–Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem.

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.
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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
http://www.rodgermitchell.com


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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

#MONETARY SOVEREIGNTY

30 thoughts on “–Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem.

  1. I quite like the JG.

    I like your economic proposals, as well, Roger.

    Why can’t we do both ?

    Say I become economic dictator and decide to implement your 9 Steps AND a voluntary JG at the same time.

    According to you, the 9 Steps would restore the economy and eliminate most unemployment. Great !

    A few people would remain unemployed or underemployed, primarily people of color (black unemployment has historically been twice the national average), people with disabilities, people with criminal records, people in rural areas, people on Indian Reservations, or people who are simply unappealing to employers because they’re a little odd. Yet these people would rather work than be on the dole. What would be the harm with letting them participate in the JG if they wished ? Surely you don’t object to SPENDING MONEY ? ? ?

    Your discussion of the JG fails to cover the inflation issue, or the interest rate issue, or the national debt issue. The JG is part of MMT’s response to those issues — a way to control inflation even with ZIRP and full employment, and without selling bonds to control interest rates as we do now.

    True, we have little data with inflation at full employment because we’ve never had full employment except in WWII, when there was wage and price controls, and rationing. Maybe inflation would not be a big issue ? But if it did rear its head, the JG would be one possible solution.

    Regarding the JG wage, Mosler long ago suggested $8 hour and full benefits, back when $8 bought more than it does today. Wray recently mentioned $12. I’ll add that the JG should include free day care, so that parents of young children can participate. Yes, McDonalds would have to offer equivalent compensation to compete with the JG. There would be an initial adjustment of wages and prices in response to the JG, then prices would stabilize (according to Mosler’s theory).

    Re: the Home Guarantee. FDR proposed such a guarantee (along with a job guarantee and a health care guarantee) in his 2nd Bill of Rights. He died before he could get it passed. It’s high time to revive it. There is no excuse for homelessness in the US.

    Re: inequality guarantee. Huey Long proposed this many years ago and it was very popular at the time. You could cap income (100% tax rate above a certain level), cap management salaries (a multiple of minimum wage or a multiple the company’s lowest wage), tax wealth, tax estates, etc.. I believe some of the N. European countries already do such things, and I think it is a good idea. You obviously don’t think it is a good idea, but there’s a lot of data supporting the social benefits of low inequality.

    Re: treating the symptom. Unemployment is not just a symptom of a bad economy, it’s also a symptom of bigotry, when people are not hired because of the employer’s personal biases, and a symptom of the inefficiency of the market, when job skills don’t match job openings. How do you propose to treat the root causes of bigotry and market inefficiency ? And what are unemployed people supposed to do in the meantime ?

    As someone who has experienced long term unemployment and underemployment at times in my life, I would have really, really, really appreciated a JG during those times. Not just for the money, but also for my self esteem and for my work record. Being unemployed sucks, and being underemployed is only slightly better.

    That said, I can see how a JG could and probably would be screwed up under conservative management, turned into mandatory slave labor at starvation wages and in dead end jobs. A proper JG should be totally voluntary and it should offer opportunities for learning new skills and for utilizing existing skills, not just grunt work.

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    1. “A few people would remain unemployed or underemployed, primarily people of color (black unemployment has historically been twice the national average), people with disabilities, people with criminal records, people in rural areas, people on Indian Reservations, or people who are simply unappealing to employers because they’re a little odd.”

      Many black or disabled or former criminals or rural people or Indians are employed. So the question becomes, why are they employed while others are unemployed?

      Perhaps the reasons have to do with better education and better work skills. There may be other reasons for the difference, too. One problem with JG is it’s a broad brush, one size fits all approach, that does not take into consideration the reasons for unemployment.

      Another problem is the notion that government can be a good employment agency. There are many, many devils in those details.

      Sorry, but I don’t understand the relationship you mention between JG and inflation. Please educate me.

      One final note: Professor Wray asks whether there can be MMT without JG. The answer is, “Yes.” It’s called Monetary Sovereignty — almost.

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      1. Why are they employed while others are unemployed ? There’s this stuff called statistics. If you hide 50 easter eggs around your lawn, and then send 100 kids out to hunt the eggs, at least 50 kids will fail to find a single egg. Should we blame the eggless kids ? Perhaps the eggless kids have educational issues, or poor egg hunting skills ?

