agree with you about bureaucracy. One other thing no one mentioned is lawsuits! Can you imagine the nightmare of fly-by-night lawyers filing discrimination lawsuits against the government for any imagined reason.
The problem we have in this country is we have too many lawyers and bankers. We are no longer a “Nation of Laws”; we are now a “Nation of Lawyers”
My example of the Army isn’t to be taken tit-for-tat. Obviously since the mission would be different, the machinations would be different. And like I said, one of the missions of the ELR program would be placement in the private sector, so no one becomes a slave. Also, I said they’d be paid to look for work, so I think we agree there.
And no one would be sent anywhere far away. There’s a Social Security and Veterans Affairs office in every state and in multiple cities within each state. Same with the TSA.
The military is probably one of the most family friendly jobs you can have, too. Low cost healthcare, increasing stipends for larger families, military spousal preference for federal jobs, etc. You can actually transfer your GI Bill to an immediate family member if you want. (But that’s neither here nor there.)
Yes, bureaucracy would be a concern, but it’s already a concern. Large corporations have them just like the public sector. In fact, I’d honestly say I’ve had an easier time dealing with government bureaucracies than with the average large private sector HR department. No lie. Anyway, life experience has told me bureaucracy is a fact of life that’s not going away. We might as well get the most out of it, and if that means using it to provide people with nothing more than busy-work, and thus (still) stimulate the economy, so be it.
And yes, some people may have to do work outside of their normal skillset, but your post and reply assumes there is a private sector job for every scientist out there. There isn’t. Like I said, markets aren’t perfect. Look at all the people that have J.D.s and aren’t practicing lawyers. The private sector is not necessarily concerned with making a job because salary is an expense, and profits come first. The private sector is only concerned with making a certain amount of jobs. After those are made, it doesn’t matter to them. If a corporation can make the same profits and still trim its workforce, it will. It’s pure microeconomics.
I agree that the process will be complicated but, as I posted, there are ways to deal with it. Federal contracts could be awarded to staffing companies on a per-placement basis. Block grants could be given to state governments based on state unemployment statistics, and those grants could be used to directly fund state government hiring.
Many government programs are complicated. Obama’s healthcare law will be complicated to implement. But I think it can be done.
Giving money for (what could essentially be) nothing is bad economics (many people will take advantage of it – they do already). It may provide stimulus, but it doesn’t maximize output. I’d rather give a guy a clicker, sit him in a chair outside a government office, and tell him to count the amount of people that come in per day than just give him the money. Stupid job? Maybe, but at the end of the day, he’s being paid to provide information to his boss. How’s that different from any financial analyst? It’s not, except for the fact that the analyst does more complicated math (and justifiably gets paid more).
Rodger, MMT economists point out that using sectoral balances and functional finance alone without a JG will still leave considerable joblessness at the bottom unless the injection is from the bottom, e.g., a negative income tax such as was proposed by Milton Friedman. But most MMT economist think it is better to pay people to work than not to work.
Imagine, the MMT economists are more conservative than Friedman on this. 😮
Actually, they are not attached to the work ethic. Rather they hold that idle resources deteriorate so it is better to occupy them than leave them idle for any length of time. Employers apparently think like this, too, since the longer one is unemployed the more difficult it becomes to find work due to the lapse in one’s resume.
If not having a job for a significant period is any sort of bar to getting a job, how come teenagers (who have never worked in their entire life) manage to get jobs? Ditto for women who take fifteen years off work to raise kids.
There are good arguments for ELR, but I don’t think the above is a brilliant one.
Teenagers mostly get minimum wage jobs and/or those with little skill necessity. Same with most moms that take a break.
No offense, but your reply didn’t really refute anything, and Tom Hickey made a good point. A private sector employer doesn’t want someone with stagnant skills unless they are hiring for an unskilled job.
I hate to break this to you Nathan but a JG would be a de facto minimum wage because no one (legal resident) would work for less.
But what the hey, we are fantasizing here.
I wasn’t saying otherwise, I was only commenting on what jobs teenagers and moms who took a break mostly get.
I realize many people have lost faith in their governments, understandably so.
But if the government can manage to put people on the moon, I’m pretty sure we can manage a Job Guarantee Program.
If someone is able to work, and there’s plenty of work that needs doing, and the government is fully capable of putting them to work, why on earth should the government pay them not to work?
A fully employed population has lower healthcare costs, lower suicide rate, lower rate of addiction, lower rate of crime, lower rate of domestic assault, lower incidence of mental illnesses, lower divorce rate, etc….
