Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. Until the 99% understand the need for deficits, the 1% will rule. 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.
At MMP Blog 50: MMT Without the JG? Conclusion you will find the last part of a discussion about Modern Monetary Theory’s (MMT) proposal for a Jobs Guarantee (JG)
Very briefly, JG would have the federal government guaranteeing a job to any person who wishes one. Here is what Professor Randall Wray (UMKC) said about JG:
(Disclosure: I know Professor Wray. At his invitation I spoke at his school, the University of Missouri, Kansas City [after he read my book, Free Money] and I agree with the vast majority of his MMT beliefs)
At the above link, you will see the following:
Let us move on to a conclusion of our discussion of the JG. The contentious issue is this: can one adopt MMT while rejecting the JG?
I had made the analogy between disease and unemployment: would any reasonable person who understands the cause of a disease oppose a cure? If you knew that a vaccination can prevent smallpox, would you oppose providing vaccinations (at least to those who want them—I do not want to get into a debate about forcing vaccinations as we have never advocating forcing jobs on those who do not want to work)?
Now I do realize this is not quite a fair comparison because it is possible that there are many cures for the disease of unemployment. MMTers advocate the JG cure. I am open to alternative cures. I just do not hear any coming from the critics.
In Professor Wray’s defense, he was not aware of my post, “Nine steps to prosperity,” where I listed these “cures,” not just for unemployment, but for many of the ills that beset our economy:
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
9. Federal ownership of all banks (Click here)
In the comments section of Professor Wray’s blog, I said,
“Unemployment is just a symptom of a deeper problem: A bad economy. It was the economic slump that caused the unemployment, not the other way around. Treating the symptom is a bad way to treat the disease.
“Another symptom: Homelessness. Shall we also have HG (Home Guarantee)? And then there’s the symptom: Hunger. Shall we also have FG (Food Guarantee)?
I suggest we treat the disease, not just the symptom, for a lasting cure.
Further on Professor Wray’s blog:
Some try bait and switch: Let’s give them BIG (Basic Income Guarantee) instead of jobs. That does not cure the disease of unemployment. It is like providing antibiotics instead of vaccinations to fight Polio. They then try to justify this on the argument that if we give people BIG, they can still choose to work if they want to. No, they cannot. There must be jobs. Certainly it is true that giving everyone antibiotics does not prevent them from seeking vaccinations. But the vaccinations need to be available. I’m not going to argue more about this—the argument is just too silly. Yes we can give people BIG but that does not give them jobs. If someone is involuntarily unemployed, she wants a job. BIG will not cure the unemployment disease.
After my comments about the recession being the disease and unemployment being the symptom, rather than the other way around, a reader treated me to a medical lesson on the definition of “disease.” That shows the problem with analogies. People start to argue about the analogies rather than about the case.
Anyway, a reader named Tom Hickey wrote this:
RMM, do you really think that economic policy is capable of permanently achieving full employment in the sense of (no involuntary unemployment) and price stability (no more than modest inflation that the central bank can live with) solely with stimulus, Rodger, i.e., exactly offsetting saving desire all the time?
To which I responded:
“Tom, I believe you’re missing the point — the same point MMT misses — when you ask whether monetary policy could achieve “no involuntary unemployment.”
“The goal of an economics program is not just to employ everyone who wants a job. All communist nations do that quite well. The goal is to solve the many problems in an economy, of which unemployment is but one.
“Randy asks, “If you knew that a vaccination can prevent smallpox, would you oppose providing vaccinations?” His analogy assumes unemployment is the disease.
“It is not. The disease is a weak economy, and one of the several symptoms is unemployment. Using Randy’s analogy, treating smallpox would involve giving aspirin for fever and aloe for the rash.
“I suggest that MMT makes a fatal error when it bases its cure on treating a symptom.
“There are other symptoms of a bad economy. Shall we treat those directly, too? How about homelessness? Shall we have HG (Homes Guarantee).
“How about the income gap between the 1% and the 99%? Isn’t that a big problem the JG doesn’t even approach? Shall we have a SITNTG (Sufficient Income To Narrow The Gap) guarantee?
“I say, treat the disease, which currently is a poor economy. Then, if there remains some unemployment, as well as other symptoms, determine what disease causes them, and treat those diseases, too.”
A reader named “Tyler” then wrote:
James Galbraith believes the disease is “unsupervised bankers and ambitious economists,” which he wrote in his letter to the Financial Times published May 2, 2012 as “Dr Summers performs a medical miracle.”
This made me recall Rodger’s blog post, “At long last, are we ready to end private banking?”
I wrote: “Given the question of whether unemployment caused the recession or whether the recession caused the unemployment, I think any honest person would agree on the later. Cure the recession and you cure the vast majority (but not all) the unemployment.
There still will remain some unemployment caused by other problems: A bad educational system? Young people needing to leave school to support their families? Previous history of incarceration? Different skill set needed? You name the cause, and that is what needs attention.
As for curing “accounting control fraud,” that might prevent some future recessions, but it probably will not cure this recession.
The very heart of communism was JG, and I believe that was one of its main weaknesses, too. The notion of solving a problem directly, rather than focusing on the underlying causes of the problem, is a naive strategy. If the causes remain, the problem will remain.
A reader named “Marley” asked:
What say you of an economy like Germany then, where you have very low unemployment but 20% of the jobs are these mini/midi jobs that pay extremely depressed wages since Germany has no minimum wage?
I responded: “Sounds like Germany has a form of JG. So tell me, exactly what wage will JG pay? Will it be minimum wage, which today is poverty level for most people? Will it be above minimum wage, so people will quit their minimum wage jobs and go to JG? Or will it be below minimum wage — really poverty level.
“The question of what wage JG will pay is nontrivial, and I know there has been much argument about this. But without an answer, what is left of JG?”
In the interest of space, I’ve left a great many of the arguments out. I suggest you go to the site, and read them. Interesting discussion. I’ll conclude my post with this. Tom Hickey said, in response to another commeter:
“Arguing the details prior to agreement on general principles is a waste of time.”
It’s a distraction. The argument is about macro theory and policy options that follow from it. After that policy formulations need to be developed for specific cases, such as the US and UK, where political systems and economic conditions are somewhat different, and strategies and tactics developed for implementation.
Arguing about tactics while the debate is at the theoretical and general policy level is silly.
To which I responded: “The general principle of addressing a symptom rather than the underlying problem is wrong. And the details (i.e., exactly what salary, exactly what jobs, exactly what locations, who supervises, etc., etc., etc.) are weak.
“I’ll be interested to see how all that is resolved. My concern however, is that JG has evolved from a solution to a problem, and now has a life of its own, to be defended, fixed, defended again, fixed again — rather than starting from the real problem: How to make the economy better for everyone.
“In this, JG reminds me of the euro, another “solution” that is defended, fixed, defended again and fixed again, that also has acquired a life of its own.”
Sad to say, some proponents of MMT have become so enamored with JG, they react quite badly to anyone who questions their beloved solution. It’s a shame, because I believe JG, and MMT’s refusal to see it clearly, detracts from MMT’s credibility.
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