        There have been many studies done on racial discrimination in the hiring process, proving that employers do indeed discriminate based on race (not to mention appearance, gender, religion, and all those other things they’re not supposed to consider).

        http://www.epi.org/publication/webfeatures_snapshots_archive_09172003/

        Of course there can be MMT without JG — but you won’t have full employment, and you’d probably have to sell bonds to control interest rates, in order to control inflation. That’s not the end of the world, but neither is it the fully employed, debtless wonderland that MMT envisions.

        (Getting off topic, I see no reason why MMT could not function without free trade, even though most MMT’ers advocate free trade as a policy prescription.)

        You surely have read the MMT literature explaining the theoretical relationship between inflation and the JG ? Before you say it, I acknowledge that the relationship is “just” a theory, like so much of economics.

        http://moslereconomics.com/mandatory-readings/full-employment-and-price-stability/

        Agree that the details of the JG matter — it could be made into a wonderful program, or a horrible program, depending on the details.

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        1. “Why are they employed while others are unemployed ? There’s this stuff called statistics.”

          Ah, so it’s just a random, luck-of-the-draw thing. No real reason for it. I never knew that. Silly me thought that some, for instance, black people, were more employable than others.

          “Of course there can be MMT without JG — but you won’t have full employment, and you’d probably have to sell bonds to control interest rates, in order to control inflation.”

          1. We already have MMT without JG — have had it since 1971. It’s called Monetary Sovereignty. So where is the inflation?

          2. Short term rates (the important ones) are determined by fiat, by the Fed. Selling bonds does not affect reduce inflation. It merely transfers dollars from checking accounts to savings (T-security) accounts.

          3. “. . . depending on the details.”

          Isn’t it amazing that so many people are absolutely positive JG is a good thing, and no one can agree on the details? With a program like JG, the details are everything.

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    2. Agreed, Treat the symptoms until the disease can be cured. Use aspirin to reduce the fever while the antibiotic takes care of the infection. Use drugs to reduce the pain before and while recovering from the surgery.

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  2. While I favor a number of your proposals, I believe your underlying reasoning being that it was first a sick economy and then unemployment is disingenuous or at least a cyclical argument in nonsense. The issue is insufficient aggregate demand and it started long before the Great Recession hit with a couple decades of stagnant wage growth due to off-shoring, automation, lost labor power,all of the above or whatever poison you believe took away sufficient income growth from 90% of the people. And these people wanting to maintain lifestyles even in the face of stagnant wages became the cannon fodder of the ‘financialization’ of our economy; taking on unsustainable debt, leading to the Minsky Moment and crash, and now savings (de-leveraging) instead of spending, leading to the lack of aggregate demand, etc. etc. – you know the story better than most.

    A number of your suggestions rely on the trickle-down of giving tax breaks or even stimulus spending at the top end “job creators” and hoping it makes it down to the little people so as to stimulate aggregate demand once again – the approach has been proven very inefficient even before all the cronyism and corruption took root that you now rail against. Others of your suggestions play right into the hand of the sociopaths that see the unemployed only as parasites. It’s not that your heart isn’t in the right place, it is that you are not thinking completely through the entire macro/micro economic, political, social and psychological aspects. There is more to fixing what is wrong with our economy, our society, than just pointing out that the feds can to deficit spend a lot more.

    Federal block grants to communities do not result in federal govt jobs and they do not grow the federal govt. In fact, a jobs program would replace much, and take advantage of the processing structure, of existing fed programs like unemployment benefits, food stamps.

    It would not be for “make work” jobs unless you consider putting a teaching assistant (who in this economy likely holds not only a teaching degree but has some experience) in over crowded classes. It would not be “make work” to provide a care provider to the aged, sick or disable who are otherwise “shut-ins” depended on the time available from family members already stretched and stressed with putting food on the table. It would not be “make work” to get some additional firefighers in stations that now have limited ability to respond to emergencies in their communities. It would not be “make work” to provide some maintenance workers to maintain our often crumbling infrastructure. It would not be “make work” to provide additional security for kids walking home from school or playing in our parks. There are a myriad of community needs out there that could be fulfilled by a JG program; to see them as “make work” is more a question of one’s own value system.

    Again, someone who only sees that we only need to get everyone to understand that tax cuts and handing out money is the solution is someone who is going to be very frustrated for a very long time.

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    1. I had difficulty following your polemic about the economy being sick before the recession. Actually, recessions cause unemployment:

      Monetary Sovereignty

      Always have; always will. That’s why the first line of defense against unemployment is to prevent recessions and the first cure is to cure recessions.