The social and health benefits to the population would be significant.
Rodger, all very good questions. As I mentioned earlier in my blog, I think ELR’s just a part of more complete fiscal program for recovery, one that includes incentives for private businesses to hire local rather than outsource globally, to buy local rather than import their components, and realistically, a program that would include some trade restrictions and capital controls. There are only so many people who could be hired to teach, do caretaker work, and work in parks (which seem to be the bulk of JG). Private sector, when the economy is growing, will create more varied and sustainable jobs.
I’m far from an expert and I like the ELR however maybe it can be improved upon and you have raised many good questions, some which I had thought of.
Perhaps some kind of guaranteed minimum income would be a more elegant solution? It would be fair because everyone(over 18) would receive it and you may be able to get rid of welfare?? You could increase/decrease it a preset amount according to whatever the inflation rate is. As I said I’m far from an expert but I enjoy thinking about these things.
Just wanted to add that I am not against keeping welfare If need be. I just have no idea what kind of amount we would be talking about for the stipend? If the economy heated up or we started a few more wars(god forbid) the stipend may not be sufficient.
Tom, I like negative income taxes, of a sort. I wouldn’t pay people not to work; I’d pay them just for breathing. In 2008 the government sent every tax payer something like $500 (?) per person. It was way too little and way too late. Had they immediately sent something like $5,000 per person, the recession would have ended.
I don’t know why it is better to pay people to spend time doing make-work, than to allow them full time to look for work or start a business.
As a former employer of thousands of people, my take is that people who have been long unemployed have “something” wrong. I don’t know what, and since asking any questions of prospects is fraught with danger, I never will find out what. So, I just took the easy way out, and didn’t hire them.
Similarly, if someone came to me and said, “I’ve been doing make-work for the federal government,” I would count him as unemployed.
Rodger, the MMT JG is designed to hire off the bottom and not compete with the private sector. In aggregate it deals with anyone willing and able to work that the private sector doesn’t want at the moment. This generally means people of low knowledge-skill level and low motivation. While it would be open to anyone, the people that would actually be using it are those that get excluded from the system first and are the last to get hired back on somewhere in the private sector.
Mr. Mitchell, you should read Minsky’s Stabilizing An Unstable Economy (1986). He shows how welfare and not well-targeted fiscal spending is actually inflationary as the prices are pulled through – in the aggregate price level – in the markup (aka capitalist/firm profit). Your “bureaucratic fear” will keep you and us in everlasting austerity and neoliberal vulgarity; this “boogeymanning” eats away the social cohesion that the employed offer to society.
This would then be another reason, among others, to support and ELR. In other words, not doing so and continuing with welfare and the current “profile” of fiscal spending is actually adding to PRICE INSTABILITY and social incoherence.
That is, the NIT and paying people to just breathe is inflationary and is subsidizing consumption WITHOUT adding any real resources (human or other).
Your proposal sounds as if you are suggesting to allow people to look for work THAT IS NOT HERE OR THERE and to “start a business” for consumers who are NOT HERE OR THERE and ARE NOT SPENDING BECAUSE THEY HAVE NO JOB (“make-work” or not) AND THEREFORE NO DISPOSABLE INCOME.
Respectfully, that is whack.
What’s “well-targeted” about ELR? Sounds like giving any people (skilled or not) money for doing any sort of work (needed or not.)
An ELR assumes that we can come to an agreement, preferably by democratic process, on what we, as a society, would like to see, have, or consume publicly.
Not “Well-targeted” happens when we lack the ability to agree on socially desirable investment and pay people to “dig up jars of money we have buried.” That is not “well-targeted.”
It is a continuum Mr. Mitchell, the better we target fiscal spending and dollar destruction the more effective our private sector will be, the more stable prices will be, the more even income distribution will be, and the more poverty, in absolute terms, will be mitigated (social stability being a byproduct here).
An ELR is permanent. Your “stimulating” the private sector is another “pump-priming” device which has ALWAYS been a temporary solution to a permanent problem as MMT understands and takes into account in proposing an ELR.
Thanks again Mr. Mitchell.
This right winger agrees with you Roger but that’s because we have been in business and recognize wishful thinking no matter how well intended.
We should remind these starry eyed youngsters that a dozen or so government programs to put people to work exist today and we are still waiting for the programs to cure unemployment.
Can you enlighten some of us on just who would decide the wages, duration of these jobs (think census workers), amount of minimum wage, hours of work, benefits,tax exemptions for wages, transportation, rules of conduct, etc. on this new piece of Nirvana?
