This is Part 2 of an irregular series I am writing on some of the complexities of Modern Monetary Theory (MMT) that are often overlooked by those who rely on reading airport-style books or Op Eds on the topic. In – Exploring the essence of MMT – Part 1 (March 29, 2022) – I dealt with some conceptual issues about values and theory. Today, I am considering the way to think about the – Job Guarantee – within the MMT framework. The Job Guarantee is at the centre of MMT because it contains an insight that is missing from the mainstream economics – the concept of spending on a price rule. This insight leads to the conclusion that the price level is determined by what the monopoly issuer of the fiat currency – the government is prepared to pay for goods and services. This, in turn, means that the Job Guarantee goes well beyond being a job creation program and constitutes within MMT a comprehensive macroeconomic stability framework – where the so-called trade-off between inflation and unemployment (Phillips Curve) is eliminated. However, while in the real world, complexity enters the scene and we need to be aware of the nuances so that we do not fall into the trap of thinking of the Job Guarantee as an inflation killer.
Last Friday (April 1, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – March 2022 – which reported a total payroll employment rise of only 431,000 jobs. Fortunately, employment growth was strong enough to drive the unemployment rate down by 0.2 points to 3.6 per cent. But there is still room for the unemployment rate to fall even further. The US labour market is still 1,579 thousand jobs short from where it was at the end of March 2020, which helps to explain why there are no wage pressures emerging. Real wages continued to decline. Any analyst who is claiming the US economy is close to full employment hasn’t looked at the data.
Last Friday (December 3, 2021), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – November 2021 – which reported a total payroll employment rise of only 210,000 jobs in August and a 0.4 points decline in the official unemployment rate to 4.2 per cent, while participation rose by 0.2 points. This is one of those crazy months when the payroll figure suggests a slowing down while the labour force survey paints a fairly rosy outlook with strong jobs growth stimulating rising participation and a declining labour underutilisation rate. We will have to wait until next month to see how it all works out. But the undeniable facts are that the economy is still creating work – in an unequal pattern across the sectors and the government sector is undermining the benefits of that creation. The US labour market is still 3,912 thousand jobs short from where it was at the end of February 2020, which helps to explain why there are no fundamental wage pressures emerging. Any analyst who is claiming the US economy is close to full employment hasn’t looked at the data.
Part of my working day is spent updating databases and studying the additional observations. I learn a lot that way about trends and how far off the mark my expectations of a particular phenomenon might be. Today I updated various labour market datasets from Britain and did some digging into the relationship between vacancies and pay. It is clear that as the British economy opens up again, that unfilled job vacancies have grown very strongly over the Northern summer. While that is a good thing because it means there are opportunities for workers to gain employment, shift employment to better paying jobs etc, the message is no unambiguous. If the vacancy growth is biased towards low-pay work then the chances for upward mobility might be stifled. Such a trend might also reflect the fact that employers are now finding that their old practices of accessing vast pools of EU labour willing to work at low wages are being constrained and that will signal the need for a change in strategy, including restructuring, capital investment and better paid jobs. It is too early to discern which way that will go. But what I found while looking at this new data is that while job vacancies are booming, the majority of them are in below-average pay sectors. More analysis is needed to fully assess the implications. Here is where I started on this path …
Last Friday (June 4, 2021), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – May 2021 – which showed that the recovery since the catastrophic labour market collapse in March and April 2020, continues after a moderate month in April 2021. Payroll employment rose by 559,000 in May 2021 after rising by only 266 thousand last month. The slight rise in unemployment last month gave way to a fall in the unemployment rate by 0.3 percentage points to 5.8 per cent. edged up slightly to 6.1 per cent. The broader labour wastage captured by the BLS U6 measure fell by 0.2 points to 10.2 per cent. The US labour market is still 7,629 thousand jobs short from where it was at the end of February 2020.
Given I provided a detailed National Account analysis yesterday, I am using today as a blog lite day with just some snippets and then a musical offering – as per my usual Wednesday practice. I did an interview for Real Progressives last week and some of the social media reaction has been hysterical – claims that Modern Monetary Theory (MMT) has gone political and that MMT advocates abandoning the capitalist system and so on so forth. Some of this stuff is coming from self-identified ‘progressives’, which makes me wonder how much meaning term retains. In some cases, the attacks were really Trojan horses for the dislike of my Brexit stance or my attacks on the British Labour Party for pushing an unworkable and neo-liberal inspired fiscal credibility rule, which they had to change just before the election anyway because it was unworkable in its original form. So the resentment of those who hang onto the ‘European dream’ for the UK manifests as stupid, lying attacks on anything I say. Fine. More importantly, Switzerland is having a little ‘Brexit’ sort of move itesel, that has angered the European Union and is another chink in the now very depleted European ‘dream’. And if all that is a bit much, we can finish with some Jazz.
