MMT is biased towards anti-crony

There has been a couple of interesting articles written by John Carney who is a Senior Editor at CNBC.com on Modern Monetary Theory (MMT) – starting with Monetary Theory, Crony Capitalism and the Tea Party (December 22, 2011) and followed up with Modern Monetary Theory and Austrian Economics (December 27, 2011). I am happy that our work is penetrating in to the mainstream business and economics commentary space. It is good that John Carney has spent some time coming to terms with MMT and its departure from the failed mainstream macroeconomics. But some problems remain with his analysis. The issues he raises relate to political matters rather than the economics of MMT. In that context, MMT is neither anti- or pro-crony. But if you delve deeper and really understand the MMT macroeconomic framework then you realise that MMT is biased toward anti-crony.

John Carney notes that the US fiscal stimulus and central bank quantitative easing “both occurred without any attendant inflation or giant soaring of interest rates” and that the “so-called ‘bond vigilantes’ turned out to be mythological creatures” and “the downgrade of the U.S.’s credit rating only lead to lower interest rates”. These events were contrary to the predictions made by several prominent mainstream economists.

That should be of no surprise because the predictions were consistent with the theoretical models that students are taught in mainstream economics programs and which guide the research efforts of the majority of my profession. Clearly, the predictions were wrong – over and over again.

In this context, John Carney said that:

The school of economics that best explains this phenomenon is called “Modern Monetary Theory” or MMT. The MMT school is made up of scholars, businessmen and online advocates who have a deep understanding of the operations of the actual operational aspects of our monetary system.

They argue, quite persuasively, that our monetary system is built in such a way that our government is never revenue constrained, which is to say it can spend as much as it likes, because the government creates our money. The real constraint on government spending is price inflation, which occurs when government and private spending outpace economic output.

Which is an accurate portrayal except I would note that the real constraint on government spending is not price inflation rather than the productive capacity of the economy. Price inflation in this sense is a symptom that nominal aggregate spending is outstripping that capacity.

I would note that the “MMT school of thought” is different from the various blogs that have developed since the academic material emerged in the 1990s which draw on that conceptual material. There are many “blogs” now that are sympathetic to MMT or suggest they espouse MMT which have been derived from the early academic work that a few of us (Warren, Randy, Stephanie, Scott, Matt, myself and a few others) developed. I always agree with the contributions of the early MMT writers but often disagree with some of the statements that the blog writers outside of this group make in the blogosphere.

I consider the early MMT writers to be the MMT theorists.

John Carney also noted that:

There’s a lot more to MMT than its view of monetary operations and government funding, however. They believe the government should guarantee jobs for everyone, that the financial system tends toward crisis and corruption, that capitalist economies are not self-regulating, and that fiscal policy should be measured by its effect on the economy not on whether budgets are balanced. Some of this is fine, other parts I regard as distractions (such as the jobs guarantee).

Remember that MMT is derivative in that it draws on previous theoretical traditions – dating back to Marx, Keynes, Kalecki, Lerner, Minsky to name just a few of the intellectual influences from yesteryear.

However, the way these influences are drawn together into a comprehensive macroeconomic framework by MMT theorists is unique and distinctive. Further, it is a framework that has stood up to extreme empirical scrutiny.

We have large budget deficits relative to the norm and the central banks have expanded their balance sheets by a significant degree. We do not have inflation nor out of control interest rates. And, as predicted, the Eurozone is melting down in the face of the flawed (unworkable) design of its monetary system. All essential insights that one can derive from MMT.

The focus on price stability and the way that buffer stocks can be used is very distinctive and you will not find this in the mainstream framework. The Job Guarantee is developed within that tradition.

John Carney like most other students of MMT tend to consider the JG to be a “guarantee jobs for everyone” which he think of as one of the “distractions” to the main MMT contribution. However, that characterisation demonstrates to me that the “student” hasn’t fully embraced the buffer stock thinking that is unique in MMT.

Those who haven’t come to MMT from a solid background in macroeconomics can easily just think the JG is a tacked-on “leftist” or “social democrat” policy aimed at providing jobs to those who cannot find them. So I often get the view expressed in E-mails etc that the JG is all very nice but peripheral to the deep financial and monetary insights that MMT provides and should be culled from the writings or de-emphasised so as not to alienate the hard financial market types.

The progressives who support an income guarantee (for example, Basic Income proponents) also play down the importance of the JG (an employment guarantee).

I take John Carney’s “distraction” categorisation as fitting him into those that haven’t fully grasped the role that the JG plays in MMT.

The reality is that the JG is a central aspect of MMT because it is much more than a job creation program. It is an essential aspect of the MMT framework for full employment and price stability. And in making that point I will draw on it later to address John Carney’s major objection to MMT.

But to understand the role that the JG plays in MMT one has to grasp the concept of buffer stocks.

In last week’s blog – Some hard truths for 2012, I noted that in his keynote speech at the CofFEE Conference earlier this month, my colleague Randy Wray said:

And then there was the job guarantee, which I immediately recognized as Minsky’s employer of last resort. I can’t remember what Warren called it but Bill called it BSE, buffer stock employment.

I had never thought of it that way, but Bill’s analogy to commodities price stabilization schemes added an important component that was missing from Minsky: use full employment to stabilize prices. With that we turned the Phillips Curve on its head: unemployment and inflation do not represent a trade-off, rather, full employment and price stability go hand in hand.

I noted that this means that the government can thus choose – of all the “steady state” unemployment-stable inflation equilibria available – one that provides a job for all when the private market fails.

For those well-versed in the history of macroeconomic thought rather than the day-to-day financial market trends, this MMT insight is crucial and relates to the need for an economy to maintain a nominal anchor (that is, maintain price stability).

As I explained in this blog – Modern monetary theory and inflation – Part 1 – that there are two broad ways to control inflation and the use of buffer stocks are involved in each:

  • Unemployment buffer stocks: Under a mainstream NAIRU regime (the current orthodoxy), inflation is controlled using tight monetary and fiscal policy, which leads to a buffer stock of unemployment. This is a very costly and unreliable target for policy makers to pursue as a means for inflation proofing.
  • Employment buffer stocks: The government exploits the fiscal power embodied in a fiat-currency issuing national government to introduce full employment based on an employment buffer stock approach. The Job Guarantee (JG) model which is central to Modern Monetary Theory (MMT) is an example of an employment buffer stock policy approach.

Full employment requires that there are enough jobs created in the economy to absorb the available labour supply. Focusing on some politically acceptable (though perhaps high) unemployment rate is incompatible with sustained full employment.

Under the neo-liberal policy regime, central banks have, increasingly, been given the responsibility by government for managing the price level. In conducting monetary policy to fulfill their major economic objectives, central banks manipulate the interest rate and attempt to manage the state of inflation expectations via aggregate demand impacts.

They now use unemployment as a policy tool rather than a policy target to discipline the inflation generating process. Where negative real effects from the operation of inflation-first monetary policy are acknowledged they are theorised to be necessary for optimal long term growth and employment and small in magnitude.

In MMT, a superior use of the labour slack necessary to generate price stability is to implement an employment program for the otherwise unemployed as an activity floor in the real sector, which both anchors the general price level to the price of employed labour of this (currently unemployed) buffer and can produce useful output with positive supply side effects.

