JOB GUARANTEE - PART TWO HOW TO PAY FOR A JOB GUARANTEE AND WHY IT WON’T BE INFLATIONARY Neither Roosevelt’s New Deal, nor the recent partial job guarantee programmes in places like Argentina, India and South Africa, match up to the characteristics of the JG advocated by Minsky and MMT-ists like Mitchell and Wray. There are a variety of reasons for this, which I will write about elsewhere – but one is the perception that governments ‘cannot afford’ a JG, or that it would impose ‘fiscal risks’ or be inflationary. None of these things is true. Actually, most simulations of JGs in high income countries, once you net out all the effects of a JG scheme on public spending, welfare payments and tax receipts, across the whole economy, imply a modest impact on the government budget – perhaps 1% of GDP, under normal circumstances. Nevertheless, the impact of a comprehensive, permanent JG at a social wage, which expanded the notion of paid employment (so that many who now do voluntary work, and full time carers, just as examples, would be incorporated into the definition of the paid work force) and provided appropriate (and voluntary) training is uncertain. Participation in a JG scheme might be quite high, with discouraged or partially attached workers, or underemployed workers, pulled into the scheme, and with many people choosing to work in the scheme on a permanent basis. The important thing is that this will happen automatically, reflecting the preferences of workers, and also the demand for labour in the private sector, at a wage and conditions at least matching or marginally above the JG scheme. The JG is not supposed to compete with the private sector for workers, except in the sense that it sets a floor to the standard of living deemed acceptable in return for paid employment. This is not a revolutionary scheme and it is not socialism – it is merely a programme to offer meaningful and fairly paid employment to people who are not currently offered such opportunities by the private sector. If you have any familiarity with modern monetary theory, you will already know that monetary sovereign governments (literally) cannot ever run out of their own currencies, and cannot ever be forced to default on bonds they have issued in their own currencies. You will also know that to be a monetary sovereign you need to retain your own currency, avoid commitments to gold standards or fixed exchange rate systems, and (to be fully sovereign) avoid borrowing in foreign currencies. Spain. Greece and Portugal are NOT monetary sovereigns. Neither is South Australia. Neither would be an independent Scotland if it chose to use the British pound or the Euro as its currency. Australia, the US and Japan are monetary sovereigns. So the Australian Commonwealth Government literally cannot run out of Australian dollars. They don’t even necessarily need to issue government bonds – I have discussed this point elsewhere. Clearly, then, even if a JG were to involve public spending of 5% of GDP, to pick a very high figure, the Australian Government could ‘afford’ it – just as it can ‘afford’ anything which is ever for sale in Australian dollars. This does not mean that the budgeting within the JG would not have to be tight – a scheme would use up a lot of scarce resources (people, skills, materials, capital equipment, etc), both directly and indirectly, and it is important that these resources are employed for the maximum public good. The next objection you are likely to hear is that ‘all this public spending would cause inflation’. This is based on a fundamental misunderstanding of how a well-designed job guarantee would operate. Part of the beauty of such a scheme is that it would be an effective way of limiting inflationary pressures in the economy, while nonetheless allowing for full employment and a greater degree of social justice than we enjoy today. Professor Bill Mitchell puts it best, when he equates a JG scheme with a traditional buffer stock programme. Many governments have historically used buffer stock programmes to control (or at least limit volatility in) the prices of agricultural and other commodities. The idea is that when there is a lack of demand for a commodity in the market, you can support its price and sellers’ incomes as a government by purchasing the current surplus; conversely, when there is a shortage, and pressure for the price to rise, you can hold the price down by meeting a shortage though sales from the ‘buffer stock’. Buffer stock schemes help to minimise the impact of ‘shocks’ in otherwise volatile markets. We do have a sort of ‘buffer stock’ in the labour market today. It is a ‘buffer stock’ of unemployed and underemployed workers, and of discouraged workers who have dropped out of the labour force, which we have – at least since the 1970s – used as a mechanism for restraining wage demands, keeping labour costs down, and thereby keeping inflation under control. Depending on whether you are a Newclassical or NewKeynesian economist, you dignify