      You said, “A number of your suggestions rely on the trickle-down of giving tax breaks or even stimulus spending at the top end “job creators” . . . ”

      Really? Which of my nine suggestions were aimed at the top end “job creators”?

      Then you said, “Others of your suggestions play right into the hand of the sociopaths that see the unemployed only as parasites.” Hmmm . . . Which suggestions are those?

      Man, I just love when people attribute to me, their own biases.

      Finally, your entire “It would not be make work” paragraph assumes government bureaucrats could train, then match millions of people to those millions of different jobs. Good luck with that. Your comments are examples of why I believe JG is pie in the sky.

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      1. I didn’t say unemployment causes recessions; I said lack of sufficient aggregate demand derived from stagnant wages lead both to unsustainable debt accumulation as a substitute for wage growth and to the inability of private sector alone to sufficiently and sustain ably recover from the economic contraction. Under-employment, non-participation, and reduce labor bargaining power as well as actual govt-measured unemployment can all result in lack of income growth for the majority of the population and impact aggregate demand to a much greater extend than just about anything that might happen to the upper income classes (e.g. drop in market wealth, increase taxation). The JG not only counters the lack of wage growth by direct employment but indirectly by putting a floor under wages for ALL employment.

        Regarding “trickle down”: half of all payroll taxes are paid by employers; one would have to assume that said employers will pass on their savings form FICA elimination to the employees or that the employer will invest those freed-up funds in increased production and hiring – that is trickle down. That would be true of your corporate tax relief. While not specified, your “federal spending on the myriad initiatives” would likely include a heavy dose of infrastructure spending; while certainly needed on its own merits, from a macro perspective, you are relying on the winning engineering firm bidders to “trickle down” the funds to construction and support workers. Nothing wrong with that, but it has been shown to be less efficient than supposed; actually much less effective than in the past due to automation and productivity.

        I actually support your FICA and “myriad of initiatives” spending suggestion although I am somewhat agnostic of your corporate tax one; my support doesn’t change their basic nature of hoped-for trickle down, however.

        My bigger concern is those that play into the hands of the sociopaths’ whining of ‘somebody getting something for nothing.’ All of your remaining suggestions are easily if not obviously candidates for such labeling. What is the political viability of such spending today?

        MMT’s deriving of the JG prescription is not just based on an understanding of the ability of a monetary sovereign to “afford” it. It also has something to do with setting that floor under all wages. Perhaps more importantly, there is also the consideration of what is politically possible. Making people work for a living, instead of getting “free” unemployment benefits or “free” food stamps, could actually appeal to the sociopaths even if by labeling as such makes you and I want to puke. We should have no moral problem with conning sociopaths.

        Regarding job matching: I have faith that simple block grants parcel out to 10s of thousands of counties, cities, townships, school boards, etc can do it. Let communities decide first what they really need, then let them advertise that need with $12/hr offer – in this economy, the lines out the door of applicants will give you all the matches you want. When that’s done, go down your list of actual needs until you run out of applicants. I’m pretty sure just about any jurisdiction is going to run out of applicants before they run out of needs.

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        1. Bob, you said, ” . . . lack of sufficient aggregate demand derived from stagnant wages lead both to unsustainable debt accumulation as a substitute for wage growth and to the inability of private sector alone to sufficiently and sustain ably recover from the economic contraction.”

          I say, recessions cause unemployment.

          I see you’re still fixated on “sociopaths.” You don’t want even to attempt to do what’s necessary to grow the economy, because you just know those dang sociopaths won’t let you.

          Is your block grant idea yet another version of JG? It seems to have as many versions as supporters — which is one of my many concerns about JG. It’s a buzz term searching for a coherent plan.

          By the way, what is your definition of full employment? It may not be what MMT says it is.

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        2. From just a macro perspective, putting aside the unemployed as a standalone issue, what is important is that lost aggregate demand is what causes economic contraction AND what stands in the way of the resumption of growth.

          From that perspective, your solutions (e.g., tax cuts,infrastructure projects) are to essentially rely on those employed or employers to sufficiently grow the economy by their spending or hiring, respectively, as a result of your solutions providing more dollars in their pockets. The degree those dollars trickle down to employing the unemployed, you seem to be either saying that will be sufficient (one of your objectives is employment) or that will be just icing on the cake (employment is not your primary objective). From purely the macro perspective, it doesn’t matter which for the macro question is whether or not your solutions offer to provide more aggregate demand to grow the economy vis-a-vis the JG.

