Amazing reversals … democratic repression

The G-20 held its annual Finance Ministers and Central Bank Governors Meeting in South Korea over the weekend. It was amazing to see just how comprehensive the impact of the deficit terrorists has been on the way in which the G-20 has shifted its views on the way to deal with the on-going economic crisis. The G20 communique released today clearly illustrates that the G-20 group have been won over by the terrorists and are now supporting austerity measures. This is another one of the amazing reversals in the public debate that are now becoming regular events. All of the reversals are making it harder for governments to do what we elect them to do – use their policy tools to advance public purpose. The increasing constraints that governments are voluntarily accepting to satisfy the demands of amorphous groups such as the “bond markets” impinge on the democratic rights of every citizen. We expect our governments will act in the best interests of the nation. Sadly they are no longer doing that because they have fallen prey of the deficit terrorists. We have a new term for this – democratic repression.

The Communique claims that the G20 Finance Ministers and Central Bank Governors said:

The G20’s strong policy response to the crisis has played a pivotal role in restoring growth and we stand ready to safeguard recovery and strengthen prospects for growth and jobs. We welcome the determined actions taken by the European Union, the European Central Bank and the IMF. We will pursue well coordinated economic policies. The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability … Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions. Within their capacity, countries will expand domestic sources of growth, while maintaining macroeconomic stability. This will help ensure ongoing recovery …

In all this carefully worded speak what you read is that they are now supporting austerity measures – consider countries with “serious fiscal challenges” should cut faster and claim within this environment, countries will be able to expand domestic sources of growth. Exactly which macroeconomic model do they get that conclusion from?

So compared to their April statement when they were advocating no early withdrawals of the fiscal stimulus given how precarious private spending growth remains why the sudden change?

The only conclusion is that the deficit terrorists are gaining traction. Further, the Europeans seem intent on creating as much damage to their economies as they can all in the name of a strong Euro.

This sentiment is echoed by this article from The Economist – Governments were the solution to the economic crisis. Now they are the problem – published May 27, 2010. The article notes that “financial markets are more anxious today than at any time since the global recovery took hold almost a year ago” and that:

Gone is the exuberance that greeted the return to growth … Investors are on edge.

Remember the term investment is used here in the broad sense – of speculating in financial assets. In macroeconomics, the term investment is much more specific and refers to the spending to develop capital infrastructure – that is productive assets. Under this era of financialisation, there have been too many resources diverted into non-productive (wealth shuffling) speculating away from productive uses.

The Economist claims that there are two main reasons why the speculators have the “jitters”:

One is about the underlying health of the world economy. Fears are growing that the global recovery will falter as Europe’s debt crisis spreads, China’s property bubble bursts and America’s stimulus-fuelled rebound peters out. The other concerns government policy. From America’s overhaul of financial regulation to Germany’s restrictions on short-selling, politicians are changing the rules in unpredictable ways … And the scale of sovereign debts has left governments with less room to counter any new downturn; indeed, many of them are being forced into austerity … The danger is that these fears reinforce each other in a pernicious reversal of the dynamics of 2008-09. Then, co-ordinated government action on a grand scale stopped the global financial crisis from turning into a depression. Now, thanks to incompetence and impotence, governments may become the problem that will drag the world economy down.

First, the world economy is still in very poor shape and rather precariously balanced. So we should all be concerned about that especially as the crisis is nearly three years old. There has massive foregone income as a result of governments allowing the crisis to persist and in many cases, the unemployed and their families will never regain what they have lost.

Second, I agree that the other concern is government policy. I also agree is a lot of ad-hocery going on at present. What that tells me is that the economic policy process has been thoroughly perverted by the erroneous attacks of the deficit terrorists on the correct use of fiscal policy. There has been such a major campaign of misinformation that governments are spooked and yet realise that politically they have to be seen to be addressing these issues.

Instead of addressing them using the obvious policy instrument – fiscal policy – they are making policy at the margins and that is never an effective way to conduct counter-stabilisation policy.