It is Wednesday so a blog lite day for me. The next part of this week is a bit up in the air for me after the Covid outbreak that resulted from a breach of quarantine in Adelaide has spread to Melbourne and looks a bit ugly. Fingers crossed that I can get back home to Melbourne tomorrow. Today I briefly review the latest payroll data from the Australian Bureau of Statistics, which shows that despite all the bluster from the Federal government to the contrary, their fiscal retreat in March is now costing jobs, as predicted. I also examine the latest production data from the UK, which should provide good news for British manufacturing workers. And finally, we have a little birthday celebration with some singing.
It is Wednesday and so my light blog writing day today. A few interesting things have come up today and yesterday which will promote further research. Also Week 4 of our edX MOOC – Modern Monetary Theory: Economics for the 21st Century got underway today so there is lots of new content and discussions to check out. The most important revelation in a week of shocking news from the Australian government that illustrates their incompetence was the fact that a job scheme that was meant to have created 10,000 jobs by now has only actually recorded – wait – and whisper this – 521 jobs. And the extent to which the Government is going to try to brush that up as good news and avoid obvious questions like why not just create work rather than try half-baked wage subsidy schemes that had no real chance of working is a thing to behold. Ducking and weaving but demonstrating gross incompetence. The pity is that the Labor Party opposition just keep kicking own goals and cannot be taken seriously.
I noted yesterday that I was appearing at a Seminar via Zoom with my MMT colleague, Pavlina Tcherneva, where we will discuss the concept of a social contract and where Modern Monetary Theory (MMT) fits into that, especially in the context of our idea of employment guarantees. The seminar – MMT and the new social contract: Lessons from Covid-19 – will be held on Saturday, February 27, 2021, from 10:00 Australian Eastern Daylight time and you can find details of how you can participate – HERE. I was thinking about what I would contribute to this workshop and rather than just rehearse the standard discussion about the Job Guarantee I have thought going back to square one would be a good place to start. This is especially a good thing to do, given that I increasingly see progressive people embrace the concept but try to do ‘too much’ with it. That is, place too much emphasis on it, especially in the context of Green Transitions. Pouring all our activist and political energy into getting a Job Guarantee up is not a sensible strategy for reasons I will explain. Second, a lot of critics, especially those who talk big on Twitter about ‘Bill Mitchell wanting people to starve’, clearly haven’t gone back to understand the roots of the concept and where it fits in. So today, I want to further clarify some significant issues that arise when both sides – pro and con – come in contact with the concept of employment buffer stocks for the first time and think they know all about.
In my monthly labour market updates for Australia, I always examine the teenage labour market. Not much media coverage is given to that cohort in this context. But as our societies age and require our younger workers to be more productive than their parents to maintain material living standards (even though we should be reappraising what is an environmentally feasible benchmark to maintain), how we deal with school-to-work transitions, vocational training, university education is a major issue. The fact that governments all around the world have been prepared to impose massive costs on the younger generation as they obsessively pursue fiscal surpluses is one of the scandals of the period and will have long-term consequences for society. Recent Australian research evidence, which is consistent with outcomes from similar international studies, provides strong evidence to support the case that governments should always ensure there are enough jobs for our young population and that fiscal austerity undermines that requirement. Running fiscal deficits doesn’t undermine our children’s futures. Starving them of job opportunities at crucial transition points in their lives definitely undermines their future. We should understand that and stop listening to economists who say otherwise.
It is Wednesday so some snippets and some music – sad music this week because it signals the death of one of the great pioneers of Jamaican music last week. I am holding a Mini-Music Festival today – right here on my blog. Join in an celebrate a legend. But a few economics matters first pertaining to the Job Guarantee and the nonsensical arguments I have been seeing in the media about it being a system of enslavement and not better than a system that forces workers into unemployment.
