My blog post last week – On the path to MMT becoming mainstream (April 17, 2018) – discussed the way in which the language and concepts that have been developed by the Modern Monetary Theory (MMT) authors are now permeating mainstream narratives and the media. While this has increased the pushback and hostility from both the Right and Left opposition to MMT, it is also a sign that the public understanding of the way in which the monetary system works and the policy options available to currency-issuing governments, is improving. Most recently, there is been a flurry in the US media discussing employment guarantees, which is a welcome relief from the previous saturation coverage of impoverished UBI ideas. It is fabulous, that at the policy level, the idea that the state can eliminate mass (involuntary) unemployment if it so chooses is becoming more acceptable. That’s down, in part, to the great work being done there by my MMT colleagues. There are also derivative public sector job creation proposals getting ‘airplay’ which I do not consider to be MMT-inspired nor are what I would call Job Guarantee initiatives, but which are still, to their credit, raising awareness of the need for the state to ensure there are sufficient jobs for all rather than dispatch citizens who are unable to find work to the unemployment queue. The push back is increasing and that is a sign that dissonance is being felt by the neoliberals who oppose the state taking responsibility for mass unemployment and using its fiscal capacity to render it a thing of the past. Many of the critics from the Left do not have the courage to come out and say they prefer the alternative to a Job Guarantee, which is entrenched unemployment. That leaves them carping away with no legs to stand on. The Right objections are venal as they always are – they want mass unemployment to persist to dampen wages growth and allow more real income to be captured by the top-end-of-town.
Before we get into the specific topic of today’s blog post, I note that various social media discussions still don’t quite grasp the idea that the Job Guarantee is a specific and intrinsic element of Modern Monetary Theory (MMT) rather than a policy choice that might reflect progressive Left values.
I have explained this point several times in detail, here are two blog posts (among others) for you to reflect upon if you’re uncertain as to what I meant in the last paragraph:
1. Whatever – its either employment or unemployment buffer stocks (December 30, 2011).
2. MMT is biased towards anti-crony (December 28, 2011).
The point is that in macroeconomics we care about ‘efficiency’, which means that wasted productive resources that are willing and able to be deployed (referring obviously to labour resources but it generalises to all productive resources) are being used to advance societal well-being within a context of sustainability of the natural environment.
That also means that macro stability is important, which includes a goal of price stability. In other words, full employment and price stability are key macroeconomic goals, and a body of theory must seek to outline an achievable path for both, by understanding how the economic and monetary system operates and the policy choices available to the government within that system.
As I explained in the blog post – Modern monetary theory and inflation – Part 1 (July 7, 2010), to achieve price stability in a fiat currency monetary system there are only two options available to government, and both involve the use of buffer stocks:
- 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.
Given the massive costs involved (see below) in the use of the first buffer stock option (mass unemployment), the only efficient option for government is the use of a Job Guarantee.
There really is no alternative in this context.
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.
The other point of clarification (hinted at in the Introduction), which I will expand on in a future blog post, is what I see as the difference between a Job Guarantee as developed by the original MMT authors (Mosler, Wray, Forstater, Fullwiler, Tcherneva, Kelton and myself) and various derivatives of that idea that had been proposed in more recent times.
The Job Guarantee is a very specific concept that constitutes a macroeconomic stability framework. It cannot merely be seen as a national job creation program nor does it apply to any localised subsidised public job initiatives (trials, pilots etc).
To suggest that some of the recent employment creation proposals that have been marketed under the moniker of a ‘jobs guarantee’ program are MMT-inspired is like saying that if you put wings on a Ford Fiesta you get a Mustang. I’ll write more about that another day.
Further, the MMT Job Guarantee also has nothing in common with so-called ‘workfare’ or ‘work-for-the-dole’ programs that neoliberal-inspired governments have introduced as compliance initiatives in some misguided attempt to force the income support recipients to ‘earn’ their pitiful benefit allowances.
Some of the cheap push back tries to dismiss the Job Guarantee as ‘workfare’ because they know that carries a negative connotation. In doing so, they disclose their ignorance and their lack of knowledge of the vast literature we have created, some of which has addressed that exact criticism more than two decades ago.