Third, in financial terms, the scale of government debt is irrelevant when considering how much fiscal space a sovereign government has. For a currency-issuing government the minimum fiscal space is defined by the idle real resources that can be brought back into production with an increase in aggregate demand. It may be that the government has more scope than that if they want to alter the mix of public and private resource usage in the economy. But the bare minimum is to run deficits at such a level that all resources are fully employed.

With a major collapse in private spending and no particular desire to alter the public/private mix in resource usage, such stimulus efforts have to be calibrated to ensure they can taper as private spending recovers. As I have argued many times, the best place to start is to introduce a Job Guarantee. You may also like to read this blog – When is a job guarantee a Job Guarantee? – for further information.

A Job Guarantee operates as an automatic stabiliser and expands and contracts in a counter-cylical fashion.

Fourth, governments are becoming the problem because they are withdrawing their inadequate stimuluses too early. So they started out by failing to provide adequate fiscal intervention and now they are running scared and compounding problem. In all nations other than those within the EMU, there is no sovereign debt problem.

It is amazing that the media is now presenting the policy debate in terms of the government being the problem – in the sense that there is a reluctance to withdraw the fiscal stimulus quickly enough. It is almost beyond belief that the size and speed of an austerity package is being held out as the indicator of responsible government – the larger and quicker the better! And this is at a time when the world economy is on the brink of going backwards again.

The Economist and other mainstream (conservative) media outlets all supported the stimulus packages at the time because they could see the world collapsing back into a 1930s depression. Now they are leading the charge for austerity. But you will never find a coherent account about how boosting public spending is good at a time when private spending is flat or collapsing but bad when private spending remains flat three years later. The ideological statements drown out the lack of substance in their arguments.

Trying to cut our a major component of the growth cycle (net public spending) when the private sector is still a long way from: (a) recovering it zeal for spending; and (b) curtailed its massive debt exposure – is vandalism of the highest order.

Even in Australia, which escaped the recession technically, it was only net government spending which allowed us to do that. In the March 2010 quarter the stimulus effects were still the difference between positive and negative growth. If the government had had listened to the deficit terrorists last year and cut back when the terrorists were screaming blue murder then Australia would have been in recession almost all of last year and into this year. Please read my blog – Australia GDP growth flat-lining – for more discussion on this point.

Fifth, the EMU is another question altogether. In that mess, while they sort out whether they are going to disssolve or introduce a single fiscal authority, the ECB should be buying as much government debt as is required to stop the bond markets killing off the nations one by one – and when they have bought it – pressing the delete button on their holdings so that it disappears for ever. There would be no real cost in doing this – all gain. They won’t do that and so the problem will persist until defaults and exits become inevitable.

The Economist believes the major constraints are now fiscal:

For much of the rich world, however, the most important consequences of Europe’s mess will be fiscal. Governments must steer between imposing premature austerity (in a bid to avoid becoming Greece) and allowing their public finances to deteriorate for too long. In some countries with big deficits, the fear of a bond-market rout is forcing rapid action. Britain’s new government spelled out useful initial spending cuts this week. But the emergency budget promised for June 22nd will be trickier: it needs to show resolve on the deficit without sending the country back into recession.

First, only EMU governments can go the way of Greece. The analogy has no application at all when applied to sovereign governments. It is one of those on-going pieces of misinformation that has swamped the correct policy response to the crisis.

Second, there is no such thing as a “deterioration in the public finances”. Rising budget deficits often signal a deterioration in the real economy (falling output growth and rising unemployment) but the actual fiscal outcome has no dimension that we delineate as improving or deteriorating. It is what it is. Given it is endogenously determined by the state of private spending, the dynamics of the budget balance just provides information about the state of the economy.

Focusing on the budget outcome while ignoring the rest is very misguided.

Third, Britain never should have worried about a “bond-market rout” because they could have changed their rules to allow the Bank of England to cash government cheques. They have submitted to democratic repression and their growth will be pathetic for some quarters as a consequence.

The Economist claims that the US has more “fiscal room than any other big-deficit country”:

In America, paradoxically, the Greek crisis has, if anything, removed the pressure for deficit reduction, by reducing bond yields. America’s structural budget deficit will soon be bigger than that of any other OECD member, and the country badly needs a plan to deal with it. But for now, lower bond yields and a stronger dollar are the route through which American spending will rise to counter European austerity. Thanks to its population growth and the dollar’s role as a global currency, America has more fiscal room than any other big-deficit country. It has been right to use it.