The employment buffer stock approach (the JG) exploits the imperfect competition introduced by fiat (flexible exchange rate) currency which provides the issuing government with pricing power and frees it of nominal financial constraints.

So the JG works on the “buffer stock” principle. I first thought of this idea during my fourth year as a student at the University of Melbourne (in the late 1970s). The basis of the policy came to me during a series of lectures on the Wool Floor Price Scheme introduced by the Commonwealth Government of Australia in November 1970. The scheme was relatively simple and worked by the Government establishing a floor price for wool after hearing submissions from the Wool Council of Australia and the Australian Wool Corporation (AWC).

The Government then guaranteed that the price would not fall below that level by using the AWC to purchase stocks of wool in the auction markets if demand was low and selling it if demand was high. So by being prepared to hold “buffer wool stocks” in low demand and release it again in times of high demand the government was able to guarantee incomes for the farmers.

However, with some lateral thinking you can easily see that what the Wool Floor Price Scheme generated was “full employment” for wool! If the Government fixed the price that it was prepared to pay and then was willing to buy all the wool up to that price then you have an equivalent scheme.

This works just the same for labour resources – just unconditionally offer to buy all labour at a stated fixed wage and you create full employment.

The JG is thus a central plank in the MMT policy framework that seeks to maintain full employment with inflation control. When the level of private sector activity is such that wage-price pressures forms as the precursor to an inflationary episode, the government would manipulate fiscal and monetary policy settings (preferably fiscal policy) to reduce the level of private sector demand.

This would see labour being transferred from the inflating sector to the “fixed wage” sector and eventually this would resolve the inflation pressures. Clearly, when unemployment is high this situation will not arise.

But in general, there cannot be inflationary pressures arising from a policy that sees the Government offering a fixed wage to any labour that is unwanted by other employers. The JG involves the Government “buying labour off the bottom” rather than competing in the market for labour. By definition, the unemployed have no market price because there is no market demand for their services. So the JG just offers a wage to anyone who wants it.

In contradistinction with the NAIRU approach to price control which uses unemployed buffer stocks to discipline wage demands by workers and hence maintain inflation stability, the JG approach uses the ratio of JG employment to total employment which is called the Buffer Employment Ratio (BER) to maintain price stability.

The ratio that results in stable inflation via the redistribution of workers from the inflating private sector to the fixed price JG sector is called the Non-Accelerating-Inflation-Buffer Employment Ratio (NAIBER). It is a full employment steady state JG level, which is dependent on a range of factors including the path of the economy. Its microeconomic foundations bear no resemblance to those underpinning the neoclassical NAIRU.

It also wouldn’t be worth estimating or targetting. It would be whatever was required to fully employ labour and maintain price stability.

These insights allow us to claim that a sovereign government which faces no financial constraints can achieve continuous full employment without endangering price stability. There can be no inflationary impulses coming from buying labour at a fixed price that no-one else wants.

These insights then allow MMT to make further distinctive statements.

The problem with the current approach to fiscal policy is political. The governments think that large deficits are bad so they spend on a quantity rule – that is, allocate $x billiion – which they think is politically acceptable. It may not bear any relation to what is required to address the existing spending gap.

The better basis for the conduct of fiscal policy which is exemplified in the provision of employment guarantees is to spend on a price rule. That is, the government just has to fix the price (the JG wage) and “buy” whatever is available at that price. After all, the budget deficit is endogenous and has to be whatever it takes to get full employment.

If the business community or anyone else thinks the deficit is “too high” or that there are “too many” workers in the Job Guarantee pool – then there is a simple remedy that is available to them – they can just lift their private spending (for example, invest more in productive capacity). Then the budget deficit will shrink and the Job Guarantee pool will decline. If they hated the Job Guarantee so much they could simply employ all the workers in the pool!

But the Job Guarantee creates a safety net that is always there to cope with private sector spending fluctuations (driven in part by varying saving desires). In that sense, it is infinitely superior to using unemployment as the buffer stock to cope with the flux and uncertainty of private spending. It is almost unbelievable to me that we tolerate governments sitting idly by watching millions of people around the world being forced into unemployment for want of some funding that the government can always provide.

Further, and very importantly (in the context of today’s blog), the Job Guarantee would also overcome many of the problems that bedevil the “politicised” conduct of fiscal policy.

Which leads me back to John Carney who said:

But my biggest point of departure with the MMTers is they display a political and economic naivete when it comes to the effects of government spending. When they talk about spending it is almost always in terms of abstract aggregates, which is weird for a school of economics so focused on the specifics of monetary operations. What this means is that they miss the distortions of crony capitalism the accompanies so much government spending.

Government spending occurs through specific channels, not in aggregate abstractions. This means that certain companies and sectors of the economy benefit, and others suffer, because of government spending.

I note that John Carney lists the blogs where he learned MMT from and the list doesn’t include any of my own work. However, none of the MMT theorists (as previously defined) are politically and economically naive. I know all of them well and regularly interact with them. I consider the group to be realist in the extreme with a very good understanding of history, power elites, political machinations and the rest of it.

There is no blindness when it comes to recognising the influence of crony capitalism.

The first point to note is that while a distrust of government is reasonable given the links that exist between the financial and political elites advocating an economic framework with minimal government involvement is naive in the extreme. Whether one likes it or not, a sovereign government issues the currency and so is the centre-piece of the economic system.

If you try to design a monetary system that forced elected governments to use foreign currencies or restricts their use of their own currency you end up with the Eurozone or some derivative. Fixed exchange rates don’t help because they become the prey of speculators and force domestic policy into a subservient position.

Trying to balance government budgets always (over the cycle or whenever) is a denial of the role that the budget plays in a monetary economy and will bias the economy to the NAIRU conception (spending on a quantity rule).

So the challenge is to: (a) recognise the centrality of government; but (b) realising it is typically corrupted by the elites – currently those in the financial markets and the other crony interest groups.

MMT allows you to understand how the monetary system works whether it is being manipulated by corrupt governments who are being influenced by crony capitalists or by sound governments acting under strict democratic mandates to advance public purpose.

There is no guarantee that our governments will be of the latter persuasion and realistically they will more likely be of the former ilk.

So I advocate – outside the realm of MMT – grass roots action to reinforce the democratic connection between citizen and government. To make it harder for governments to be co-opted. For example, I would ban political funding and allocate a fixed amount of public funds to the candidates for public office to be used for electoral purposes. I would have very strict conditions placed on electoral commentary within the media etc.

All of that is outside of the domain of MMT.

But had John Carney delved into my blog (at all) or read any of my academic work he would have learned that I take a strong position about “crony capitalism”.

In the past I have advocated among other things:

1. Extensive banking reform to eliminate the power and influence of the financial market elites. Please read the following blogs – Operational design arising from modern monetary theory and Asset bubbles and the conduct of banks and Nationalising the banks – for further discussion.

2. Prosecution and outlawing of the corrupt rating agencies. Please read my blogs – Time to outlaw the credit rating agencies and Moodys and Japan – rating agency declares itself irrelevant – again – for more discussion on this point.