I do believe these people just want something to do and argue about proving on their duty and dedication to the MMT cause.
Oh yes, your $5000 would be a start. I remember posting here before I thought 10-20 thousand would do the trick. Hey if we are going to dream dream big. Let’s not forget that a conservative president, tricky Dick himself, signed the current but inadequate version, into law way back when we all our hair, teeth, and charisma.
And I do find it amusing that the left on these MMT sites believe that the right knows nothing about how our system really works.
We just believe that we have to keep the government out of our lives as much as possible. And we will stop any nonsense of the government hiring millions of new voters who will vote in the Devil to keep these schemes empowering control over us.
We have enough problems with the government and the corporations in bed together making sure that we can’t do squat without their permission.
Tom, sounds like yet another government program that excludes the middle class. It always seems to be the same: The poor get help. The rich don’t need help. And the middle is forgotten.
I’ve gone back to the original post and highlighted the approach I feel is much better than ELR.
The poor are not and have not gotten help. Welfare is not help. The government spending on the poor all the way back to the 1960s “War on Poverty” has been misguided and has not gone to the most in need. This is what Minsky talks about and what Tom refers to with from “the bottom.” Minsky actually says “bubble up” and NOT “trickle down.”
Again, government spending for the “middle” in the form of research, grants, military, etc. are inflationary and DO NOT trickle down. It’s got to “bubble up” ’cause it sure ain’t “tricklin’ down.”
Looking forward to the approach you feel is much better than ELR.
Thanks Mr. Mitchell.
See the highlighted paragraph of the post.
I saw it. “Flesh it out” without creating a bureaucratic structure to oversee all the private Capitals/Capitalists that are going to be pillaging the commons in making these wonderful blankets we can sleep in and wear while watching TV.
Are they going to build the road out to their factory? Are they going to oversee their own environmental remediation activity after dumping yellow dye in the water out-back the factory?
If they arbitrarily decide to start making hot dogs on the factory floor will they just oversee that activity too?
You realize you are subsidizing the narrow whims of individual profit maximizers and cost minimizers; this is just another trickle down idea that will not trickle down (see not “well-targeted” above).
If you want to build a middle class you have to pour a foundation for it (see Capital-Labor Accord, New Deal); you don’t just invite them to a party on the second floor.
I agree that a new private-public partnership is desirable but feel we have to start at both ends and engage in real resource creation, socialize investment, and “BUBBLE UP” first.
Thanks Mr. Mitchell.
After reading a few blogs on this issue, it seems that the concerns you, Cullen Roche etc, have is about the actual practical implementation of a Job Guarantee type program, more than the theoretical possibility of one. Which I can understand. Being a public servant myself, not to mention directly dealing with people who would be the target of such a program, I can see exactly some of the issues you talk about, and it makes me wonder how such a program could be put into place. I like the idea of a safety net job, it’s just how you could implement it seems difficult.
Maybe part of the problem is that the problem itself is so huge at the moment. With US & European unemployment rates into double digits, it truly would be a monumental task to try and give meaningful work to them all. But if things were going well, and unemployment was low, I could see a JG as a practical program to help some chronically unemployed people get back into the workforce. So perhaps we would be better off concentrating on getting the rest of the economy fixed and working before trying to implement such ideas.
I agree with you Roger (and I am for the ELR). Always best to do what we can now with what we already have (aka fiscal policy, etc.).
However will that be enough? And if it is not enough do we just accept a certain level of systemic UE? And if so what is that “acceptable” level? At that point isn’t it wise(r) to consider implementing a JG?
Heck here’s a thought….what if we paid people to get an education? What if the way we “employed” them was by teaching them and allowing them a space to learn? What if we “paid” our kids to go to school? Education is definitely a “commodity” worth “purchasing,” and learning is surely a “service” worth being compensated for….what if we could somehow combine our need to improve our educational skills with our need to handle UE, student debt, and aggregate demand? What a great idea?!?!!? I’m sure that if paid people for understanding calculus and European History and Hamlet and moles that our kids would have far more incentive to REALLY LEARN!!! I love this idea!!! haha!!!
There’s a detailed (and to a great extent over my head) discussion of a Job Guarantee proposal here:
It includes having the Job Guarantee bureaucracy replace the current unemployment benefit one, and would be part of a larger program to stimulate employment in the private sector. These features go some way to addressing your concerns.
He is an economist, not a businessman. He thinks of people as being similar to oil, where “buffer stocks” are maintained. But people are not homogeneous.