As I noted above, the US has not more or no less fiscal capacity than any other sovereign currency-issuing nation. The size of its deficit is irrelevant for assessing whether it can continue to run deficits. The lower bond yields delivered in the markets can easily be engineered by appropriate central bank policy anyway. The stronger dollar is also undermining growth not assisting growth. And the population growth is also irrelevant when it comes to deciding whether the government can spend.

The US government can buy – at any time of its choosing – whatever is for sale in US dollars. There is never a financial constraint on it doing that. And given that up to 17 per cent of available labour in the US is idle – the US government could start exercising its fiscal room by offering as many of these workers are job that want them.

The point that you will rarely even read about in these debates is how public spending one minute saved us but the next minute it will ruin us when the private conditions are largely unchanged. The fact is that there is no credible theory to underpin this ideological claim.

In macroeconomic theory, output is a function of aggregate spending. We have witnessed a substantial drop in the private spending components of aggregate demand over the last few years which cause the collapse in growth.

Firms form expectations of future aggregate demand and produce accordingly. They are uncertain about the actual demand that will be realised as the output emerges from the production process. The first signal firms get that household consumption is falling is in the unintended build-up of inventories. That signals to firms that they were overly optimistic about the level of demand in that particular period.

Once this realisation becomes consolidated, that is, firms generally realise they have over-produced, output starts to fall. Firms layoff workers and the loss of income starts to multiply as those workers reduce their spending elsewhere.

At that point, the economy goes into recession unless the government expands public net spending to offset the private withdrawal. We saw in 2008 and 2009 as governments finally gave up on relying on monetary policy to solve the impending crisis and introduced relatively aggressive fiscal interventions that the collapse in real output growth was curtailed.

While there are asymmetries in this process – for example, private investment falls more quickly than it recovers due to irreversibilities in capital equipment which introduce caution into firm decision making – the fact remains that if you withdraw that net public spending before the private components of aggregate demand have recovered then you trigger off the inventory cycle again.

That is, firms will start laying off workers because there will be unsold output and these workers, in turn, stop spending and a malaise sets in.

There is no credible theory to support the opposite being the case – that is, a pro-cyclical fiscal withdrawal being a good thing when private spending is weak. It is almost certain that economies that introduce harsh pro-cyclical austerity campaigns will not only prolong their recessions but will cause massive damage to the living standards of their citizens.

Why would they do this? They are doing this because they are getting advised by economists who believe in their flawed models which tell them that price stability is the only real determinant of stable real growth.

Policy makers around the world have been led to believe the sovereign governments have fiscal constraints. That the debt that government issues is necessary. That certain financial ratios are not only meaningful in their own right but binding at levels well below the levels governments now find themselves in.

None of these beliefs has an application to a fiat currency issuing government. A sovereign government is never revenue constrained because it is the monopoly issuer of the currency.

Meanwhile, the situation in the EMU is getting worse by the week. The UK Guardian (June , 2010) carried the article – Germany joins EU austerity drive with €10bn cuts. They noted that the German government plans “include cuts to federal staff, lower social welfare benefits or tax rises, in the latest effort to get Europe’s massive debts under control”.

The Germans also reveal a perverted sense of economy. The Guardian quoted Angela Merkel who said that Germany:

… can only spend what we take in.

Taken to mean tax revenue and bond sales, this statement is correct. But only because of the currency system that these nations have voluntarily imposed on themselves as democratic repression.

The real situation is quite different. How does the statement that Germany is living beyond its means sit with all the wasted labour that is sitting idle? Are they living beyond their means?

The German Finance Minister Wolfgang Schäuble dropped another classic myth into the mix saying that the fiscal contraction would be “”stricter than necessary” to allow more room for manoeuvre at a later stage. This is in relation to the alleged strain on the German economy of the population ageing and its “generous social welfare system”.