3. Extensive financial market reform to outlaw unproductive speculation Please read my blog – We should ban financial speculation on food prices – for more discussion on this point.

4. Revised policy frameworks to ensure there is a major redistribution of national income back to wages to reduce the reliance of consumption spending on credit growth. Please read my blog – Nationalising the banks and A radical redistribution of income undermined US entrepreneurship – for more discussion on this point.

5. Reject standard Keynesian thinking about “generalised expansion” in favour of employment buffer stocks and hence increased reliance on automatic stabilisers. Please see the blogs that the following string – Job Guarantee – yields.

6. A recognition that class still pervades economic outcomes. Please read my blog – The top-end-of-town have captured the growth – for more discussion on this point.

What has been the logic behind the ideas contained in these blogs? The logic has been to reduce the capacity of the financial market and political elites to capture government policy and skew the benefits in their favour

As John Carney says – by way of criticising what he says is MMTs spending solution to unemployment – that:

The sectors and companies that benefit are not those that bring the most or the widest prosperity but, conversely, those in which prosperity is most concentrated in the hands of a few. The spending is accompanied by regulatory privileges and barriers that also benefit the very same groups. When government spending levels and regulatory operations are high, this has a widely distortive effect on the economy that effectively impoverishes most of the population. This is basic public choice Econ 101 but the MMTers seem blind to it.

Apart from the historically inaccurate claim that high government spending within a tight regulatory environment “impoverishes most of the population” – it is impossible to argue that when output falls and unemployment rises that the problem is not an inadequacy of aggregate demand. Please read my blog – What causes mass unemployment? – for more discussion on this point.

The solution is that one or more of the three main spending sectors: (a) external sector; (b) private domestic sector; and/or (c) the government sector – have to increase their nominal spending growth.

A recession is usually associated with a prolonged decline in private spending growth which also, typically, undermines the prospects of export-led growth. That is why Keynes and others advocated public sector spending to kick-start the economy and promote positive future expectations about the prospects of sales and employment growth in the private sector.

The question is not whether the public sector should increase spending under these conditions but in what way should the fiscal intervention be constructed. That is, what sort of fiscal stimulus is required.

Typically, Post Keynesians – deriving their insights from what they think Keynes wrote – advocate generalised fiscal and monetary expansion mediated by incomes policy and controlled investment as a solution to unemployment.

They advocate a boost to public infrastructure investment which enhances the profitability of private sector investment, in addition to contributing to aggregate demand and employment.

Major construction projects run right into the backyards of the crony capitalists and tend to provide massive profits with lower employment dividends.

Further, public investment is unlikely to benefit the most disadvantaged workers in the economy. The JG is designed to explicitly provide opportunities for them. But the major problems with this sort of (indiscriminate) expansion in isolation is that it does not incorporate an explicit counter-inflation mechanism and fails to address the spatial labour market disparities.

If we only consider aggregate demand as the target then we can design capital infrastructure projects that pump purchasing power into the economy. But how can we be sure that the investment will provide jobs in failing regions? Upon what basis are the most disadvantaged workers with skills that are unlikely to match those required by new technologies going to be included in the ‘generalised expansion’? Where is the inflation anchor?

Further, environmental constraints militate against generalised Keynesian expansion. JG proponents emphasise the regional dispersion of unemployment. Higher output levels are required to increase employment, but the composition of output remains a pivotal policy issue. JG jobs would be designed to support local community development and advance environmental sustainability.

JG workers could participate in many community-based, socially beneficial activities that have intergenerational payoffs, including urban renewal projects, community and personal care, and environmental schemes such as reforestation, sand dune stabilisation, and river valley and erosion control. Most of this labour intensive work requires very little capital equipment and training. We denote this form of spatially targeted employment policy as Spatial Keynesianism, in contrast to the bluntness of orthodox Keynesian tools which fail to account for the spatial distribution of social disadvantage.

Even locally-designed but federally-funded projects do not evade the reach of the crony capitalists. That is where local citizen groups should be involved in the project design phase to ensure that community needs are advanced.

For more analysis of this issue you might like to read our report (from a 3-year study) – Creating effective local labour markets: a new framework for regional employment policy.

Among other things it outlines in considerable detail how job design and project planning can advance wider interests . Before you make any negative comments please read that Report – we have spent years thinking through all the obvious issues.

So MMT is very cognisant of these issues.

The JG also differs from a Keynesian expansion because it represents the minimum stimulus (the cost of hiring unemployed workers) required to achieve full employment rather than relying on market spending and multipliers.

Further, the JG reduces (but does not eliminate) the influence of crony capitalists who always seek to capture government policy to advance their own interests.

The the JG functions as an automatic stabiliser rather than as a discretionary program. It builds further endogeneity into the budget balance. When the economy turns down, the JG pool of workers will rise as displaced workers elect to take the guarantee. When the economy starts to improve again, the private sector merely has to offer a wage (or conditions) better than the JG wage and the JG pool will decline again.

The discretion by governments is thus reduced. A pool of projects would be agreed upon with local communities and the expansion or contraction of the scheme would be automatic. There would be no big bailouts of banks or business firms. The financial markets would be largely dealt out of the game.

The Job Guarantee is not a universal panacea. It is a safety net employment capacity that provides a nominal anchor for the macroeconomy via the fact that the government would never be competing for resources with the private sector. The private sector can bid the workers away any time they want to pay above the minimum wage (and provide reasonable working conditions). If there are inflation pressures, tighter policy settings would redistribute workers from the inflating private sector into the fixed price Job Guarantee pool and stabilise prices. That is how buffer stocks work.

The value of this approach is that the government knows exactly how much stimulus is required to achieve this “loose” full employment on a daily basis. The tap turns off when the last worker walks in the door on any day looking for a job. This provides daily feedback to the fiscal system and overcomes the uncertainty of timing and guessing the size of the stimulus.

Once the economy is at full employment – in this sense – the government can then design other stimulus measures that it deems to be politically sustainable (and which hopefully add social value) to create employment and activity elsewhere. But it always knows that if the nominal demand levels come up against the real capacity of the economy then employment will just be redistributed if policy tightening is required rather than unemployment being created.

The challenge is always to make our governments work for us rather than the elites. MMT is not naive to the capture of our governments by the latter. But what we do about it is in the political domain – the class struggle etc.

MMT does provide a full employment and price stability framework which helps reduce the change of this capture.

Conclusion

John Carney also thinks that “MMTers seem not to understand the politics of inflation and why government often doesn’t prevent inflation from occurring, even though it is obviously within its power to do so”. Well in the interests of time today I will leave that claim and simply assert it is spurious – see previous discussion about the JG>

He concludes his first MMT article by saying that:

… my recommendation to the MMTers is that they stop talking about spending in the abstract. Start talking about spending that leads to crony capitalism and spending that does not. Get on the side of the anti-crony, Tea Party brigades. There’s a natural friendship to be made.

Again I wonder how much MMT literature John Carney has read. I am always emphasising “employment-rich” spending. My recommendations about fiscal stimulus packages are always underscored by the need to introduce a JG as the first step and then develop public services like education, health etc. I have written about the need to eliminate the private insurance companies from health spending and the desirability of nationalising health care.