I am back into my Wednesday pattern after experimenting or the last 10 weeks with the MMTed Q&A series. Soon there will more video content coming as skills are refined. So today I just report my notes as I analyse the latest Australian Tax Office payroll data – Weekly Payroll Jobs and Wages in Australia, Week ending 25 July 2020 – released yesterday (August 11, 2020) by the Australian Bureau of Statistics. Regular readers will know that I have routinely analysed this dataset ever since it first became available in March this year. It uniqueness is that it provides the most recent data upon which an assessment of where the labour market is heading. The monthly labour force data is about two weeks old by the time this data comes out. And the most recent release gives some insights into what the impact of the renewed and severe lockdowns in Victoria (the second largest State economy) has been. The data shows that the jobs recovery has stalled and emphasises the need for more federal fiscal support – but that support does not appear to be forthcoming.
We need to get a few things straight. And this is partly for those out there who seem to think that the extent of literature on Modern Monetary Theory (MMT) or the Job Guarantee within MMT is confined to collections of Tweets that allow 280 characters or Unicode glyphs. One doesn’t become an expert on ‘full employment’ or ‘political economy’ because they have suddenly realised there is a major crisis in the labour market and have decided to strategically place their organisations for self-serving purposes to be champions of full employment. There is an enormous literature on the Job Guarantee and I have been a major contributor along with my valued colleagues. This is a crucial time in history and one of the glaring deficiencies in the current crisis and economic management in general is the lack of an employment safety net. This is what MMT has to say about that safety net and stabilisation framework.
The – Report of the Special Rapporteur on extreme poverty and human rights – for the UN was released this week (July 7, 2020). It was Philip Alston’s last report in that role. It is a shocking indictment of the way neoliberalism has distorted our societies and the way the governments with the capacity to ‘move mountains should they wish’ have been co-opted as agents of capital and perpetuate those distortions. The Report is 19 pages of horror. It also resonates with the latest information coming out of Australia’s Closing the Gap campaign, which aims to bring indigenous Australians up to the material level of non-indigenous Australians. The first ten years of the campaign have been an abject failure. And the latest targets don’t inspire any confidence that the outcomes will be any different. A lot of talk. A lot of consultants. But little effective action – for example, like just creating some jobs to reduce unemployment, allow for income security and poverty alleviation. How hard is it for the government to create some jobs?
One bit of good news yesterday was that the Supercars event that has been imposed on the City of Newcastle over the last 3 years will not go ahead this year. This is an event that has massive state subsidies, creates health hazards for local residents, lies about crowd numbers to justify further state subsidies and severely divides the local community. They claim they love Newcastle, but with only a few events possible this year, they are clearly going where the highest subsidies are likely. So that is a relief for the inner city community. But there is not much else that one can be happy about right now. Today (May 19, 2020), the Australian Bureau of Statistics released their latest weekly employment data taken from Australian Tax Office data, which they release and analyse on a two-week cycle. The latest edition came out today – Weekly Payroll Jobs and Wages in Australia, Week ending 2 May 2020 – which covers the new data from April 18, 2020 to May 2, 2020. The data is suggesting that the worst of the job losses are now over, which doesn’t mean where we are at at present is nothing short of shocking. As the lockdown eases, we can now expect more jobs to come back. The question is how many businesses will go to the wall before we get a more usual scale of operation and interaction. My prediction is that many will disappear and so the recovery in employment will be protracted given how many jobs have been lost to date. A much larger fiscal intervention is required and it has to be directed at workers rather than firms and support direct job creation.
Last Thursday (April 30, 2020), the US Department of Labor’s – Unemployment Insurance Weekly Claims Report – showed a further 3,839,000 workers filed for unemployment benefits in the US, taking the cumulative total since March 14, 2020 to 30,589,000. In a labour force of 164 million odd, that implies the unemployment rate is already around 22 per cent. The highest rate endured during the Great Depression was 24.9 per cent in 1933, which prompted the US President to introduce the major job creation program to stop a social disaster – the New Deal. History tells us that the major job creation programs (starting with FERA then morphing into the WPA) were opposed by the conservative (mostly) Republicans in the Congress. As is now! It wasn’t just the unemployment that mattered. Hours of work were also cut for those who maintained their jobs and some estimates suggest over 50 per cent of America’s labour force were underutilised in one way or another (read David Kennedy’s 2001 book for a vivid account of this period). The problem now is that the US has a Presidency that is unlikely to take the bold steps that Roosevelt took in the 1930s, even though the latter was a fiscal conservative and the former does not appear to be so inclined. However, some nations are leading the way – and they put the more advanced nations to shame in this regard.