          Looking at the top incomes, it is doubtful your solutions of tax cuts would result in much increased spending; more likely they’d just wind up buying more T-bills. The question is does that apply only the to the top 1% of incomes or 5%, or 10%. One would need to know to what degree your tax cut solutions would only result in increased savings by top incomes before one would have any idea of what those solutions would add to increased aggregate demand.

          Under that top 1% to 10% or whatever, you have a vast array of households with incomes, but the primary reason for the recession is the bursting credit bubble (and resulting lost of spending/demand). Households, on net, our currently saving (not spending) primarily because they are de-leveraging their massive debt overhang – that is going to go on for years. What percentage of your tax cuts are going to go to savings and not to spending, and therefore play no role in increasing aggregate demand?

          These are huge questions surrounding your proposals. They are, however, not with the JG proposal. There can be no doubt that little or any of the funds flowing to those employed by the JG will be saved. One can assume that any federal expenditure on JG will go dollar-for-dollar into the aggregate demand and help grow the economy. That cannot be assumed for most or all of your proposals. That is a huge hurtle for you to overcome before suggesting that your proposals are superior to that of the JG based solely on potential for macro economic growth.

          As noted in my prior post I believe you also have some very basic misconceptions of the JG proposal; more specifically, the environment that it would operate within. I will save that discussion to respond to your other more recent post of the JG.

          Here, however, I would like to note that it is a very weak argumentative point to attempt to discredit the JG proposal because there does not exist a single canon as to all its specifics. The JG is a prescriptive aspect of MMT and, as with any such prescription, subject to the political process. I hate to inform you of this, but even the President’s prescriptions have had, well, somewhat of a rough time avoiding some variations on the theme; can you imagine, the Congress has actually turned him down on some of his suggestions! If you want purity, you’re in the wrong arena.

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  3. Rodger, I think you are missing the point in rejecting the MMT JG as macro solution that replaces a buffer of (involuntary) unemployed with a buffer of (voluntary) employed, while creating a price anchor. The MMT JG is not designed to do anything other than those two things, i.e., provide a job offer for anyone willing and able to work that cannot find employment in the private sector and established a tether for fiat currency by tying it to an hour of unskilled labor. Will this by itself solve the issue of inflation? MMT doesn’t claim that. Will it solve other social problem that are involved in unemployment? MMT doesn’t claim that either. In fact, I would say that all of your solutions can also be incorporated as part of an MMT-based policy formulation, but without the JG, the issue of involuntary unemployment remains unresolved. So I don’t see it as an either-or situation but rather as a both-and.

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  4. They are using MMT to justify the JG which is far more important to them. The fact that they excommunicate any MMT advocate that doesn’t support the JG should be seen as proof that they’ve put the cart before the horse. A strong economy pulls the rate of employment along with it. if JG jobs are not productive you’ll likely get inflation, not a better economy.

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  5. I find your vehemence in rejecting the JG puzzling. Nobody said JG was the only policy that a government should use, but it could have no role in making a better economy for all? Is it something to do with a picture you have of big government in boots, which orders people about? But who said that the feds would decide which jobs need doing?

    In the UK we already have a whole legion of government bureaucrats and subcontracted, so-called private companies (whose entire income is paid by the government), all devoted to cajoling, humiliating and blaming the unemployed for their condition. Statistics seem to show that being “trained” by these charlatans decreases your chance of getting a job. At the same time our slithering prime minister has called for charities and volunteers to create a “big society” and take over the libraries, parks, care of the elderly that we “can no longer afford”.

    The charities might well retort that they were the big society already and could have done these things if the govt hadn’t axed the money for the local councils that used to help with their funding. And the unemployed people would point out that if they used their free time to help a local charity then their benefits would be cut off because they would be counted as “not looking for work”. And if you were to find a part-time job then for every pound you earned the govt would take it right back again by cutting your benefits.

    A JG is not so hard, Rodger, with no Stalin required – just connect the local councils and charities with a supply of money and the unemployed people who want to help out. If you help out for an hour, then get paid for that hour. Work two hours, get paid for two hours. The more you work, the more money you get to keep. Let the charities and local people sort out what needs doing, goverment just supplies the money. People know how to employ people already, no need for additional government commissars. If employers exploit or take the money and run then there are police and courts and laws for that already.