But whether there is a natural friendship with Tea Party brigades or not is a political issue rather than anything to do with MMT. You could understand MMT and still advocate some of the pernicious social and cultural attitudes that seem to be advanced by the Tea Party.

I would never advance those agendas. Nor do I consider the Tea Party provides any deep understanding of how the monetary system operates. The only question I have is why do people who will be harmed the most by the policies they advocated flock to these political movements. The answer is that they are being used by the cronies. But then John Carney doesn’t address that at all.

I will consider his second offering another day.

That is enough for today!

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67 Responses to MMT is biased towards anti-crony

  1. Walid m says:

    I have to say I did not like Carney’ s article as much as other MMT ers …. I think it says much more about Carney than MMT and you have exposed it as such.

  2. Jim says:

    If the best analogy of the JG you can give is the purchase of agricultural products by the State, then you need to think a bit harder. It might have escaped your notice but people aren’t grains of wheat, or fleeces of wool, identical and fungible. A good proportion of the currently unemployed are in fact unemployable. At the height of the boom here in the UK there were still 1.6m unemployed in the UK (800K on benefits – Link: http://www.bbc.co.uk/news/10604117). This despite an economic situation that had allowed 1.5m Eastern Europeans to come here from 2004 onwards and 99% of them find work immediately. And apart from the official unemployment figures, there were (and still are) hundreds of thousands more hidden away on other benefits, that don’t show up in the unemployment stats.

    How is it going to work in practice? What are you going to do about the unemployables, who have no skills, no desire to work, no self discipline, who have lived their entire life of benefits of one kind or another? People who have fathers and grandfathers who haven’t worked for decades? What do you do if they refuse your ‘job’ (which for many would have to be pretty menial as they have no skills)? Are they to starve on the streets? Or will they get paid whether they turn up or not?

    The whole thing has been tried before – the Manpower Services Commission was an 80s attempt to massage the unemployment figures. It used unemployed people to do manual labour type projects in local communities. Everybody hated it, and it died a death, never to be repeated.

  3. bill says:

    Dear Jim (at 2011/12/28 at 21:47)

    I take it you haven’t read much of the literature on buffer stocks given your comment.

    All of the questions you raise have been discussed at length for more than 15 years in our group.

    It is better to read the full literature (rather than one blog) before you dismiss an idea.

    Try starting with Creating effective local labour markets: a new framework for regional employment policy.

    best wishes
    bill

  4. Jan says:

    Bill
    great post

  5. Senexx says:

    Hi Bill,

    Is it possible to buy a copy of Creating effective local labour markets: a new framework for regional employment policy? As it seems a bit big to print out and read at leisure? (If this includes the functional labour market idea, politically my local area wouldn’t like it as you associate with the opposite area to what my local council has alliances with; but that’s neither here nor there in my opinion)

    And on the JG Buffer Stock (which I’m firming quite considerably on – as there is no other suitable choice), once again politically, it strikes me that the JG wage would be better set just below the currrent minimum wage than at the minimum wage & yes personally I get in aggregate it doesn’t matter given what will flow through the economy but I think it would be more saleable that way.

  6. Senexx says:

    Oh I meant to add I’m sympathetic to Nicholas Gruen’s work on an “Independent” Fiscal Body like we have with monetary policy (he kindly provided me with the relevant papers a couple months back) but provided it is based on the Price Level you have outlined above otherwise I am not supportive of the idea – for much the same reason I’m not too supportive of the Parliamentary Budget Office (PBO) being introduced.

    Sorry Nick.

  7. Will Richardson says:

    Bill, there was an interesting philosophical idea a colleague pointed out to me a while back, noting how well and seriously juries work compared to voters with the recommendation that MPs were s/elected by People’s Juries.

    It strikes me that this would be a good active democratic way of strategically overseeing JG programmes locally, amongst other things.

  8. Dan Furlano says:

    FYI, link is not working.

    Creating effective local labour markets: a new framework for regional employment policy.

  9. ahoi says:

    Hello all,

    Off topic, but I’m interested what impact will Japan’s and China’s decision not to use US dollar in their trade have to US economy and US dollar (looking from MMT perspective)?

    Thank you for comments.

  10. Talvez... says:

    «What are you going to do about the unemployables, who have no skills, no desire to work, no self discipline, who have lived their entire life of benefits of one kind or another? People who have fathers and grandfathers who haven’t worked for decades? What do you do if they refuse your ‘job’ (which for many would have to be pretty menial as they have no skills)? Are they to starve on the streets? Or will they get paid whether they turn up or not?»
    I must say I haven’t read the JG literature, but from my idealisation it’s this:
    1. No skill – the JG uses jobs for which no skills are required. I imagine people cleaning the streets, reforesting areas, fixing the local roads…
    2. No desire to work – if they don’t desire to work, then they are not unemployed. Unemployed involves actively looking for work
    3. If they refuse the job, what is there to doubt? If they don’t want to work, then they don’t get anything.
    4. Are they to starve on the streets? The trade-off is clear. You either work or you starve. If that is the case, how many people do you think it will refuse the job guarantee?

  11. Stephan says:

    Hmmm … for me the link to “Creating effective local labour markets: …” isn’t working. The connection time to the server always times out?

  12. Dan Kervick says:

    Fantastic post! I really learned a lot from this comparison of the MMT approach to price stability to the mainstream CB-oriented approach.

    A lot of people have been complaining lately about the Fed ignoring it’s “dual mandate” for price stability and full employment. But what I take from Bill’s discussion is that the root of this problem is the legislative branch’s practice of passing the buck to the central bank on the full employment question. Legislators can pass all the feel-good “mandates” they want for the Fed. But as as I think Bill is arguing, if you choose the CB/monetary policy route to price stability using buffer stocks, rather than the JG approach, then you have effectively put the two policy goals in conflict. The CB will have no way to set a nominal price anchor – at least on mainstream theory – that does not involve holding down aggregate demand and thus holding down employment. Thus, as he says, unemployment itself becomes a policy tool, and that obviously conflicts with the official policy target of full employment. So for those who think the Fed is the main bad guy here, I would ask, “Whose brilliant idea was it in the first place to abandon the government’s powerful fiscal policy tool and punt the task of achieving full employment to central bank ?”

    I also tend to think that even if the central bank reversed its target priorities, and decided to let prices rise in order to boost Ad and employment, it would fail. Central banks just don’t possess policy tools that provide them with the transmission mechanisms monetarists think they have to regulate aggregate demand.

    When Carney complains about “spending in the abstract”, I get the feeling he is really complaining more about mainstream “Keynesians” like Krugman.

    Anyway, Carney seems to want to jettison all the parts of MMT he doesn’t like – everything related to activist fiscal policy – so that he can turn it into something tea partiers can groove to. But how much is left of MMT if you get rid of the idea of the monopoly issuer of the currency in a monetarily sovereign government using its inherent spending power to achieve positive macroeconomic outcomes?

  13. Neil Wilson says:

    “it strikes me that the JG wage would be better set just below the currrent minimum wage than at the minimum wage”

    It strikes me that the minimum wage can be scrapped once you have a Job guarantee along with a lot of the current employment law red tape. The definition of the Job in the Job Guarantee becomes the minimum standard acceptable in the economy and the labour market will sort out what the premium above the Job guarantee has to be before people will transition to the private sector.