The only actual problem will be whether there are enough real resources available at some later date to back the nominal value of the pensions that the German state is paying its retired citizens. If there are not enough real resources to go around then the problem is a political one – to determine where public spending will be targetted.

In Germany’s case, this problem becomes a financial issue because they have agreed to a nonsensical monetary system which cannot deliver optimal outcomes. It is a system that requires the anathema of sound fiscal policy – pro-cyclical austerity. Nothing in any textbook will provide any theoretical support for pro-cyclical fiscal policy implementation.

All these problems are non-problems for a sovereign nation. They are problems because of the self-imposed constraints the EMU member nations have introduced. None of these constraints bear any resemblance to a policy position that would advance the well-being of the individual nations.

And in Greece the nasty side of the EU-IMF packages are emerging as the government is promising “draconian economic reforms that included the privatisation of public companies”, some of which are highly profitable. So you now have a socialist government forcing the most neo-liberal (private property) changes on its country. That is one of the truly amazing indecencies that has come out of this crisis. The collapse of any meaningful progressive ideology. There is very little political choice now anywhere.

Conclusion

I note that the PIIGS have become GIPSIs in recent times. Well one thing GIPSIs seem good at is being on the move.

If I was in charge of one of these nations I would announce next weekend (when the banks are closed) that I was introducing a new currency, defining all Euro debt liabilities in the new currency and let the foreign exchange markets value that currency on the Monday morning.

I would withdraw any semblance of central bank independence (that is just another democratic insult) and I would expand the budget deficit immediately by introducing a Job Guarantee.

Then by Tuesday, I would start repairing the confidence of private spenders to get the economy rolling again.

And after a relatively short time I would notice that economic growth was gaining speed, private spending was returning, unemployment was low and … the budget deficit was falling.

Then I would send an open invitation to the citizens of Germany to abandon the teutonic ship and head south (or west).

If I was boss of the government in the UK, Japan or the US (to name any sovereign nation), then I would put the out of office sign up to the deficit terrorists and start doing what I was elected to do and protect the interests of my nation. I can only do that if I use the inherent fiscal capacity that the government in a fiat currency system has to first of all eliminate mass unemployment. There is not a day to be wasted.

That is enough for today!

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    23 Responses to Amazing reversals … democratic repression

    1. paultherightwinger says:

      off topic…

      “the G-20 group have been won over by the terrorists and are now supporting austerity measures.”

      I stumbled across the words of another dead economist today. Alfred Eichner, lifted directly from Wikipedia. http://en.wikipedia.org/wiki/Alfred_Eichner
      I believe I’ll start reading some more of his work.

      “Alfred Eichner in Why Economics Is Not Yet a Science offers the following commentary on the discipline of economics as a social system:

      ….’The refusal to abandon the myth of the market as a self-regulating system is not the result of a conspiracy on the part of the “establishment” in economics. It is not even a choice that any individual economist is necessarily aware of making. Rather it is the way economics operates as a social system—including the way new members of the establishment are selected—retaining its place within the larger society by perpetuating a set of ideas which have been found useful by that society, however dysfunctional the same set of ideas may be from a scientific understanding of how the economic system works. In other words, economics is unwilling to adhere to the epistemological principles which distinguish scientific from other types of intellectual activity because this might jeopardize the position of economists within the larger society as the defender of the dominant faith. This situation in which economists find themselves is therefore not unlike that of many natural scientists who, when faced with mounting evidence in support of first, the Copernican theory of the universe and then, later, the Darwinian theory of evolution, had to decide whether undermining the revelatory basis of Judeo-Christian ethics was not too great a price to pay for being able to reveal the truth.’ ”

      Regards
      Paul

    2. Neil Wilson says:

      One issue that concerns me with the Job guarantee is how do you stop the ‘crowding out’ of the private sector who wish to create jobs at just above the guarantee level.

      Say, for example, part of the works programme is to allow the charitable sector to use Guarantee workers and they open a shop selling widgets. The charity doesn’t have to pay minimum wages since their staff are all ‘volunteers’ paid for by the Guarantee programme. And obviously as a charity they can’t make a profit from this. So far so good.