    I wouldn’t expect perfection, just a government policy which recognised that unemployment can be involuntary and made good faith efforts to finance and help rather than just to make cuts and hinder. These are “emergency jobs” we are talking about, not careers. Stuff to do for people who want to apply for a better job with something on their resume other than “rejected from a dozen interviews”.

    Minimum wage laws are a joke for compliance, so make the dole a bit less awful and so give people more power to walk away from nickel-and-dime employers who offer bad jobs for bad pay. Scrooge will have to pay more or make his jobs suck less, or he will lose his workforce. That is not a bug, it is a feature.

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    1. “Let the charities and local people sort out what needs doing, goverment just supplies the money.”

      Is this your version of JG, Randy Wray’s version, or is it some other MMTer’s version?

      I’m beginning to suspect JG is a giant buzz word umbrella under which everyone places his own ideas. It’s like believing in a religion in which you get to pick your own god.

      One of my main criticisms of JG is the lack of specificity, the failure to address the devils in the details. Heck, last I heard, MMTers were still arguing about the pay scale, and that’s one of the major issues.

      You want to pay more than minimum wage. So what will happen to minimum wage jobs? Or is it your opinion there should be no minimum wage jobs? Isn’t that an issue requiring some extensive investigation?

      For instance, if JG pays more than minimum wage, that would force an increase in the official minimum wage, at which time, JG no longer would be paying more than minimum wage! Then what? Ever think of that?

      The people who favor JG seem to have no respect for the monumental difficulty of matching people to jobs and all the detail involved. It’s just “Give people jobs. Problem solved. What’s next?”

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      1. A JG would replace the minimum wage (and also set the standard for minimum benefits). Your comments suggest that you have not read the literature — see Warren Mosler’s “Mandatory Readings” and “Proposals.”

        I have my own vision of the ideal JG, a little different than Warren’s or Randy’s JG, but ultimately it will depend on the politicians who legislate the JG and the executive branch staff who execute the JG.

        Actually, I’ve thought quite a bit about the monumental difficulty of matching people to jobs, especially in rural areas where the JG program will be of a small scale. You’re not going to get a 100% match. All they can do is try the best you can.

        This is no different than what has been done in the armed forces for a long time — they give you a bunch of tests and evaluations and then you are assigned a specialty, depending on your test results and their staffing needs. You may ask to become a fighter pilot, and instead be assigned to kitchen duties. But for the most part, the military seems to do a satisfactory job of personnel assignments, certainly no worse than what goes on in the private sector. I don’t expect the JG job matching would be any better or worse than military job matching.

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        1. ” . . . ultimately it will depend on the politicians who legislate the JG and the executive branch staff who execute the JG.”

          Translation: Why worry about specifics? We’ll just pass a law, and later the politicians can decide exactly what it is we passed.

          By the way, I’m asking everyone the following question: MMT wants “full employment.” Statistically, what is your definition of full employment?

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      2. Have you applied this benchmark of specificity to your own suggestions?
        For example, the $5K per head to each state; is that for them to sweeten the pie for billionaires promising to build huge sports arenas or casinos or to invest in Facebook stock to shore up state employee pension funds? Paying kids to go to school; what about those who already went to school with or without student loans now burying them – what’s fair, what’s the cutoff? How do you avoid unconstrained inflation in the cost of education when school administrators know there is no limit?

        We all generally agree that inflation is the constrain on unlimited spending by a monetary sovereign; have you worked out what taxes you’ll bring back or what spending you’ll cut if and when inflation does become a concern?

        Do you really think your suggestions would have less monumental difficulty in actually passing the Congress than the difficulty of communities matching applicants to jobs paying $12/hour? Maybe your thinking about a different Congress than what we have or likely to have for some time to come?

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  6. “. . . tether for fiat currency by tying it to an hour of unskilled labor.”

    Tom, excuse my ignorance, but I have no idea what you’re talking about, and no idea why our fiat currency needs that thing you call a “tether.”

    I never said anything about “solving the issue of inflation.” I don’t even know the inflation implications of unemployment. I see no relationship:

    Monetary Sovereignty

    “. . . without the JG, the issue of involuntary unemployment remains unresolved.”

    Really? Odd how unemployment goes down following every recession. Could JG have been solving it? Or are you claiming it was all voluntary employment during recessions?

    JG is one of those broad brush ideas that probably began like this:
    “We have too much unemployment.”
    “Hey, I have an idea. Let’s have the government give everyone a job.”