    Disciplining the private sector with an actual alternative job is way better than a lot of disembodied legal rules.

    That’s why its a nominal price stability anchor.

  14. Talvez... says:

    «It strikes me that the minimum wage can be scrapped once you have a Job guarantee along with a lot of the current employment law red tape.»
    I think here lies the key to a more palatable alternative to bank nationalisation (that people don’t seem to approve unless they see their tax money poured in). Just have a State-owned bank and make it the best option. Additionally, have the T&L’s accounts to be in that bank. There you, a banking sector controlled by the democratically elected.

  15. MamMoTh says:

    When the economy starts to improve again, the private sector merely has to offer a wage (or conditions) better than the JG wage and the JG pool will decline again.

    It’s far from obvious how much better the private sector wages and conditions need to be in order to attract JG workers because of the difference between the perceived workloads.

    More importantly, the JG cannot guarantee anything else than a nominal income, not a real income.

    Please don’t point me to a 300 pages report were these issues might be addressed. I wouldn’t read it even if the link wasn’t broken.

  16. SteveK9 says:

    Very timely for me (a newbie). In that post last week I asked several questions about the practical details of the JG concept (somewhat like Jim, but a bit less harsh). And, I wondered how MMT addresses crony capitalism. So, now I have some places to look.

    The two major problems in the US now seem to me to be 1) lack of the understanding of the monetary system provided by MMT, and 2) crony capitalism. 2) might actually be more of a problem. In fact they are somewhat linked in that the 1% are using the misunderstanding of monetary system to help take apart the social programs for the 99% (social security, medicare, medicaid, …).

    The funny thing is that the tea partiers know they are being screwed but they are mixed up as to who is doing it.

    Here is a joke: A tea partier, a CEO and a union work sit down at a table and are given a box of a dozen donuts. The CEO eats 11 of them and turns to the tea partier and says ‘watch out or that union guy is going to eat your donut’.

    The group that finally seems to have figured this out is ‘Occupy Wall Street’ or in short-hand OWS, or becoming more widely known as ‘the 99 percent’. The phrases ‘the 99 percent’ and the ‘one percent’ are turning up more and more often. Could be an interesting summer prior to the election.

  17. Steve Roth says:

    I tweeted carney immediately about this, said that the JG is the very part of MMT that *addresses* cronyism. Cause it’s automatic, not discretionary.

    He replied that it’s unrealistic because we have 13 million unemployed. What will they all do?

    I didn’t reply, but at least part of the answer is thinking short- versus long-term. Hard to ramp it up instantly, but over the long haul you don’t get into these situations.

  18. Talvez... says:

    «It’s far from obvious how much better the private sector wages and conditions need to be in order to attract JG workers because of the difference between the perceived workloads.»

    Indeed, but that is not much different than it works now. Now, a person can be offered twice as much as it is earning now, but to work on a farm (with better work conditions), but because that is a more physical job, they reject it. Since the proposed JG consists of mainly physical work, which the society regards less highly than, for example, working at a bakery, it could happen that we would see people being employed for wages under the Job Guarantee price.

  19. The advocates of JG seem to think there is something “new” or “insightful” about the idea. The idea is as old as the stars. In Ancient Greece, 2,500 years ago Pericles implemented the idea. According to Alison Burford in a book called “The Lives of the Noble Grecians and Romans”, Pericles undertook “vast projects of buildings and designs of work, it being his desire that the undisciplined multitude….should not go without their share of public salaries, and yet should not have them given them for sitting still and doing nothing”.

    And the thinking behind the work houses in Europe and America in the 1600s, 1700s and 1800s, was very much “make work” / JG / WPA – call it what you will.

    As to whether JG is central to MMT or “peripheral” to it, I agree with John Carney: it is peripheral. I.e. one can perfectly well implement a large scale WPA / JG system WITHOUT at the same time implementing other aspects of MMT. It’s what the U.S. did in the 1930s!

    Re the idea that JG employees are a “buffer stock”, so too are the unemployed. So the buffer stock idea does not amount to much. Of course JG can be argued to be superior to unemployment. But it can equally well be argued to be a waste of money. As Roosevelt put it, “Had the money spent through WPA been spent through established agencies of government . . . the people would have got more products from the expenditures in structures and services. And they would have secured things which stood higher on their priority lists.”

  20. JKH says:

    “I often get the view expressed in E-mails etc that the JG is all very nice but peripheral to the deep financial and monetary insights that MMT provides and should be culled from the writings or de-emphasised”

    This may reflect differences in framing, with different perceptions of symmetry/asymmetry.

    That view as quoted above sees JG as peripheral, in the sense that a JG policy prescription is peripheral or logically dependent on understanding the nature of the monetary system and its possibilities. One might be tempted to think of the JG proposal as a “distraction”, in the sense that it is not an inherent feature of existing fiat monetary operations. It means brand new policy architecture in most cases.

    By contrast, your perspective as an MMT creator is that the JG is central to MMT, based on the analytical generality of the buffer stock idea. The buffer stock idea seems entirely symmetric with respect to its position within the complete set of ways that government can affect aggregate demand through monopoly pricing power. This seems like a pretty powerful idea that deserves to be central in MMT analysis.

    So an outside interpreter of MMT may grapple between these two perspectives on symmetry, within the overall MMT logical structure.

    There’s a kind of matrix at work here. Along the dimension of understanding monetary operations, there’s mainstream versus MMT. Along the dimension of policy prescription, there’s status quo versus MTM policy options.

    That final aspect of “MMT policy options” introduces yet a further complication of asymmetry. As far as I can tell, the JG proposal, or some variation of it, is pretty much standard across the MMT “early writers”. This seems to be a reflection of the profound penetration of the buffer stock idea in MMT thinking, and the importance of full employment as a general policy aim. That seems very central indeed, as per the post. On the other hand, there are a number of other proposals that are not so standard in the same way – zero interest rates and no bonds among them. As far as I can tell, MMT leaders don’t all insist on a zero interest rate policy or no bonds as required policy objectives, but I believe they do adhere to JG or some variation of it. This difference in policy optionality, although based on the same type of monetary analysis, may make the JG further stand out as a potential “distraction” for those who focus more on the correct and basic understanding of monetary operations as per MMT.

    I think some of these nuances could be reasons why outsiders find it challenging to get their arms around, and reflect accurately, what MMT is saying in full.

  21. Neil Wilson says:

    “More importantly, the JG cannot guarantee anything else than a nominal income, not a real income.”

    That comment lacks real imagination.

    Add up how much a home, power, food, etc costs and set the job guarantee at that would do nicely for most advanced nations. Where prices creep up you tax away the excess profit and redistribute downwards until it stops.

    What wage the private sector has to bid to take people away from JG is market determined. If they don’t bid for certain functions that then more of the economy moves into the public sector until they do.

  22. Neil Wilson says:

    “He replied that it’s unrealistic because we have 13 million unemployed. What will they all do?”