      If a private company wishes to open a shop in the same area offering similar widgets, then they would have to pay staff the minimum wage plus a delta that would persuade Guarantee workers to move across. And they have to make a profit on the capital to make it worthwhile. Their prices would have to be massively hire than the charity shop, and the value add would have to be enormous to make that work. Logically such a market niche couldn’t realistically exist.

      So there is a heck of a gap in expenses between a charity (or the public sector) using Guarantee workers and a private sector business using paid for workers.

      The effect as far as I can tell is that there would be a whole area of businesses just above the minimum that simply cannot exist if Guarantee workers are working in that market. And that could mean that workers are ‘trapped’ in the Guarantee programme – unable to better themselves.

      How do you deal with this gap issue?

    3. CharlesJ says:

      Neil,
      First, I would say that the government should run the Job Guarantee scheme and pay the minimum wage. If they work alongside charities, then those charities should still pay the workers the minimum wage – why not, given that part of the purpose is to act as an automatic stabiliser, and that means paying workers so they can spend the money they earn in the high street, thus supporting the economy.

      Second, the kinds of jobs these workers would do would not be things the private sector can normally do, as these activities are not perceived by the private sector as being productive or generating a profit (even if actually they might generate a profit in the hands of the private sector afterall). Either way, if the private sector were to show an interest in performing those functions, the Job Guarantee would get out of their way. At any given time, I believe that there are numerous productive and even profitable activities that the private sector tend to shy away from, and JG does not need to be profitable anyway.

    4. ParadigmShift says:

      What’s the endgame of this process of ‘democratic repression’? What do the global elites think they can gain by sabotaging the economy that they themselves rely upon? Do they really want to sacrifice social stability for increased relative wealth, or do they genuinely believe they can insulate themselves from the social breakdown they are causing? Such hubris.

    5. CharlesJ says:

      Sorry Neil,
      To correct my earlier comment – the Charity would not pay the minimum wage, the government would. But the salient point is that we would not have the JG doing activities which directly compete with the private sector. The role of government is to further Public Purpose without the need for it to be profitable, and the kinds of jobs which JG would do would reflect this.

      Chas

    6. anon says:

      “the ECB should be buying as much government debt as is required to stop the bond markets killing off the nations one by one – and when they have bought it – pressing the delete button on their holdings so that it disappears for ever”

      and:

      = negative capital for the ECB

      = deficit spending in a consolidated ECB monetary/fiscal authority

      = supranational helicopter drop

    7. anon says:

      = permanent increase in reserves

      = permanent reduction in bonds

      = “no bonds” at the margin via OMO

    8. Oliver says:

      Neil

      This reminds me of another story. The so-called freest economy in the world, Hong Kong, lovechild of Milton Friedman and Maggie Thatcher, has a similar gap along other lines. Although there is no job guarantee (in fact they have been experiencing significant unemployment for quite some years), there is something like a housing guarantee that divides the population more or less down the middle. Because it is such a tiny place and scarce land is conveniently handed out to a hand-full of real estate speculators (most of which descend directly from the Hongs once pandered to by the colonists), prices are so high that it is virtually impossible for any person on middle to low income to afford more than a cardboard box and a hanky as shelter on the free market. So, instead of regulating or disowning or socialising the whole market, government has stepped in and now provides for ca. 50% of housing to its citizens (the number rises every year). The catch is, that in order to qualify for social housing, income must not be greater than some arbitrary level. This level is now so low in comparison to market prices, that anybody who earns slightly more and must thus rent on the free market, will find it impossible to make ends meet. So the necessity to socialise large parts of the housing market, and the thoughtlessness with which it has been done, has led to a gap within society that is virtually impossible to overcome leading to a 2-class system that can’t ever have been the idea of social housing (well, maybe in Hong Kong…).

      That isn’t to say that a job guarantee would have the same effects. I just think there are probably similar dangers lurking in the bushes if a jg were to be imposed without putting some thought to the pricing mechanisms as well all income classes above minimum wage. Permeability and equal chances must be held high in any democratic society.

    9. Neil Wilson says:

      “But the salient point is that we would not have the JG doing activities which directly compete with the private sector. The role of government is to further Public Purpose without the need for it to be profitable, and the kinds of jobs which JG would do would reflect this.”