    Lots of deep thinking, there, especially if you ignore the devils in the details. Personally, I prefer to look at why there is unemployment, and attack the underlying problems, not just the symptom.

    Right here, why not make a list of all the reasons for involuntary unemployment. Look at the above graph for a hint.

    Then, once you have your list of reasons, we can solve the problem sensibly.

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    1. MMT does not disagree with the gist of your suggestions for fiscal policy to drive the economy. MMT does not disagree with the gist of your assessment for the underlying problems for changes in unemployment and recessions.

      I do disagree with your attitude toward persistent unemployment. Discrimination and localized lack of opportunity are very real.

      Unlike you, MMT does have a plan — a theory — to create full employment without excessive inflation. Maybe the MMT theory is a good theory, or maybe it is all wet. We won’t know for sure until it has been tried.

      Without a JG, how do you propose solving the persistent unemployment problem on the Pine Ridge Indian reservation ? How do propose solving the persistent unemployment problem in the Mississippi Delta ? How do you propose solving the unemployment problem for the 50+’ers who are stigmatized from long term unemployment after being laid off in the Great Recession, and discriminated against because of their age ?

      Your fiscal policy suggestions are great for the overall economy, but when Silicion Valley has 0% unemployment, the heartland may have 6% unemployment, and Pine Ridge Indian reservation may have 50% unemployment. A JG would help with localized and individual cases of persistent unemployment, MS does not.

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  7. Agreed that unemployment is just a symptom and that the underlying problem is a weak economy. However, I believe some MMTers have argued that jobs will help create a stronger economy, i.e. jobs come first, leading to a more robust economy later. Sounds a bit like supply side economics but today there are no Henry Fords willing or able to provide jobs. In steps the govt JG instead?

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    1. “. . . jobs come first, leading to a more robust economy . . . “

      But in actual fact, jobs do not come first. Jobs are derivative. That’s why unemployment keeps dropping, dropping, dropping after a recession ends, then suddenly, when we have a recession, unemployment zooms up.

      Employers tend to fire people after business has begun to turn bad.

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  8. This all truly is amazing. Every commenter on this blog, and every commenter on Randy’s blog, is absolutely positive that JG is a good idea, yet no two seem to agree on exactly what that idea is.

    One guy wants charities to do it. Another guy wants “government service jobs.” The salary can either be above, at or below minimum wage, depending on who’s talking. One guy wants to hire 8 million people for service jobs and pay them $12,500 per year!

    Eight million new hires, plus continual replacements? Plus training? At $12,500 per year? And this was a serious suggestion. Yikes!

    Truly sad, for MMT, an accurate description of the real workings of the economy, to be demeaned by such pie-in-the-sky, fairy dust as JG.

    Please continue adding your unreserved certainty to this list of comments. I may not respond to everyone.

    As often has been said, economics is more a religion than a science.

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    1. Exactly. That is why we have local governments and Vermont town hall meetings. On the one hand you are criticising JG for being tantamount to communism, on the next demanding a complete command-and-control list of do’s and don’ts that would be part of some monster federal spaghetti bill. Is this also why you have such trouble with the Occupy movement? Ask ten citizens what is their problem and what is their solution, and you will always get ten different answers.

      It is for federal government to distil these ideas into a broad aim and a framework of funding and accountability but to allow local democracy to flesh out the details for their particular situation.

      That is also why we have the concept of pilot programs. Start small with proof of concept, find what works and roll out wider. I would say to start with charity & non-profit because I don’t like profit-making firms using government subsidy to conceal their low pay.

      My point is also that there are already lots of programs which purport to help the unemployed. They often fail because they expect to train people for jobs when there are no jobs. There is also already a network of charity, local government and non-profits which are always in need of extra help. They are failing because their funding has been cut. So the skeleton of a system which might actually work is there already.

      The aim is a major change in government attitude to truly promote full employment by whatever means prove workable. At present they are not doing so.

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    2. RMM,

      I think you raise a lot of good points in your criticism of the JG and of JG supporters. But I also think you’re being unfair by ridiculing how no one seems to agree on how the JG will operate …

      The same criticism could be leveled at advocates of expansionary fiscal policy. Jim wants to lower taxes. Shelly does too, but only on the middle class and poor. Jason thinks tax levels are fine, but thinks the U.S.Government should build infrastructure when it injects money into the economy. etc.

      These hypothetical people all agree on expansionary fiscal policy, but disagree on how it should be done. Likewise, it seems many supporters of the JG agree the U.S.Gov should be an employer of last resort, but they disagree on how, and what jobs, etc.