There can be no buffer stock of reformed felons, who are above 55, married with two children, have a bad back, college-educated in music appreciation, receiving a military pension, own dogs, lazy, want to live in Peoria in the summer and Florida in the winter and soon will be diagnosed with cancer.
The buffer stock idea is something only an economist could love, completely ignoring human uniqueness, desires and fears.
It’s easy to supervise oil. Less so with humans.
Two points. There is in no way that Dr. Mitchell thinks of people as oil. There is no way that he thinks of people as homogeneous. A key insight is that people are not homogeneous. Second, a scientist’s value add is the ability to examine and model experience as systems of agents, resources, relationships, outcomes, and dynamic interactions. It is clear that the amount of unemployed are a stock that rises and falls. The JG model proposes to provide employment to those unwanted labor resources.
All of the tragic characteristic you describe for a specific person with a bad back doesn’t change the fact that ex-felon sits in a stock of the unemployed and wants a job.
I think the strongest argument for ELR is that It is “intervention storage” or buffer stock if you like.
They manage all those people now who are ordered to do community service by the courts.
I wish MMT would drop their ELR idea. It really is unnecessary. The key for me is Govt deficits (that will help jobs) and Govt debt to generate pension savings. This I can sell. Especially less tax NOT more Govt spending (Govts spend enough already IMO).
ELR is an idea that was appropriate for the past but not today. I post about MMT and monetary sovereignty on many sites but completely ignore this aspect of MMT.
“There are differences however, among which are the prevention and cure for inflation ”
What’s the best article to read on this. I believe Govt bonds at the appropriate interest rate will stop monetary inflation but others disagree. But logically new bonds are another new asset so if the same money is chasing more asset the price of all assets will decrease.
Some discussion of the prevention and cure for inflation at: https://rodgermmitchell.wordpress.com/2011/04/18/how-monetary-sovereignty-differs-from-modern-monetary-theory-simplified/
Rodger Malcolm Mitchell
I wondered why.
I guess it depends maybe on asset (eg house prices) inflation or consumption inflation.
“MMT holds that increasing interest rates exacerbates inflation by increasing costs, and that the correct prevention/cure for inflation is to reduce federal deficits, with higher taxes and/or with reduced federal spending. “
You recognize that I disagree with MMT on this, right?
But I wondered why MMT had the viewpoint they did on this matter re bonds, reserves and interest rates. Now I know.
It made no sense to me as I agreed with your viewpoint
But maybe higher interest rates increases consumption inflation slightly (but not investment inflation)
Could this account for the different viewpoints maybe?
If ELR schemes involve little capital equipment, materials and permanent skilled labour, they’ll be hopelessly inefficient.
But if they DO INVOLVE significant amounts of the above factors of production, they become near indistinguishable from a normal or regular employer. Ergo, why not subsidise those low skilled people into work with existing employers? It would come to much the same thing.
Next, if unemployment is above NAIRU, unemployment is best cured by a rise in demand, as Roger points out in his 2nd last paragraph (in yellow) above. On the other hand, if unemployment is at or below NAIRU (which is where ELR really comes into its own), then you can’t order up skilled labour, capital equipment etc from the regular economy to get an ELR scheme going, because the effect would be inflationary.
I do wish the advocates of ELR would get their heads round that above two basic problems with ELR. I got my head round those problems, and hopefully solved them here:
Thanks to all who responded, especially you who disagreed with me. You have been very informative. Perhaps you are right and I am wrong.
I suspect however, that if ever we were to implement the MMT ELR solution, we would find a very big and very angry devil in the details.
Rodger Malcolm Mitchell
I think they prefer Job Guarantee (JG) now, rather than ELR.
1. What would they do: This is my main, only, really, concern. My idea is that it has to be something not being done now, and which won’t be missed when it stops.
That was when I had in mind our current situation, with 9% unemployment and lots more uncounted. In normal times, there will be only about 2 million in the JG program in our workforce of 140 million or so. And the number will be relatively stable, I think, compared to the cyclic variations in the unemployed number today, without a JG program. JG is a counter-cyclical program, like unemployment insurance, but much more potent because it will be more money per person, and it won’t expire. It should help smooth out the business cycle, and it’s automatic so that Congress can’t easily … err in the execution of it.
So, what they could do: training is one, my idea is to subsidize companies to hire entry-level Americans and train them, rather than trying to use H-1B Visas to hire already-qualified foreigners. US companies used to do that, but don’t so much anymore. Most expect to hire only skilled and qualified applicants, so that our recent college grads are having exceptional difficulty getting jobs in their field with no experience.