      While I appreciate that would be the intention, that infers a ‘wisdom of Solomon’ decision. In practice the public sector is like an elephant; it does not realise when it is standing on the ants. Moreover there are lobbyists with powerful cattle prods jabbing it all the time to get it to move in a direction that helps whoever is paying them.

      I have seen the public sector expand into areas such as training, hiring staff at will and quite literally bankrupting small businesses – all because large companies lobbied that there weren’t enough, say, network engineers. (Although it was presented craftily by the lobbyists in terms of job creation for laid off workers). The well-intentioned individuals who were entirely focussed on ‘solving unemployment’ were literally taken aback when you pointed out what they’d inadvertently destroyed.

      ‘Without the need for it to be profitable’ feels like the wrong viewpoint if you want to avoid damaging the private sector. ‘That no-one has yet found sufficiently profitable’ is perhaps a better stance.

      Personal care for the elderly is a particular example where there would be a conflict between the existing private sector provision and a guarantee workforce. There are elderly residents of nursing homes where ‘the gap’ in pay could be a real problem. Destruction of private provision here could lead to a crisis.

    10. CharlesJ says:

      Neil,
      Thanks for your reply. I agree that JG has all sorts of potential pitfalls, but then the principle is to identify these and mitigate them with proper complaints procedures for companies being trodden on etc. I also think that where the private sector sees something a JG scheme is doing and wants to take this over, they should be allowed to, and that’s a question of improving the lobbying process with proper Quality Assurance principles to make sure they are being heard – but this is an opportunity to lead the private sector into job creation and business opportunities.

      I still think that directly creating jobs for the good of the economy as a whole, takes priority over more marginal effects on the private sector, as the overall increase in demand created by more people with money to spend in the high street will do more to benefit the private sector.

      I think that the fundamental differences in purpose between public and private, will ultimately restrict much of the over-crowding to a large extent. I appreciate that in the UK there are private companies providing services to the elderly, but some of them haven’t done a very good job in terms of quality, and where public money funds private companies good Quality Assurance and over-sight is essential, or those companies should go out of business.

    11. Charles J has hit upon a weakness at the heart of JG when he says “But the salient point is that we would not have the JG doing activities which directly compete with the private sector.” True. And to take it further, presumably JG wouldn’t compete with or crowd out “activities which directly compete with” existing PUBLIC sector employers either!!!

      Given that existing private and public sector employers produce what customers or citizens most want, that will tend to condemn JG to producing some pretty pointless stuff. In practice this exactly what tends to happen on many make work schemes. E.g. the WPA in the US in the 1930s acquired a nickname: We Piddle Around.

      My solution to this problem is to subsidise the unemployed (or most of them) into temporary jobs with EXISTING employers (public and private) rather that subsidise them into jobs with specially created employers, like JG. But the reasoning is complicated.

      For those interested in the reasoning (and if Bill doesn’t mind me blowing my own trumpet on his blog) see:

      http://mpra.ub.uni-muenchen.de/19094/1/MPRA_paper_19094.pdf

    12. Min says:

      “So compared to their April statement when they were advocating no early withdrawals of the fiscal stimulus given how precarious private spending growth remains why the sudden change?

      “The only conclusion is that the deficit terrorists are gaining traction. Further, the Europeans seem intent on creating as much damage to their economies as they can all in the name of a strong Euro.”

      I smelled trouble early this year with the rhetoric about making sure that we guarded against future inflation, but of course it was too early to withdraw stimulus. While that sounds reasonable, almost impossible to argue with, the timing was suspect. Surely this was a way to undermine the current stimulus without saying so. Given that, the change does not seem so sudden to me. It was always part of the plan of the deficit hawks.

      “This sentiment is echoed by this article from The Economist – Governments were the solution to the economic crisis. Now they are the problem – published May 27, 2010. The article notes that “financial markets are more anxious today than at any time since the global recovery took hold almost a year ago” and that:

      “Gone is the exuberance that greeted the return to growth … Investors are on edge.”