      Criticizing the JG is fair game. More than that.. it ought to be criticized. If supporters can’t defend the policy from reasonable criticism, then we ought to take a few steps backs and doubt the idea.

      But again, I don’t think it’s reasonable to criticize the JG on the grounds that supporters have wildly different ideas of how it would operate.

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  9. Prof. Wray’s logic is useless. He argues that because JG seems to be a good “cure” for a one set of economic / labour market problems, and JG a good cure for a different set of economic / labour market problems, therefore one must accept JG if one accepts MMT. False logic.

    Aspirin is widely regarded as a cure for headache. Caffeine is widely accepted as a cure for drowsiness. It is patent nonsense to claim that because one accepts the former proposition, therefor one has to accept the latter.

    The arguments and evidence for caffeine as a cure for drowsiness have nothing to do with the arguments and evidence for aspirin as a cure for headache.

    I wrote a paper on JG recently (URL below). As far as I remember I didn’t mention MMT so much as once.

    http://mpra.ub.uni-muenchen.de/19094/

    And the folk who cannot get their heads around the above point have absolutely no chance of understanding some of the more abstruse points and arguments relating to JG.

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  10. The Fed actively tries to raise unemployment when it gets “too low”. When unemployment falls to four percent, millions will still be unemployed and the Fed will try to increase that number.

    We’ve got to find a way in which everyone who wants to work, can. Maybe the Fed should lower its unemployment target to two percent.

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  11. Regarding your claim that recessions cause unemployment; That implies that recessions are something other than a decreased number of transactions for new goods in a marketplace.

    As I’ve always understood them recessions are what we call a period of reduced sales, and this is reflected in GDP. Obviously when businesses nationwide are selling less of their stuff than they expected to sell they need to make changes. Some of these changes are laying off sales people or others, some of these changes might be trying to enter other markets and some of these changes might be lowering the price of their product to attract those customers who buy mainly on price. The question still remains; why do sales suddenly drop off economy wide? Are all recessions just balance sheet phenomena? Are there not “real” components to recessions?

    So while your claim may be true in one sense, it is also true that the mass laying off of employees makes the recession into a downward spiral, so its also true that unemployment “feeds” further recession. Unemployment and recessions are inextricably linked and must be dealt with together and AT TIMES one must take the bull by the horns and simply say “No more unemployment” to stop the downward spiral.

    All nine of your suggestions are ideas I am 100% behind but if you think that a JG would be a political fight try getting numbers 1-5 on your list to even be discussed as a whole.

    Im not a hardcore JG type (I dont think….. maybe I am) but to me its very simple, asking the private market to hire everyone that wants and is capable of doing productive work is going against the basic principles of free enterprise. Free enterprises looking to make a profit should always be about doing the most with the least amount of people. If they are always working towards doing more with less they will always be working towards laying people off, this is where a type of JG should step in in a modern capitalist economy.

    Im actually all about scrapping our capitalist model altogether but im not ready for THAT war………………….yet!

    I think humans have accomplished quite bit with a varying number of political and economic systems and America is one of about 3-5 places I would consider living but I dont hold its overall system in as high esteem as others do. We’ve had some great ideas and some not so great ones (Chicago school economics being one of the worst ideas ever conceived) but I still hold out hope that Americans will be pragmatic when push comes to shove and live up to Winston Churchills quote ” America always does the right thing…. after they have tried everything else”

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  12. I think 0 % involuntary unemployment is a paradox. Can’t and never will be w/o a JG.

    Private sector needs some type of employment level flexibility in order to have the ability to shift workers to more efficient or profitable industries without triggering inflationary wage pressures.

    Secondly, upon approach of near full employment….tax revenues rise. Stabilizer spending adjusts downward. And typically, the CB raises interest rates over inflation concerns. Aggregate demand weakens and the result is new unemployment. You might argue that continuous fiscal adjustments could keep ag ramped up….but the government does not have the means of making such dynamic fiscal adjustments w/o fixing the price and floating the quantity of spending, which is what the JG does but without waiting on a feedback loop to employ people competitively.

    It’s about acknowledging that any point some of those able and wiling to work are offline from taking a competitive private or public sector position, and not trying to force things otherwise, and it makes sense to have these people doing something for their own betterment and society’s instead of doing nothing.