There are also existing volunteer organizations. The JG workers could do volunteer tasks at homeless shelters or other charity organizations. I spent a day, sponsored by my employer, sorting food that was donated. That sort of temporary help is needed daily by charities that collect food for the indigent. Habitat for Humanity is another where I have volunteered that uses people in fairly large numbers for a day at a time. There are many more.
There is an industry providing “day laborers” for all sorts of unskilled jobs in various industrial plants. In college, I would make extra money working for a day here and there for Kelly Labor, and got sent to local manufacturing plants, to fill in for workers who were sick or on vacation that day. JG could dispatch workers to such businesses, or to the charities.
JG should be run, I think, like Kelly Services was run. They open the door each morning and see who shows up, and match them up to the available openings. Yes, it requires a professional and permanent staff, which could be government workers or it could be outsourced to … people like Kelly Services, who have the expertise and staff to do it.
It is a large undertaking, finding work each day for 2 million people, but it will be very decentralized.
Judging by the weekly “new claims” and “ongoing claims” for unemployment insurance, the turnover of the JG workforce will be about 10% PER WEEK. this is not a good situation for long-term project work, like the WPA-type jobs.
If nothing is available, they can work on their resumes and apply for jobs.
2. Where are the jobs? They’re local. The JG worker has to be willing and able to work, meaning he has transportation, or public transportation is available. Everywhere there are people, there are jobs and needs (see #1).
3. JG pays a fixed wage, regardless of what work is done or the location. The pay is more than unemployment, and it includes benefits such as health care and child care. I think the cash wage must be less than minimum, but the total package will be more than minimum. It can’t be so high as to attract workers who already have private sector jobs, although it will put a floor under what private sector employers can pay if they expect to get any takers.
the pay is not indexed to inflation, and there are no raises or seniority. What JG does in MMT is provide full employment WITH PRICE STABILITY. By fixing the wage for JG work, wages for all other work are also limited, similar to how fixing the overnight interest rate tends to limit other rates. Other wages are, of course, free to vary as supply and demand for various skills varies, but it is not possible for wages in general to inflate very much, because the JG workers are available to fill open positions. And with wages more or less constant, prices are also not able to inflate much.
4. What skills? Nothing special. The jobs are nothing special. JG workers will not be dispatched to hospitals to perform brain surgery. Many workers’ skills will be “underutilized” while they are in JG. Not so underutilized as they are in the unemployment line, though.
Our current system limits aggregate demand (to avoid excessive inflation) by maintaining a buffer stock of unemployed workers. There will always be workers between jobs, because of having moved or their former employer going out of business. Aggregate demand management is a blunt instrument. You will always run out of some skills while others are in surplus, so even when the economy “overheats” due to a labor shortage, there is still that buffer stock of unused labor. JG just has them doing useful things, like charity work or day labor, or training or working on their resume, instead of sitting idle and collecting.
And it is counter-cyclical on the upside, too. As JG workers are hired into the private economy, government expenditures on JG go down, and taxes go up. Since we currently tax too much for the size government we have, there should be little danger of JG causing overheating. Even with the program fully implemented, we are going to need to cut taxes to reduce the JG workforce.
5. Who supervises? For the jobs that already exist, like Kelly or charity, the supervisors are already in place. The people running the JG program itself are full-time permanent government workers.
6 and 7. Who hires and fires? No hiring, anyone who shows up to work is “hired”. Firing is more problematic. How are government workers fired today? Little things like insubordination or lack of ability or attendance don’t seem to matter, sometimes. If you don’t show up for JG, and you’re not using your medical benefit, then you don’t get paid that day. I don’t see a great opportunity for fraud on the part of individual participants. Let’s say the ultimate client, the charity or Kelly or Kelly’s client, can send the worker back if he turns out to be inadequate, and when that happens he doesn’t get paid that day.
8. Private companies may be involved in using these workers as their own “buffer stock” to cover vacations and sick days, but JG workers will not be competing with private sector employees or employers.
9. (You didn’t have a 9, but you kept writing after 8) We still need bigger deficits to stimulate private employment. JG is not a substitute for that in any way. JG makes it less painful for those not employed in the private sector, and there will always be some, because of friction and the inevitable mismatch of skills to jobs when the labor market is tight. JG also functions as a “deficit meter”, so that the fluctuations of people in the program are an immediate indication of whether the economy needs more or less money creation (deficits), as well as being itself a powerful counter-cyclical force.