    In that case there is no hope and we’d better start gunning them down. Because if we can’t think of anything for them to do then neither can the private sector

  23. Adam says:

    News Alert:

    The Economist actually writes an article which talks in some detail about MMT. Too bad they didn’t mention Bill.

    http://www.economist.com/node/21542174

  24. Talvez... says:

    13 million unemployed where? In a 300 million USA?

  25. partha shakkottai says:

    A good stimulus will be infrastruc­ture investment (education­, fund states in deficit like California, hire more teachers, re-employ teachers that have been laid off, repair roads and crumbling bridges etc. This would make a dent in unemployment numbers even without a JG.

  26. Robert says:

    The Newcastle link keeps timing out.

  27. Dan Kervick says:

    “He replied that it’s unrealistic because we have 13 million unemployed. What will they all do?”

    Make airplane tires?

    But seriously, we have stuff falling apart all over the country because state governments have hacked their budgets to pieces.

  28. Partha shakkottai, Given the 2% inflation in the U.S. there probably is scope for expanding the number of regular public sector jobs (and/or private sector jobs, come to that). I.e. the number of non JG jobs could be expanded, as you suggest. I’m not sure about the U.K. with its 5% rate.

    Re infrastructure, every time there is a recession, people start chanting “infrastructure”. I’m tired of it. The first problem is that the necessary skills are just not there amongst the unemployed to double infrastructure spending. Plus it’s just not possible to turn on infrastructure projects come a recession, and turn them off again come the recovery: unless you want ludicrously unproductive and half completed infrastructure projects.

    Re teachers, if unemployment is at what Bill calls the inflation barrier level, one can’t hire more teachers etc on normal wages and conditions. Such hiring reduces the availability or supply of skilled labour to labour shortage areas of the economy, which would exacerbate inflation. Plus such hiring increases AD, which is inflationary.

    But what we could do is to make unemployment benefit conditional on doing JG work. Those moving from unemployment to JG would then have a similar incentive to seek regular work as when unemployed, so labour supply is not reduced. As to what JG work should consist of, I suggest in the case of an unemployed teacher, some form to part time temporary job as a teacher’s assistant in an existing school.

    They’d be far more productive in that capacity than working on specially set up WPA type infrastructure projects.

    As to why it is possible for an unemployed teacher to do a temporary subsidised teaching job, but not a normal teaching job, reason is that as full employment is approached, the suitability of the unemployed for vacancies declines, i.e. the marginal product of labour declines. That deficiency CAN be made good with a JG type subsidy. In contrast, if the job comes into being via a straight rise in demand or normal increase in govt spending, that demand/spending will tend to bid up the price of more skilled labour, because at the inflation barrier point, the unemployed, even when they have skills, tend to be bad value for money.

  29. Senexx says:

    I know economically we talk of nominal and real wages (adjusted for inflation) but do you think the labourer with a wife and four kids bothers thinking about real wages – as long as his nominal wage is enough to get the kids off to school, the utility and car bills paid and food on the table he’ll be content.
    Also there is other work on this blog that suggests raising the JG wage from time to time to adjust for the cost of living.

    And Neil I do agree with you about the JG in your earlier comment except that would be post JG not pre JG otherwise I see lobbies grabbing hold of your ideas and wishing to push wages lower to an allegedly market clearing wage which is ultimately a fallacy of composition.

  30. Dan Kervick says:

    Krugman is actually quite good today:

    “All around, right now, there are people declaring that our best days are behind us, that the economy has suffered a general loss of dynamism, that it’s unrealistic to expect a quick return to anything like full employment. There were people saying the same thing in the 1930s! Then came the approach of World War II, which finally induced an adequate-sized fiscal stimulus — and suddenly there were enough jobs, and all those unneeded and useless workers turned out to be quite productive, thank you.”

    “There is nothing — nothing — in what we see suggesting that this current depression is more than a problem of inadequate demand. This could be turned around in months with the right policies. Our problem isn’t, ultimately, economic; it’s political, brought on by an elite that would rather cling to its prejudices than turn the nation around.”

  31. MamMoTh says:

    Add up how much a home, power, food, etc costs and set the job guarantee at that would do nicely for most advanced nations. Where prices creep up you tax away the excess profit and redistribute downwards until it stops.

    The comment above should always be added when the JG is mentioned as the panacea that will guarantee a decent standard of living to anyone, because it makes it clear that it is not the JG but the redistribution through taxation that could achieve that goal, if people don’t subvert.

  32. MamMoTh says:

    Senexx, you actually made the point that what people care about is their real wages, not nominal.

  33. Talvez... says:

    «I.e. the number of non JG jobs could be expanded, as you suggest. I’m not sure about the U.K. with its 5% rate.»
    I have read that what produces inflation despite the recession in Portugal and Greece were the taxes.

    How can taxes cause inflation? Are they relevant?

  34. Jack says:

    In Switzerland one of the richest nations on earth, their conscript army is paid $16 per day one of the lowest in the world, the fact that they are fed, housed and are fulfilling an obligation to the state are the important issues, I see no reason why a similiar environmental army cant be created, as a JG program, cleaning the carp out of the murray darling for example.

  35. Walid M says:

    Carney ‘ comments on the 13 million unemployed shows a total lack of imagination , faith and a lot of ego .
    I profess I don’t know how to employ 13 million but I can think of creating a few jobs . However unlike Carney I have faith in my fellow man’s ingenuity and if only 10 % of Americans can think of how to create a job or two then the problem is solved very quickly .
    In the world of the 1% there is a tendency to think that only they can think ..And if they can not think it then it must not be possible ……honestly how dumb can these guys get …

  36. Richard1 says:

    The link is not currently working, so may be I am raising a question that is already answered.

    I am assuming that the income from a JG scheme forms an underpining lowest level income within a modern society.

    Many, at present being made unemployed, are reasonably well qualified, if not highly qualified, and are finding it difficult to get work. Also, the income from a JG scheme is insufficient to support the necessary child care and other expenses that are incurred when one is employed. Taking a low paid job, no matter who the employer is, for many is not a viable option if there is no net gain in income to the household. If there is more than one income earner in a householder, they can be better off with one person working and the other claiming benefits, even though both want to work. In this situation the idea of a JG does not help the household.

    Have I misunderstood?

  37. bill says:

    Dear All

    The link – http://e1.newcastle.edu.au/coffee/pubs/reports/2008/CofFEE_JA/CofFEE_JA_final_report_November_2008.pdf – is now working. The server had problems overnight. Sorry for the problems.

    best wishes
    bill

  38. bill says:

    Dear MamMoth (at 2011/12/29 at 4:01)

    Please don’t point me to a 300 pages report were these issues might be addressed. I wouldn’t read it even if the link wasn’t broken.

    Are you worried that you might read something that challenges your views?
    best wishes
    bill

  39. bill says:

    Dear Steve Roth (at 2011/12/29 at 4:25)

    Thanks for the tweet.

    The National Employment Guarantee in India has employed millions since it started and reduced poverty rates.

    There are millions of productive jobs out there – in the US and elsewhere. It just needs a paymaster to get people engaged again.

    best wishes
    bill

  40. liudechuan says:

    Bill,

    I wish that China’s top planners would invite your group to teach in their top universities. Your MMT is more aligned with what the CCP espoused but didn’t know how to achieve in a free-market economy. They should have their next generation of leaders learn from you rather than from the mainstream economists in the U.S.