I know that some readers think it is unreasonable when I urge them to read widely before making assertions about what I write in my blog posts.
But for a journalist engaging in commentary and opinion rather than news reporting, there should be no other option – they are holding themselves out as experts, qualified to pass comment (judgement), and as such should be familiar with the literature and attribute ideas and concepts correctly.
They don’t, which usually ends up creating confusion among their readership and half-witted responses via social media about complex ideas.
And then the whole discussion gets lost in a haze of ignorance.
A recent example is the article on Vox (April 24, 2018) – Job guarantees, explained – by one Dylan Matthews, who asks the question “Would it work?”.
A point of relevance is to ask him exactly what “IT” is?
It is easy to invoke a concept, set up a straw person, and debunk the latter then suggest that defeats the former.
You will also note that Matthews talks about “Job guarantees” rather than a Job Guarantee. In my view, there is only one Job Guarantee in the literature and that is the framework developed by the original MMT authors. Note my comments above.
But there are a plethora of employment creation proposals which come under the more general group heading of ‘job guarantees’.
In the article cited above, this distinction is implied but not elaborated on. Matthews concentrates on non-MMT employment creation suggestions that are abroad in the American debate at present and gives scant attention to the development of a Job Guarantee within the MMT literature.
He ignores that literature except for a cursory reference to the excellent work by my MMT colleague Pavlina Tcherneva.
And most of the critical references he cites are not relevant to the Job Guarantee framework. They also have questionable relevance to any employment guarantee proposal in that they dredge up the usual suspects – where would the jobs come from, when they compete with the private sector, wouldn’t they just be unproductive resource wastage, who would get the jobs, et cetera.
All of these issues have been addressed by MMT authors over the last 25 odd years.
As an example, Matthews cited a paper published in July 2015 by the Forschungsinstitut
zur Zukunft der Arbeit (Institute for the Study of Labour) in Bonn – What Works? A Meta Analysis of Recent Active Labor Market Program Evaluations – written by David Card, Jochen Kluve and Andrea Weber.
I suspect he hasn’t fully read the paper or understood its method and limitations. He clearly doesn’t understand that is says nothing of interest about the Job Guarantee proposal or any other employment proposal that guarantees on-going work to workers.
The Vox article chose to summarise the Card paper in this way:
Berkeley economist David Card recently conducted a meta-analysis of more than 200 evaluations of programs meant to boost labor markets, along with fellow economists Jochen Kluve and Andrea Weber. While they found a variety of impacts of different programs, one constant was that public employment programs that simply hired people directly performed worst.
Which is not a conclusion that anyone who actually read the paper by Card et al, would draw and certainly the quality of the research in that cited paper was not subjected to any scrutiny by Matthews.
He chooses just to be passive mouthpiece, which doesn’t do him any credit at all.
A Meta-analysis derives its results from existing research – it is like throwing all the extant research into a melting pot and generating a “common truth”.
The technique is not without serious problems including bias in the selection of the studies to be concluded, addressing data differences including incompleteness, and so-called publication bias.
Further, if the original studies are flawed, the meta-analysis cannot fix that. In an attempt to overcome that limitation, researchers delete studies they think might be problematic. But that introduces selection bias – which a ‘skilled’ researcher can maximise to their advantage without disclosing the extent of the bias.
The publication bias problem is acute. If one relies only on studies that have been ‘published’, the editorial bias of the relevant journals is also inherited.
In economics, it is nearly impossible to get published in the so-called ‘top’ journals if you are, for example, a heterodox economist.
I once attended a seminar where the then editor of one of these ‘leading’ journals (noting that the ranking system is self-referential and ‘cooked’ anyway) said he undertakes his duties by weeding out 90 per cent or more of submissions received using simple word scans before the rest are sent out to peer review.
Further, I discussed in this blog post – Bank of England Groupthink exposed (January 8, 2015) – how Olivier Blanchard (who at the time was the chief economist at the IMF) wrote in his August 2008 article – The State of Macro – that research articles in macroeconomics now:
… look very similar to each other in structure, and very different from the way they did thirty years ago …
He said that they now follow “strict, haiku-like, rules”.