10. (for me). I just figured out my question: The charity jobs are what will not be missed when all the JG workers are hired into the private sector, because that means employment is up, and incomes are up, and there is less work for the charity organizations to do. They won’t need the JG workers, and the reason they won’t need them is because they are not available. It’s automatic!
You’ll like it. Trust me.
Most of your objections are commonly heard when ELR is discussed but were answered in a special issue of the Journal of Economic Issues in 1998, Vol. 32, No. 2. Please refer to that so your questions may be answered.
As I understand it, MMT claims that, in a boom, the decline of public sector employment and spending caused by workers leaving their JG jobs for higher paid private sector employment will lessen stimulation, so the JG functions as an automatic stabilizer controlling inflation.
My question is: Will workers leaving their JG jobs for higher paid private sector employment really prevent inflation?
Tyler, think of what causes inflation:
1. Oil prices are the primary cause.
2. Theoretically, excessive money supply could be a cause (though it hasn’t been in the past 40 years).
So ask yourself: Will workers leaving their JG jobs for higher paid private sector employment affect oil prices or money supply?
Perhaps it would affect oil prices. The tycoons would learn that JG employees were moving on to higher-paying jobs, and would raise oil prices accordingly.
The sad fact of the matter is that people hate the idea of others getting undeserved rewards. Yes, if you get a group of ten people together, publicly give 9 of them 20 dollars and one of them 1000 dollars and give them the choice of either going home with their winnings or voting to make sure that everyone got 10 dollars instead, a large number of them will take the latter.
It would be most efficient and best for the economy to just give everyone, even the lazy slob in his parent’s basement choking his chicken all day, $5000 without regards to merit. But you and I know that people would derp the hell out about that arrangement. And then you’re back to the problem of ‘is this going to result in people angrily throwing their paychecks back to punish the lazy slob on the couch?’? And I say that it will be. So you have to end up (after calculating for bureaucratic inefficiency and inertia and setup costs) give people in a roundabout way $4000 instead. It sucks, but just giving them the money directly was never an option.
Hence the make work programs. If nothing else, it’s to avoid people flipping out over inequity aversion. If you can’t get over that hump then nothing else you do will matter. Maybe in a hundred years or so.
You’re right. It is an often proved perversion of human nature. Not just human either. They have proved the same thing with monkeys.
However, people also become accustomed to “unfairness” if there is a rationale. The queen gets the best seat, and the movie star gets the best table, and people think that’s right. We just have to provide rationales.
“However, people also become accustomed to “unfairness” if there is a rationale.”
Human beings are barely able to tolerate societies’ ‘superiors’ perceived freeloading. Equals or, god forbid, ‘inferiors’ freeloading? People will seriously starve their own children, kill others, and even kill themselves to have that smug knowledge that the wrong sort of person didn’t get rewarded unfairly. And unfortunately, America sees a poor person — especially ‘deserving’ poor — as the lowest of the low. I don’t think that any sort of rationale is going to work anytime soon, even if you show them charts and figures that the 10 dollars that the government gave the illegal immigrant or released felon put 50 dollars directly into their own pocket.
While I think that FDR was vastly overrated, he was on to something when he specifically made citizens ‘pay’ for Social Security so that critics/debt hawks had the wind taken out of their sails. Even though in net terms it’s a hand-out (and an unfair one at that), people derp out much less about inequity aversion when they seem to ‘earn’ it.
That’s one of the reasons why that even though I think that FICA taxes need to be much lower, there should still be a symbolic FICA/Medicare/Education/Unemployment Insurance/Home Ownership/etc. tax that gets highlighted. You can and should make them much lower than that but you also need to give people a piece of paper that they can wave in front of other peoples’ faces to tell them to back off when jealous people start screaming about freeloaders.
That said, I don’t think that an ELR will necessarily be a big deal in the future. Yes, if we were talking about the 19th century where most people weren’t even literate, sure, but this is post-industrial society man. People can improve productivity and/or produce things that people want (like books, music, movies, television shows, etc.) with minimal consumption of resources.
That said, even if we do need to do something about the unemployed of the labor market, the various bureaucracies we have can function as a pseudo-ELR without having to resort to WPA stuff. In terms of increasing political riskiness:
1.) Reduce the years-until-pension/pension payout on various military services. You might want to start with the ‘riskier’ branches like the Marines as opposed to the Coast Guard.
2.) Lower the age on Social Security (or whatever your country’s pension system is called) by a couple of years every time there’s a recession.
3.) Increase the ranks of the law enforcement system. Everyone can get behind being tough on crime — I of course recommend increasing the ranks of non-police officers/patrolmen and focusing more on lab technicians, caseworkers, detectives, inspectors, etc.. You’re going to have to do something about police brutality, though, since that antagonizes the public..