      Yes, “investors” include speculators. But isn’t the key that creditors are on edge? A couple of hundred years ago creditors were for hard currency and debtors were for paper currency. Well, we have a fiat currency now, but the creditors are still fighting to retain as much of the hard currency institutional structure as they can. And central bankers have always been on the creditors’ side, right?

    13. CharlesJ says:

      Here is a quote from David Cameron, as reported on the BBC website:

      “Taking questions after the speech he acknowledged it would “mean difficult departmental decisions and yes it will inevitably mean some difficult decisions over big areas of spending like pay and pensions and benefits – and we need to explain those to people”.

      I’d like him to come to my community and explain these cuts to us – I’ll even arrange the ambulance for him in advance, should he happen to need one.

    14. Min says:

      Ralph Musgrave: “Given that existing private and public sector employers produce what customers or citizens most want,”

      Why is that a given?

    15. scepticus says:

      “And central bankers have always been on the creditors’ side, right?”

      I don’t think so. During the 70s bond investors were stuffed by inflation. For a period in the late seventies I believe Switzerland achieved safe haven status and to prevent a mass capital inflow they simply taxed foreign buyers of Swiss government debt.

      That is a negative nominal rate. A plausible scenario for the coming years looks something like:

      1) markets get their way and we get austerity measures globally.
      2) this destroys demand and tax revenue and the weaker zones suffer currency depreciation.
      3) the remaining perceived safe havens suffer currency appreciation and capital inflow and restor export competitiveness.
      4) to prevent that, the safe haven zones impose taxes on foreign holders of debt and/or currency transactions, which results in a damping of exchange rate volatility and allows the ‘hard currencies’ to depreciate without intervention.

      the last item above represents the first major holes in the dyke of the 0% bound, sometime after which, it would be likely to collapse. It is after all only a cultural construct given the credit based nature of the economy.

    16. CharlesJ says:

      Ralph,
      I’m not qualified to judge the more technical aspects of TES, but I have worked as a temp, alongside permanent workers in a large Telecomms company. We earned above the minimum wage, but us temps were treated like second-class employees, so I don’t fancy that much. Anytime a ‘perm’ did not know, or could not be bothered, to do their job, they would give it to us to do, even if we didn’t know how to do it either.

      I’d much rather work in a situation that was more structured and more respectful to workers, so JG seems more the right thing. And are we sure about this ‘inflationary’ thing – would that make a significant impact or with JG couldn’t we find ways to get around that. If a plan was rejected simply because of every theoretical problem it might cause, nothing would be done. Of course you might be right, and things like inflation might be real and significant.

    17. Min says:

      scepticus: “A plausible scenario for the coming years looks something like:

      “1) markets get their way and we get austerity measures globally.”

      I don’t think that’s markets getting their way. Quite plausibly the U. S. markets tanked today **because** of the prospect of austerity in Europe. And it seems like they don’t like high unemployment, either.

    18. Neil Wilson says:

      Ralph,

      An interesting paper, but it didn’t really make the argument for me. Your paper brings many questions.

      – Too many acronyms. Try the lawyers trick of picking a descriptive word, putting a capital letter on it an then using that, e.g. Temporary Employment Subsidy (“the Subsidy”). Makes it easier to read – as does single line spacing.

      – The main problem I have with the paper is simply why would the employers hire subsidised staff that are temporary casual and will disappear after a while, and what on earth are they going to do in the private sector? One of the reasons I see for confining The Subsidy to the public and voluntary sector is so that capital cannot make a profit from it. Then you don’t have to shuffle people around and capital can’t chase down the cost of labour at the taxpayer’s expense.

      – The one advantage of making workers available to the voluntary sector is that they are already geared up to using temporary casual labour that has a tendency to be fickle in nature – so the Productivity elements are already in place. They are used to expanding and contracting what they do based on the availability of volunteers. Arguably the majority of the ‘discretionary’ public sector should be organised along the same lines – in particular it should try and do as much as possible with temporary casual labour.

      – Whatever you do if you subsidise something, workers just above the subsidy level get pulled down into it leaving a gap. How do you bridge the gap?