  41. CharlesJ says:

    Neil,
    “It strikes me that the minimum wage can be scrapped once you have a Job guarantee…”

    Put youself in the position of an employer in the UK with people able to cross borders for work very easily- you can either try to pay a wage above the JG wage, or you can employ someone from eastern Europe for £1/hr less.

    I think that in the UK a minimum wage (local or national) should be maintained, and it is probably sensible to have this slightly above the JG wage.

    Kind Regards
    Charlie

  42. Matt Franko says:

    Mamo & Neil,

    Warren’s $8.00/hr is not high enough for the current price structure of the US economy.

    Resp,

    PS Mamo: You’re always looking for the easy way! ;)

  43. Richard C says:

    I like the idea of JG, but I don’t understand how it would keep inflation in check.

    As you state, the private sector can always draw workers from the JG pool by offering higher wages. And the only companies or entire sectors that would do this would be the booming ones. For example, the housing and mortgage service industries probably would have drawn workers from JG during the bubble. And clearly this bubble was inflationary as housing prices went off the charts.

    You do reference some kind of “policy tightening” as the response if there was inflation, but I don’t know what you mean by that. The only way to draw workers back to the JG pool (from housing and mortgage services for example) would be to pay higher wages (or benefits), which then would be inflationary itself, would it not?

  44. Senexx says:

    Mammoth,

    I made multiple points. On the JG, I agree that I made that point about the cost of living adjustments – however the labourer doesn’t think in the term of my wage needs to be adjusted for inflation, he thinks will it cover my bills. Money is money is money to the labourer.

  45. Neil Wilson says:

    ” or you can employ someone from eastern Europe for £1/hr less.”

    And why then wouldn’t the Eastern european leave the UK job for a Job Guarantee job in the UK given that they could then earn more for the same effort?

    People really aren’t thinking this through based on known behaviours of people. At the low end with manual work, money acts as a motivator.

  46. Neil Wilson says:

    ” because it makes it clear that it is not the JG but the redistribution through taxation that could achieve that goal,”

    It doesn’t at all. “Where prices creep up” is a conditional. Skipping that conditional is a key ‘Watchtower’ mistake in the logical reasoning of your point.

    The alternative is that prices don’t creep up and capitalists ‘pay’ for the JG via quantity expansion in the economy – which is how everybody would prefer that it was paid for.

    How much the JG costs is entirely in the hands of the capitalists. If they invest, quantity expand and hire then it is very likely that it will pay for itself easily and the capitalists will be much better off than before.

    That’s what happens when you concentrate on making the pie as big as possible rather than concerning yourself solely with getting the biggest slice.

  47. Neil Wilson says:

    “And Neil I do agree with you about the JG in your earlier comment except that would be post JG not pre JG”

    To be clear the minimum wage and employment legislation deregulations can only happen once the JG anchor is in place and operational.

    I would use that as a selling point into business. Employment legislation is designed to stop people ending up on the unemployment queue. It tends to be bureaucratic and badly designed. Given that any breakdown in relations always boils down to money in the end, there should just be a statutory amount you have to pay people off with and that’s the end of it. But that can only work if there is a JG in place.

  48. Neil Wilson says:

    The one issue that the UK and Sweden are in a slightly different position than Australia, US and Japan in that we have semi-open borders to 26 other countries via our membership of the EU.

    Now we could address that a couple of ways. Firstly is to refuse the Job Guarantee to non-domiciled individuals and still remove the minimum wage. That way we can guarantee that slave labour is always foreign and domestic citizens can enjoy a higher quality of life on the backs of a slave population. I can’t say that appeals and it is very likely to be challenged under freedom of movement rules.

    However with open borders there is no doubt you will get a flood of immigrants even higher than we have at the moment. Europe is after all a neo-classical war-zone and the casualty count is only going to go up.

    Can JG be made to work with open borders?

  49. bill says:

    Dear Neil Wilson (at 2011/12/29 at 19:37)

    You asked:

    Can JG be made to work with open borders?

    Registration at the Job Guarantee depot would require a passport or some other identity card!

    best wishes
    bill

  50. MamMoTh says:

    Dear Bill

    Are you worried that you might read something that challenges your views?

    Not at all. But I am really worried when simple questions don’t get simple answers.
    Which is what happens when someone points me to a 300 pages report every time a simple question is asked.

  51. Talvez... says:

    «Can JG be made to work with open borders?»
    Given EU law, probably anything you offer to national citizens you’d have to offer the rest.

  52. JIm Thomson says:

    One of the themes in the comments is how can unskilled people in the JG function as teachers and skilled construction people. I think the answer is that the JG is not intended to employ laid-off teachers or to build critical infrastructure. These tasks must be adequately funded by federal funds which are not subject to the business cycle. It is insanity that in the US, teachers, who are paid by state and local governments, are being let go due to declining property and sales tax revenue. There should be adequate federal transfer payments to maintain critical services and infrastructure at all times. Given the JG funding, cities and states will always be able to find tasks for the less skilled JG people. I was in Washington, DC this fall with a friend from Michigan who commented on how filthy the Jefferson Memorial was, with bird poop and stains all over it, grass growing in the cracks. He was embarrassed with all the foreign visitors there. Sounds perfect for a JG team.

  53. constant peers says:

    In her “Jobs for All with a Green New Deal” post, Stein said it is time for the White House and Congress to admit that showering money on Wall Street is a failed strategy.
    “Decades of hard-won experience – plus basic economic theory – show that government spending is essential in a recession to stimulate demand and put people back to work,” she wrote.

    But the president and both major parties instead have used the recession caused by Wall Street abuse, costly wars and bogus trickle-down economics as excuses to slash funding for vital programs.

    “As a result, seniors, working families and the poor are footing the bill for tax giveaways to the wealthy and large corporations,” she wrote. “This is not only wrong, it’s also guaranteed to destroy jobs and weaken the economy.”

    http://www.counterpunch.org/2011/12/29/a-green-new-deal-2/

    http://www.jillstein.org/green_new_deal

    At least some seem to get it

  54. Talvez... says:

    @Steve
    «He replied that it’s unrealistic because we have 13 million unemployed. What will they all do?»
    Randall Wray seems to answer that question: http://www.economonitor.com/lrwray/2011/12/26/the-job-guarantee-as-an-alternative-to-enforced-idleness-but-what-will-they-do-examples-from-the-wpa/

  55. Bill, this post ranks with your best!

    Remember fondly all the time we spent way back working all this out, writing the early papers, giving the talks in Newcastle, Sydney, and Canberra.

    Let me add that it begins with the fact the currency is a (simple) public monopoly, and as we all learned, monopolists are necessarily price setters. And in a market economy, the monopolist sets one price and lets the other’s adjust.

    At one of Mario and Marcs ‘post Canadian’ :) conferences, I decided to rename my talk at the last minute calling it something like ‘maximizing price stability in a market economy’ and went on to show how price stability is always via some form of buffer stock or another, and how the most stable and the deepest, most liquid ‘commodity’ gives the best results, with unskilled labor being the most stable, deepest and most liquid, etc. concluding that price stability is maximized with a jg policy. And (jesting) that you just have to accept full employment as a side effect.