4.) Have the military directly contract the government who in a bit of incestuous political theater will temporarily employ people I support increasing the actual size of the military just a little bit (which will have to be done in peace time) because grognards are always complaining about the next batch of soldiers being creampuffs and it makes a nice enough political cover. Increasing the ranks of the military lets you tighten standards without losing personnel.
5.) Increase the ranks of the primary educational system. I’d rank this lower, but, for some reason I cannot comprehend there’s an assault on education and teacher’s salaries. Which makes me go WTF, since for a democracy and/or a modern economy education is absolutely vital, but whatever. I say eliminate summer vacation at least for non-teenagers, decrease the size of classrooms, and increase the volume of extracirricular activities. And unless you’re going to pay them, stop that stupid student office worker mess.
Again, I’d like to stress that the purpose of all this is not to use money in the most freedom-promoting or efficient use (though honestly, several sectors of the government are so hosed up that it’s hard to imagine how paying people to improve them wouldn’t be a more ‘efficient’ use than just giving people checks), but to use them as efficiently as possible while not triggering the derp meters of jealous haves. Alabama’s ridiculous and tragic immigration fiasco has pretty much conclusively shown to me that yes, people are willing to impoverish their own children rather than let undeserving people get money that will enrich their own children. I mean, it’s always been like that, what with Clinton’s stupid welfare reform and #OWS’s tragically misplaced anger, but the immigration fiasco indicates to me just how far people will go to punish ‘cheaters’.
The JG is essentially the same thing as the gold standard, except instead of buying and selling gold to stabilize the value of the dollar, the fed buys and sells labor hours; the argument here is that by doing so one can have price stability and full employment. The problem with just printing the money to stimulate demand is that this can lead to inflation should too many dollars chase too few goods. The JG is supposed to stimulate production at the same time it stimulates demand.
OK, so the US government is the god of the dollar, why do we need to work? Can’t the god of the dollar just print enough for all of us? What am I missing here?
Yes, the god of the dollar can create enough for all. This leaves open several questions:
1. How much is “enough for all of us”?
2. How much dollar creation would cause too many people to stop being productive, thus negatively impacting the nation?
3. How much increase in the dollar Supply would cause an inflation the government could not prevent by increasing the Demand.
What we’re “missing here” is the answers to those three questions. The Ten Steps to Prosperity takes an incremental approach, to gradually answer these questions.
Don’t quote me as an authority because for one, there are many ideas regarding ELR, aka Federal Jobs Guarantee. I’ll give your questions a go by expressing the info that has stuck for me.
1. “What are the jobs?”
The jobs would come at the county level. Communities in the county would express what are needed or desired, creating a list. These needs and desired could be requested by constituents and prfessionals in various fields, and affirmed by city councils or vote. If a person has a talent which would benefit the community, or the nation, or the planet, it could be submitted to city councils or the county office where its benevolence could be considered and either awarded or not, with easier or more difficult hurdles depending upon availability of overall funds for the county.
If it’s decided that there are less available funds, a more restrictive list might include working at a local manufacturer set up to build solar cells, repair local roads, or working at home entering data or the modern equivalent of stuffing envelopes.
If it is decided funds are MORE available, a community might decide for instance cultural talents are desired and liberal arts might be valued. This could bring back much of our nation’s lost culture like bowling alleys and skating rinks which couldn’t survive the recent onslaught of new banks and pharmacies etc. A talented musician might be hired to enrich the experience at a local establishment or civic venue, or an inventor might have a breakthrough idea for energy storage that would be wise to further develop. Maybe a local facility provides the space and resources and his or her new battery puts us over the top for green energy. Or maybe his talent is best utilized if he just manufactures apparel from his home. Maybe she measures or counts trees in the forest to keep track of tree mortality. Everyone has potential for a product of some kind, obvious or not.
2. “Where are the jobs offered?”
Every county will adjust the availability of jobs to their circumstances. All ELR jobs would be relatively local and would reflect the region’s potential. This cuts way down on commuting, reducing the carbon footprint. That musician who previously traveled two hours each way to her minimum wage manufacturing job can now exploit her best talent, and the nixed commute saves emitted greenhouse gasses as well as saves her gas money and time. This makes her job green, even though it seems unrelated to green energy. Traffic gets better too; this saves both time and money.
3. What does each type of job pay?
ELR jobs would ALL pay a living wage. It seems that Sanders has opted for $15 an hour. I guess somebody needed to throw out a starting point for discussion purposes.