      – Also at Full Private Sector Employment (however you define it), there shouldn’t be anybody to subsidise. So doesn’t the base assumption of the paper simply mean that at that point the subsidy should be zero anyway?

    19. RSJ says:

      If I was in charge of one of these nations I would announce next weekend (when the banks are closed) that I was introducing a new currency, defining all Euro debt liabilities in the new currency and let the foreign exchange markets value that currency on the Monday morning.

      Bravo! This view is gaining traction.

    20. CharlesJ says:

      Bill,

      I’m getting the hang of this Job Guarantee System now and I have some recommendations and comments:

      Courses – the scheme can support courses on real subjects, not just ‘how to get a job’, designed to raise people’s confidence by teaching them things that would help them whilst on JG and beyond.
      Training – More challenging jobs can be done if JG provides training first – Temping agencies do this as a matter of course, so why can’t JG. Again it will help build confidence.
      Access to expert services – like free legal advice for those who have been dismissed unfairly from private sector jobs, or help with long term mental and physical illness etc.
      Transport and Temporary Living Arrangements – this is for where a pool of workers is drawn to a remote farming area for instance to pick crops – they would have transport costs paid, and local places to stay arranged. This happens already with immigrant workers coming to the UK for such jobs, and is useful for environmental clean-ups etc.

      The Labour government in the UK introduced some of these services but there was little outreach, and you didn’t get help applying for some of these schemes, nor were they sold particularly well, and this can be improved if staff running JG were experts in providing access to government schemes and projects.

      (Labour’s failure to sell some of these courses and schemes, seemed to provide the desperate impetous to make them mandatory. I think this is a cop-out really – better to secure buy-in with proper outreach and demonstrating empathy and a desire to help.)

      A practical difficulty which would have to be addressed are JG employees with drug or alcohol dependencies. In the private sector they would most likely be sacked, but ideally JG should avoid this if possible, finding them help instead, and maybe tolerating some of the anti-social behaviour where they can – this might be tricky though.

      Also, those with physical or mental health problems may not be able to work as fast or as well as others, and JG should tolerate this, seeing the most important thing as allowing them to recover and adapt to their situation at their own pace, whilst providing help. (Those who are in-recovery from drug problems might fall into this category, as apposed to those who are not getting any help as above.)

      I do not believe that JG should be mandatory, as often a person’s ability to work is subjective. I have had numerous assessments for my anxiety and depression, and the reults of these are typically arbitrary. Much better to trust people’s own judgements about their capacity for work and secure more buy-in using positive empathic approaches, whilst leaving their free-will intact.

      This concept of free will is important to me. When you make someone do something under the guise of getting-them-to-take-responsibility, you are actually taking away their responsibility and aquiring it for yourself. If, for example you tried to make someone do something, only to cause them an injury – then YOU would be responsible for that outcome NOT THEM. (capitals for emphasis)

      I hope this can give you some food for thought.
      Chas

    21. Agog says:

      ‘Democratic repression’ is a nice pithy name, but I’m not sure it really captures the dynamic of what’s going on. Whatever you call it, it seems to be revealing itself more and more openly. Here’s an article from the UK that’s typical of the BBC’s tone in recent months:

      http://news.bbc.co.uk/1/hi/politics/10261136.stm

      Note this quote:

      ‘A Treasury official said: “Anyone who thinks the spending review is just
      about saving money is missing the point.

      “This is a once-in-a-generation opportunity to transform the way that
      government works.”‘

      … which is pure Shock Doctrine.

    22. Tom Hickey says:

      ‘A Treasury official said: “Anyone who thinks the spending review is just
about saving money is missing the point.
      “This is a once-in-a-generation opportunity to transform the way that
government works.”‘
      … which is pure Shock Doctrine.

      Exactly. This is precisely the objective of the deficit terrorists, who are “neoliberals.” Neoliberals are portrayed as “conservatives” but they are actually Libertarians who think that society is just a conceptual fiction that needs to be replaced by aggregates in order to guarantee “individual freedom” (to suppress others economically and politically). Oh, and it’s OK to freely associate with others and use individual freedom in cabals to capture the apparatus of the state.

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