Graduate students are trained to follow these ‘haiku-like’ rules, that govern an economics paper’s chance of publication success.
So if an article submission does not conform to this haiku-like structure it has a significantly diminished chance of publication.
So we get a formulaic approach to publications in macroeconomics that goes like this:
- Assert without foundation – so-called micro-foundations – rationality, maximisation, RATEX.
- Cannot deal with real world people so deal with one infinitely-lived agent!
- Assert efficient, competitive markets as optimality benchmark.
- Write some trivial mathematical equations and solve.
- Policy shock ‘solution’ to ‘prove’ fiscal policy ineffective (Ricardian equivalence) and austerity is good. Perhaps allow some short-run stimulus effect.
- Get some data – realise poor fit – add some ad hoc lags (price stickiness etc) to improve ‘fit’ but end up with identical long-term results.
- Maintain pretense that micro-foundations are intact – after all it is the only claim to intellectual authority.
- Publish articles that reinforce starting assumptions.
- Knowledge quotient – ZERO – GIGO.
This is why the publication bias problem is significant.
Further, in my field (economics) one can never really get a publication if the research only produces ‘negative’ results. That is, the researcher fails to find anything. I believe this is a common problem in other disciplines as well.
I won’t go into the specific statistical issues that arise from truncating the sample of information that is used and ignoring a vast body of research that never reaches journal publication stage (such as doctoral studies, conference papers etc).
The Card meta-analysis attempt to address this issue is, in my view, unconvincing.
There are a host of other issues involved in using meta-analysis, so I would never confidently cite them as an authority without first understanding exactly what the authors did.
In the Card et al. approach they also only focus on:
… studies that measure the impact of a program on the probability of employment …
This narrows the field considerably and assumes that the purpose of the employment creation programs were to increase that outcome rather than to provide on-going employment itself.
The literature also typically narrows the outcome down to the “probability of employment” with a private employer. So if that transition likelihood is found to be low, the program is deemed a failure because it fails the ‘market’ test.
This is a version of the ‘make work’ criticism of employment guarantees – which goes that unless the work is making profit for some capitalist or another it must be worthless and unproductive.
I considered that issues in this blog post (among others) – Boondoggling and leaf-raking … (April 22, 2009).
The evaluation paper published in the OECD Economic Studies (2000) – What works among active labour market policies by John P. Martin, who is an economist at the OECD, is instructive in this regard.
Martin notes that
… “outcomes”, in the evaluation literature, are invariably expressed in terms of programme impacts on future earnings and/or re-employment prospects of participants … There is little or no evidence available on potential social benefits which could flow from programme participation such as reduced crime, less drug abuse or better health.
This is an important point because we know that apart from income loss, unemployment (particularly for extended periods) is associated with the pathologies mentioned in the quote.
Over the years we have done considerable research in that area and I reported some of that in these blog posts (among others):
1. The daily losses from unemployment (January 13, 2010).
2. The costs of unemployment – again (January 13, 2012).
While the daily losses in income alone are enormous, it is also well documented that sustained unemployment imposes significant economic, personal and social costs that include:
- loss of current output;
- social exclusion and the loss of freedom;
- skill loss;
- psychological harm;
- ill health and reduced life expectancy;
- loss of motivation;
- the undermining of human relations and family life;
- racial and gender inequality; and
- loss of social values and responsibility.
These costs are also enormous and dwarf the measures that various governments have come up with to estimate losses arising from so-called microeconomic inefficiencies (such as transport systems not running on time etc).
They also ensure that the losses extend beyond the current generation. Children growing up in jobless families inherit the disadvantages of their parents and perpetuate the cycle of disadvantage.
So to just focus on whether a specific program increases the transition probability of an unemployed person into private employment (no matter what wage, conditions, tenure is offered in that private job) is hardly a basis for concluding that a Job Guarantee would fail.
From where I sit, if a Job Guarantee provides stable income (a socially-inclusive living wage and non-wage benefits such as child care, access to training and education, health care etc) to a severely disadvantaged citizen who cannot find work elsewhere, and if, that person increases their self esteem and is healthier, more engaged with society and can better care for their families, then it is a huge success.