4. “What mental and physical skills are required?”
Jobs that demand higher pay for higher skills or harder work would be left to the private sector. People wanting more than the going rate of a living wage would keep or seek jobs that pay more, thus easing the demand of the program. Doctors and lawyers and such would not participate in the program, unless it is for altruistic personal convictions. If so, they’d be free to participate and work for the living wage. Living wage would become the defacto minimum wage.
5. “Who supervises each type of job?”
This would be the decision of the county office. If it were a qualifying manufacturing job, it would be obvious that the owner would create management positions. If it were a solo position, the county or city councils would need to approve custom methods of accounting for hours for each job. Regular auditing (quarterly?) would maintain efficiency in this accounting.
6. “Who hires?”
7. “Why are people fired, and who does the firing?”
The auditing process would include whether or not the position is achieving what it intended. A position might be terminated if a person deliberately didn’t perform or it is decided that the position no longer serves its purpose. Citizen complaints could be considered. If an ELR job is a subordinate job of a private business, that business could terminate the position.
8. “How does this affect private companies that provide the same products and/or services being provided by ELR agencies?”
If a private company is in direct competition with a ELR job and can’t compete because it doesn’t have a superior product or better wages, if qualified, it could restructure under the ELR program and get subsidized.
By offering government make-work jobs (to use your description), the GDP from all this new work would SKYROCKET. More GDP = more things to spend money on = an offset of the new money injected into the economy thereby keeping the scarcity of dollars and scarcity of real resources i.e. labor and steel etc in balance. A ratio between GDP and dollars could be maintained. If there is more demand for GDP, dollars are increased and allocated to counties based on real employment rates and population. If the ratio of dollars to GDP falls below what is determined as a healthy scarcity of dollars, more money would be evenly allocated to counties for the program. If real resources are maxed out, the government subsidies are backed off to keep this ratio in check.
Thank you for your suggestions, which, perhaps unknowingly, make my point. You have just described a system that undoubtedly would cure unemployment — because it would require employing the most massive bureaucracy in American history, involving many millions of bumbling bureaucrats making bumbling bureaucratic decisions all over the nation.
And what can I say about “a healthy scarcity of dollars”?
Please be assured that, per your request, I will not quote you as an authority.
By the way, now that both unemployment and inflation are at extreme lows, what is to become of MMT’s #1 program, the Jobs Guarantee? Does MMT have any other great ideas?
YES! Your eyes are starting to open. It would cure unemployment for those willing to work for a living wage. But that wasn’t your point, it was mine. As far as the biggest bureaucracy, this would mean that there would be that many more jobs to choose from; both for the workers and for the administrators of the system to be sure. We all need available work to access wealth for safety’s sake so this is a great thing.
As far as bumbling goes, I think you lost that point by ad hominem attacking pretty much our entire nation and what we could accomplish given a well-designed functional system, as well as our ability to create such a system. We have everything to gain and every reason to do so given the escalating desperation across the nation. By keeping the benefits of our capitalism while adding an element of cooperation at the low wage end of our economy instead of lions-and-lambs competition at every point, things would simply be easier, better, safer, and it would have much more potential than what we’re doing now. Easier and better makes for less bumbling and more efficiency.
Yes please, what can you say about a healthy ratio of dollar supply to GDP; in other words targeting a safe and efficient scarcity of dollars to prevent inflation while also promoting widely spread wealth re-creating the middle class? If we expand our dollar supply in concert with an expanding domestic product, we all have more wealth and we have more things to spend our money on. It primes the pump without making goods and services harder to come by so there’s not unhealthy inflation. Instead there is a thriving economy.
Unemployment and inflation being low aren’t the best stand-alone indicators of a responsible safe and healthy economy. We all know that if a person doesn’t qualify for unemployment benefits he or she isn’t counted in that statistic. We’ve lost much of our middle class, we still have a growing suicide epidemic as well as other deaths of despair, a homeless epidemic, desperation only worsens as wages shrink as compared to the cost of living, desperate parents struggle more while they take on multiple jobs for less money, and climate –induced migrations threaten global stability while we squander a window of time discovered by a worldwide scientific consensus in order to reduce climate effecting gas emissions by 45% over the next decade.
MMT, aka Chartalism, would have a myriad of ideas; our current system being one of them. It’s how we are currently utilizing MMT that is the problem. The FJG is just a more responsible and necessary way compared to today’s fiat currency favoring the richest with $700 billion bailouts while the ever expanding poor suffer.