When Kevin Rudd was faced with the threat posed by the unfolding GFC in late 2008 his government became very pragmatic and immediately ditched the narrative they had been pushing out throughout that year about inflation being a threat and the need for tighter fiscal policy and surpluses. They introduced, in two rounds, a fairly significant fiscal stimulus (around 4.2 per cent of GDP) which effectively saved the Australian economy from entering a recession. A significant part of that intervention was that it had various temporal properties – a cash handout in December 2008 designed to get spending power into the hands of consumers just before Xmas (the famous ‘flat screen’ payment – there were a lot of TVs purchased), which obviously was an immediate focus, and, a longer term component, which included their plan to put insulation into every home. This was aimed at job creation clearly, to address the cyclical needs, but, it was also intended to address the longer term climate crisis, that were beyond the GFC cycle. When appraising what government’s should be doing now – to deal with the socio-economic consequences of the medical crisis – that style of thinking is essential. The questions that need to be asked are: 1. What can be done now to avert an economic collapse? 2. What do we want to change about the pre-structure of the economy into the future? 3. How can we use the stimulus intervention to make those changes, while addressing Question 1. In this blog post, I go through some of that style of thinking. I also provide some specific estimates of the investment needed to introduce a Job Guarantee in Australia.
It is Wednesday so music and some snippets. I have updated the US unemployment claims data with a new map and state table. Shocking. We are working on updated estimates of what the Australian government would need to invest to run a Job Guarantee. We haven’t done that for a while because I didn’t want the press to get obsessed with dollar amounts. But as I am currently talking a lot about the Job Guarantee in the media, I thought some numbers would be useful as a comparative exercise against the JobKeeper wage subsidy, which is the central stimulus plank of the Australian government. The current estimates suggest that to create around 685 thousand jobs might require an outlay of $34 billion over the course of a year. That got me thinking. The main response of the Australian government is the $A133 billion over 6 months JobKeeper wage subsidy scheme. The Treasury claims it will be the difference between an unemployment rate of 10 per cent and 15 per cent. That difference is 685 thousand jobs. Then start doing some division and multiplication and you start to see that this doesn’t make sense as I explain below.
As the public scrutiny of the body of work we now refer to as Modern Monetary Theory (MMT) widens there is a lot of misinformation abroad that distorts or otherwise undermines what has been done to date. Most, but not all the misinformation or emphasis comes from those who attack our work. Their criticisms usually disclose an incomplete understanding of where MMT came from and what the core propositions and logic are. They stylise, usually using terms and constructs that are present in mainstream thinking, but inapplicable to an MMT way of thinking, and end up spitting out things like ‘printing money’ etc, which they think represents a devastating rejection of our work. As part of my own work, and I do this in liaison with Warren Mosler, I am interested in documenting the train of events that led to what we now call MMT. I love history and think it is very important in helping us understand things. So today I am continuing to examine archives to trace the provenance of key MMT concepts. And I am continuing to document the idea of a Job Guarantee, which is central to the MMT framework, despite many who claim to be MMTers thinking otherwise. I have noted in the recent press, claims that the origins of the buffer stock employment approach that became the Job Guarantee was the work of Hyman Minsky. Nothing could be further from the truth as you will see. It is important, in my view, to make the provenance very clear and that is what this blog post is about.
The Australian Bureau of Statistics released of its latest data today (January 23, 2020) – Labour Force, Australia, December 2019 – which continues to show that the Australian economy is in a weak state with a fairly moderate labour market performance being recorded for December 2020. The culprit – the Australian government – which is starving spending by its obsessive pursuit of a fiscal surplus. While unemployment fell by 0.1 points as a result of the employment growth, full-time employment also fell. So all the net job opportunities created were part-time which suggests that the quality of the overall employment mix has deteriorated. In the last six months, 74 per cent of net employment change has been in the part-time labour market. The broad labour underutilisation (unemployment plus underemployment) is at 13.4 per cent and has been stuck around that level for months. There is no dynamic – policy or otherwise – present, which will see this massive pool of available labour brought back into productive use anytime soon. That alone, is a indictment of failed policy. The unemployment rate is 0.6 percentage points above what even the central bank considers to the level where inflationary pressures might be sourced from the labour market. The Government is thus deliberately inducing deflationary tendencies into the economy and it is the workers that are bearing the brunt. My overall assessment is that the Australian labour market remains a considerable distance from full employment. This persistence in labour wastage indicates that the policy settings are too tight (biased to austerity) and deliberately reducing growth and income generation. There is clear room for some serious fiscal policy expansion at present. The Federal government is willfully undermining our economy with its irresponsible policy position. The impact of the bushfire crisis is likely to start being felt in next month’s figures.