Even if that person stays in that Job Guarantee position for ever and no private employer would ever take them on.
That sort of ‘successful’ outcome is denied (excluded) in the Card meta-analysis.
So when they conclude that:
Public sector employment subsidies tend to have negligible or even negative impacts at all horizons.
They are not saying anything meaningful about a Job Guarantee, which by definition creates stable jobs with socially-inclusive wages for anyone who cannot find a job elsewhere.
Further, readers should note also that the sample of programs included in the Card meta-analysis was “restricted … to time-limited programs, eliminating open-ended entitlements”.
So the sort of programs they are considering might include a job creation initiative that offers subsidised wages for a 3-month time period but terminates after that.
Accordingly, their results have little application to an MMT-inspired Job Guarantee which is unconditional and open-ended.
Further, their study can say nothing about any employment guarantee program (MMT-inspired or not) that is not time-limited.
Further, the sample created by the Card meta-study has very few public sector job programs – they said these programs “were relatively rare in all county (sic) groups”, which means there is probably insufficient variance in the original estimates of variables associated with these programs to get accurate estimates anyway.
Of their conclusions, I have this to say:
1. They conclude that “public sector programs” perform poorly because “private employers place little value on the experiences gained in a public sector program — perhaps because many of these programs have little or no skill-building component, and only serve to slow down the transition of participants to unsubsidized jobs”.
This conclusion is irrelevant to a Job Guarantee.
Even if it was true that in times of stronger activity the private employers choose to lose market share by shunning Job Guarantee workers, the Job Guarantee workers will still enjoy stable incomes that allow for a socially-inclusive life to be led.
Their children will still learn to value work and not inherit the disadvantage that would have arisen if their parent(s) remained long-term unemployed.
And the rest of it.
The reality is that it is highly unlikely that private employers would be prepared to lose market share in this way as economic activity was boosted.
They can afford to be choosy during recession. But when they are enjoying higher levels of demand for goods and services, a firm that engages in such discrimination, will just lose their sales to a competitor.
The evidence is very powerful. During the full employment era, when unfilled vacancies ran ahead of available workers, firms would structure their job offers to take even the most unskilled workers – offering them training and assistance to ensure they were capable of performing the tasks required.
They did that because otherwise they would have sacrificed profits.
2. “public sector employment programs appear to be relatively ineffective at all time horizons” – the term ineffective is not applicable to a Job Guarantee which aims to unconditionally provide stable employment with a living wage.
Whether this improves a participant’s chances of getting a private sector job is irrelevant. The point is that the operation of the Job Guarantee, by definition, creates successful outcomes.
And if the private sector are in need of labour then they just have to offer wages and conditions that are better than what the Job Guarantee worker is enjoying to attract the labour from the program pool.
As above, if the private sector employers don’t want to do that, then in times of growing economic activity, all they will do is sacrifice profits. Unlikely.
3. Card et al. also find that all programs “work better in recessionary markets” but they are unable to determine why. This is a well-known problem of these types of studies.
John P. Martin (cited above) notes that:
This literature is bedevilled by a number of data and technical difficulties, notably simultaneity bias since cross-country comparisons reveal that the amount of spending on active programmes is positively related to the unemployment rate.
In other words, it is impossible to decompose the cyclical effects from the underlying impacts of the programs being compared.
Readers might also be interested in the excellent historical analysis – Lessons from the New Deal Public Employment Programs (October 1, 2009) – by US academic Nancy Rose.
I had the pleasure of hosting a visit by Nancy Rose to Newcastle some years ago.
She has been a long-time advocate of job creation programs and a critic of Workfare type programs. She is not what I would consider to be an MMT-er.
Her research confirms that evidence from the Great Depression show that:
… it is possible to implement expansive and creative public employment programs …
Further, she notes that criticisms such as “inefficiency and unnecessary ‘make-work’ … workers … substituted for normal government employees, payments … too high, and the entire program … too expensive and riddled with graft and corruption” are always invoked by critics who just oppose public sector intervention per se.
These critics have worked to dissuade governments from introducing public sector employment creation:
This absence has been bolstered by the now commonly accepted “wisdom” of several decades of conservative, neoliberal ideology, which argues that as much economic activity as possible should be left in the hands of the private sector.