    So having an employed JG reserve army allows for the private sector’s employment flexibility, while tethering fiscal policy to demand for employment, and attracting entry level job seekers and the voluntarily unemployed to the new employed reserve pool and intimating them in work, which BIG does not do.

    Price stability and full employment.

    I prefer a variety of JG approaches. I think the federal government and subnational governments could run their own programs, alongside or in partnership with NGOs. And I believe limitations, if not a prohibition, on Treasury funding of operational employment costs is in order for sake of moral hazard reasons. All the US Treasury should fund is payment to the workers, per further act of Congress. Even at the federal level, JG agencies could be made independent currency users with operational costs subject to the revenue constraints of a taxing authority or general revenue authorization, and disabled from borrowing. My preference would be for subnational governments to take the lead over the federal government, but I would prefer NGOs lead over government, in general. I could even see for-profit companies operating their own JG non-profits (think AT&T funding an environmental cleanup crew in the town of its corporate headquarters).

    Private sector employers and every level of government would maintain an interest in maintaining the integrity of JG payments for actual community service work. Failure to do so could warp the wage-incentive structure and competitiveness of local economies. JG employers would be subject to audit at the various levels of government. Applicant employers would agree to project deadlines and raise their own revenues for operations (or with taxing authority in case of governments). Additional payments or earnings to workers, on top of JG wages, would not be allowed. Positions that require extra incentive to staff would not be funded partially by JG spending. Dual roles in the same JG employer as both salaried manager and JG worker would not be allowed. I would open a restrictive window for allowing anyone to take a JG position, i.e., the currently employed, but only when there is a JG position surplus to accommodate choice and variety in the selection of a JG position by those currently unemployed. That is not to say, of course, that JG workers could not be fired. Individuals could still voluntarily unemploy themselves, and positions could close or fill up, requiring individuals to seek another position with another JG employer. In order to maintain the “guarantee,” governments would have to step in to create JG employment opportunities for undesirables, and to insure work for a variety of skill sets, as not everyone can dig ditches.

    Whew!

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  13. salsabob,

    Interesting that in the 700+ posts I have written, never have my comments so consistently been misconstrued and misstated and flat out not read, as with JG. It’s as though people see that I oppose JG, and immediately jump into defense mode, without feeling the need to understand why.

    You wrote:

    “. . . for the macro question is whether or not your solutions offer to provide more aggregate demand to grow the economy vis-a-vis the JG.”

    No two people seem to agree on what JG is other than it makes some sort of guarantee about some sort of jobs at some sort of salary. So how does one measure how much aggregate demand it creates?

    “. . . it is doubtful your solutions of tax cuts would result in much increased spending; more likely they’d just wind up buying more T-bills. ”

    It would have been nice if you actually looked at the solutions I offered. Which of the following benefits the 1% more than the lower income groups”

    1. Eliminate FICA (Click here)
    2. Medicare — parts A, B & D — for everyone
    3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
    4. Long-term nursing care for everyone
    5. Free education (including post-grad) for everyone
    6. Salary for attending school (Click here)
    7. Eliminate corporate taxes
    8. Increase the standard income tax deduction annually
    9. Increase federal spending on the myriad initiatives that benefit America

    ” What percentage of your tax cuts are going to go to savings and not to spending, and therefore play no role in increasing aggregate demand?”

    As you can see from the above, virtually all of my suggestions benefit most the lower income groups, who are most likely to increase spending. Even #8 primarily will go to lower income groups; the salaries of top executives is not closely related to corporate taxes.

    In any event, your question has no answer, because saving and spending are two sides of the same process — unless people bury their dollars in the backyard. Think of all the ways you save. Unless you mostly buy T-securities, you save by debiting your checking account and crediting someone else’s checking account, aka “spend.”

    “These are huge questions surrounding your proposals.”

    Read my suggestions, and you’ll answer the questions for yourself.

    “There can be no doubt that little or any of the funds flowing to those employed by the JG will be saved . . . That cannot be assumed for most or all of your proposals.”

    100% false.

    “Here, however, I would like to note that it is a very weak argumentative point to attempt to discredit the JG proposal because there does not exist a single canon as to all its specifics. The JG is a prescriptive aspect of MMT and, as with any such prescription, subject to the political process.”

    In other words, you really don’t know what JG is other than it guarantees jobs, so you’re for it. And you’re confident, that whatever the details turn out to be, you still will be for it. And anyway, Congress will fix it. So RMM is wrong to criticize it.

    I do love that logic.

    Like

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