    Back to the monopoly thing, when govt has any other monopoly is knows to set price and let q adjust- telephone, electric, water, sewer, etc. etc.

    But when it comes to the currency, not realizing its just an other monopoly, it tries to set q via its budgeting process, and paying ‘market prices’ and then trying to figure out the right q to net spend for full employment and price stability. Of course it’s chaotic and requires thousands of analysts to get it even a bit right. Think of running the other monopolies that way- the electric company setting how many kw it’s going to sell and letting the market decide price, for example- and it would be just as chaotic and disruptive.

    Also, none of the recent publicity would have happened without your blog paving the way and establishing
    a virtual MMT text book.

    ;)

    Best!
    Warren
    http://www.moslereconomics.com

  56. rodney rondeau says:

    lot of talk about the jg providing incentive for its workers to not enter the private sector. I disagree. Once the pool of unemployed is drained it will require the private sector to increase wages to attract workers out of the jg pool. Once they get them out they may be a lot less likeyly to let them go.

  57. Jeff says:

    I think there remains a major disconnect between the MMT writers & theorists and capturing the non-economists with regard to the JG. As I have posted before the JG looks very elegant on paper and i’m sure you can argue the hell out of what a beautiful ‘nominal price stability anchor’ it is. But as Carney points out, managing 13.5 million who are more likely to be less skilled and less motivated is naive. I would encourage the MMT developers to climb down from their towers and take a closer look at how min. wage employees are managed and the difficulties that are faced with doing so effectively. I work in manufacturing as an ops. manager and I can tell you that most employees who are laid off have issues with showing up for work, substance abuse and a general lack of motivation. Without digging out the study, a recent manufacturing publication survey cited punctuality as the #1 issue employers were having with their employees.

    Again, I ask: Who will manage the 13.5 million unemployed in a JG scenario?

  58. Talvez... says:

    @rodney
    The mainstream comments say “The time of a job for a life is over” and those things. I think it’s not – and Japan is, for me, the living proof.

    Japan is the living proof for a lot of stuff, isn’t it?

  59. John O'Connell says:

    I didn’t read the entire 300 pages, but I found the list of jobs on page 258. They are all jobs that will be familiar to most of us.

    My problem is that these jobs already exist, and yet we still have an unemployed buffer stock of labor. If there were a demand for more people to do these jobs, then the unemployed would have been hired to do them.

    Perhaps the public sector jobs, like cleaning the bird poop off the Jefferson Memorial, are unfilled simply because of misconceptions about monetary sovereignty. Fine. Then once those misconceptions are cleared up, there ought to be a permanent employee cleaning the bird poop off the Jefferson Memorial. It’s not something we should do only in recessions, and let the bird poop accumulate during the good times.

    Beyond that, whenever we do get around to cleaning bird poop off public monuments, it is probably done by a contractor who is paying union scale, not minimum wage. If it is a federal employee, then it is most certainly a union employee. If we were to do it with JG workers, what happens to the incomes of those union workers?

    Turnover: In 2006, at the height of the latest employment boom, as today, the stats for new unemployment claims are about 10% of the ongoing claims. That means your JG workforce will have 10% turnover PER WEEK. I searched the 300-page pdf for the word “turnover” and found concerns for the high turnover (25% annual) of the staff that would administer the program, but no discussion of how you manage a workforce with 520% annual turnover. I can’t imagine doing any significant project, like building a road or a bridge, in that situation.

    I think JG jobs have to be something that is useful, but not being done today, and won’t be missed when the economy improves and it will be done no longer. What jobs are they? I’ve asked that question on a few MMT blogs now, and nobody has suggested any jobs or projects that meet those criteria.

    I have one idea, though: companies today expect to hire workers with skills, even at entry-level positions. They no longer are willing to invest heavily in training entry-level employees, as they used to do when I started out. And despite the high unemployment, some companies still cry for more H-1B Visas so that they can hire qualified foreign workers into jobs that they can’t fill domestically. JG could subsidize the training of a “buffer stock” employee, and maybe these companies would be willing to hire and train entry-level people again.

  60. Paul Mineiro says:

    Regarding JG, I have lots of practical questions. Although my bias is that it can’t work … before I encountered MMT my belief was that the government needed to borrow excess spending above taxes … so basically now I’m willing to believe anything :)

    Does the government fire workers who are in the JG program and not performing? What happens in that case … do they get unemployment? Intuitively it feels like the public sector has more difficulty shedding unproductive workers than the private sector (is there any data on that issue either way?). How can we structure the JG to ensure it is not abused?

    How do we set the wage (including benefits!) package for workers in the JG? In other words, what is the correct reserve price for labor? Furthermore, politically, is the correct price not achievable in practice? For example, in California public sector unions have negotiated generous retirement programs in lieu of immediate salary and the electorate didn’t notice because they have a focus on short-term immediate cash flow. Could JG ultimately damage the economy by providing too generous a guarantee? If so, how can the JG be structured to prevent this?

  61. Paul Mineiro says:

    I imagine everyone has very similar questions about JG when first encountering it (e.g., what keeps workers from just collecting the JG and not doing anything?, or … how do we prevent the electorate from voting the JG to be overly generous and destroying the economy? kind of stuff).

    And I imagine there are good answers to these questions since smart people have noodled on it for a while.

    However when I google for “job guarantee faq” I get very different things. It would be great if there were a somewhat-digestable-to-the-layman non-300-page faq about JG which addressed the above concerns and also had good search rank :)

  62. Graham says:

    Not only price stability would follow from the jg, but stability in general. Just imagine the risk that is removed from banks with home, car, and other loans and the borrower would always be able to pay something. Also at this point ‘free enterprise’ would be would up with demand/production. In the end, it is the public good that is paramount, and capitalists would rise on the tide of demand that would be generated. Win/Win.

  63. Tim says:

    John,
    H1B is by and large bullshit. American companies aren’t lacking “qualified workers.” What they are lacking is qualified workers willing to work for the crap wages they are offering– therefore, they seek overseas workers.

    If you had spent any time working in tech at the grunt level you would know this.

  64. Andy says:

    “Does the government fire workers who are in the JG program and not performing? What happens in that case … do they get unemployment?”

    Page 232. Last paragraph

  65. joey says:

    I am looking for a little help for my own edification on some of the ideas on this website. I understand bill’s ideas for limiting inflation under MMT, but how does a government guide the value of their currency, in other words how does one prevent too much instability and depreciation of in my case USD? I ask here because I feel I have learned much from this website both from Bill and the intelligent posts by commentators. Thanks Joe

  66. JimW says:

    Hi
    Looking at questions of our political and class structure I have recently become very interested in the possibly lost idea of a rentier class(s). Questions of corruption tie in with this too. Rentiers and rent-seeking I don’t think are side issues either. Rentiers are the politically organized, very powerful, and even dominant focus for much that will seek to undermine MMT’s insights and aims. Do rents, monopolies, trusts etc. form part of MMT’s political and economic analysis?
    Thanks,
    Jim

  67. JimW says:

    Just to add – it was this by Michael Hudson that developed an interest in rents and rentiers http://wp.me/p5qmX-uW5
    Jim

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