The neoliberal era has pushed the line that:
… government is … inefficient simply because it does not operate on profit criteria — the lack of a profit motive automatically leads to inefficiency. This contrasts to the private sector, which does base decisions on profits.
This is related to the use of private sector employability as a measure of success for public sector job programs, even though that goal may be subsidiary or irrelevant to the aim of improving general welfare.
In other words, efficiency is far broader than a concept that maximises private profits.
And that is not to mention the obvious fact that the private sector is not the exemplar of efficiency anyway, even when defined in the narrow way mainstream economists might choose.
The GFC confirms that if you ever doubted it.
Further, the legacy of many of the Depression projects in the US and Australia (the Great Ocean Road, for example) demonstrate how productive this sort of work can be if designed and implemented properly.
The importance of designing projects appropriately is emphasised in the study published in the October 2000 edition of the Monthly Labor Review by Melvin M. Brodsky from the US Bureau of Labor Statistics – Public-service employment programs in selected OECD countries.
He provided a very detailed analysis of experiences with public service employment programs.
He argues that notwithstanding the criticisms of such programs, public sector job creation:
… may be the only effective way to aid those among the long-term unemployed who are less skilled and less well educated.
Brodsky emphasises the following design features that improve the effectiveness of such programs:
1. “flexibility” – this is why the Job Guarantee can be tailored to be inclusive to any form of disadvantage including mental and physical disabilities.
2. “more targeted to local needs” – the Job Guarantee is funded nationally but implemented locally to ensure that the voice of local communities is instrumental in generating the types of jobs that address unmet community and environmental need.
3. “better linked to other labor market services” – the Job Guarantee would incorporate assistance for disadvantage.
For example, in a study we did for the NSW Mental Health Department we created designs that allowed for clinical support for youth with psychosis to be embedded in the job design. No private employer would allow this degree of flexibility – which means that cohort would be precluded from jobs where they might be very useful if they had the chance to access clinical support when needed (on an episodic basis).
The Job Guarantee embeds training ladders into the guaranteed job such that if a person desires to develop their skills beyond the current level they can.
The Job Guarantee would be accompanied by child care services, health care services to ensure needs beyond the narrow workplace issues can be addressed.
In other words, the Job Guarantee would incorporate many of the features of ‘labour market programs’ that the Card meta-study felt were important, in addition to providing a stable job with a socially inclusive wage.
In 2008, our research team published a comprehensive report after a 3-year study – Creating effective local labour markets: a new framework for regional employment policy – we built on those design features to produce a comprehensive operational plan for the implementing of a Job Guarantee.
The problem with journalists like Dylan Matthews is that they are not experts yet they hold themselves out to be authorities on topics they write about.
While David Card and his team do solid work, the particular research study that Matthews cited as criticism of the latest array of employment guarantee proposals in the US misses the mark significantly.
By definition, a Job Guarantee would succeed in terms of its aims – to provide a stable job at a socially-inclusive wage to those who cannot find work elsewhere.
That offer is unconditional and not time-limited or supply-constrained. Most past public service job creation initiatives are supply-constrained (a given fiscal allocation is made which limits scope and duration).
The Job Guarantee is not of that type. It is demand-driven – as many workers as desire work will be hired. They can stay as long as they like. They can make it a career if they choose.
Whether it enhances private sector employability is not the aim so studies that assess programs solely in terms of that aim are irrelevant.
Matthews clearly does not get that and so spuriously quotes studies that have no application to the topic he is writing about.
To close, I don’t normally agree with much that conservative politicians say but this statement during an Interview with Michael Rowland on ABC New Breakfast (April 20, 2018 7:05), by the Australian Federal Minister for the Environment and Energy is what everyone on the Left should learn to repeat when they start surrendering to ideas that the nation state is powerless (it is at the 1:42 minute mark):
The Parliament is always sovereign so legislation can be changed.
Got it! The state retains power and we just have to reclaim it for progressive outcomes.
See my latest book with Thomas Fazi for more – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017)
That is enough for today!
(c) Copyright 2018 William Mitchell. All Rights Reserved.