the idea that we need a certain level of unemployment to restrain inflation by the term ‘natural rate of unemployment’ (NRU), or ‘non-accelerating inflation rate of unemployment’ (NAIRU). You accept, perhaps, that NRU or NAIRU might be reduced a bit, by being mean to the unemployed, or accepting less secure employment for the employed, or by training the unemployed to the nth degree, but there will always – in your view – be a need for unemployed workers to scare the rest of us into not causing inflation. This is what all those ‘wise men and women’ you see on Q&A and elsewhere believe in. Sadly, the ALP (as well as, obviously, the Libs) are stuffed full of people who have been taught these ideas, and now accept them unquestioningly. I have to teach these ideas (although I hope I ask some questions too). Essentially, though, we are still talking about Marx’s ‘reserve army of the unemployed’. Milton Friedman and Karl Marx had more in common than you might imagine. What a waste! Keynes wrote the following, in 1929- The Conservative belief that there is some law of nature which prevents men from being employed, that it is “rash” to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years… Our main task, therefore, will be to confirm the reader’s instinct that what seems sensible is sensible, and what seems nonsense is nonsense. We shall try to show him that the conclusion, that if new forms of employment are offered more men will be employed, is as obvious as it sounds and contains no hidden snags; that to set unemployed men to work on useful tasks does what it appears to do, namely, increases the national wealth; and that the notion, that we shall, for intricate reasons, ruin ourselves financially if we use this means to increase our well-being, is what it looks like – a bogy.” It was true in 1929, and it is just as true today. A Job Guarantee is about the replacement of a ‘buffer stock of the unemployed’ with a ‘buffer stock of the employed’. Under a JG, when the private sector demands fewer workers, instead of those workers being left idle, they would be given the opportunity to undertake fairly remunerated and socially valuable work. We aren’t short of ideas on what could be undertaken, either, but that is for another occasion. We know that involuntary unemployment has a major impact on subjective well being, quite apart from its financial impact – but again, that is for another piece of writing. These people would be employed as they are, would be offered training within the JG (but would not have it forced upon them), and would still provide private sector employers with a ready source of labour when required. In an economic upturn, as the private sector expanded, JG workers would be released into the private sector from the Job Guarantee scheme – but these would be workers with their self-esteem intact, without the stigma and disadvantage of long term unemployment, and surely more productive as participants in the JG than today’s long term unemployed. If you favour a ‘flexible’ labour market, with a lower than ideal level of protection for lower paid workers, then the good news for you is that a JG might allow you to justify your position. After all, low paid workers would always now have the option of a switch into the JG scheme. The existence of a JG could allow you to sweep away some of that ‘red tape’ you complain about. Would this be inflationary? How could it be? We are simply replacing a buffer stock of unemployed labour with a (more productive and less stigmatised) buffer stock of JG labour. If ‘demand pull inflation’ is a problem, given such a system, you can raise taxes, cut government spending, or perhaps raise interest rates to restrain total spending in the economy and cool it down – as is the case now – but in the knowledge that you would not be consigning people to involuntary unemployment and its consequences. The JG scheme would naturally expand as the economy cooled down. The JG wage (yes – a minimum wage, but the word ‘minimum’ has very negative connotations in countries like the US, and so is perhaps best avoided) ought to be set at a level which is realistic, but also consistent with the elimination of poverty and the maintenance of a standard of living deemed sufficient in a modern economy with an emphasis on equity. The prime focus should not be on the demands of employers of the low paid – if employers cannot afford to pay wages consistent with a minimum standard of living, then workers will be more productively employed within the JG. A JG would not solve all our social ills (though it would help with many of them), would be a major administrative challenge (though there are ways of making that challenge more manageable), and if it is to act as a counter-inflationary tool the uniform JG-wage paid must be increased over time only in line with an inflation target plus any ecologically sustainable economic growth. Then we can abolish involuntary unemployment for good, and replace the old ‘NAIRU’ with Bill Mitchell’s NAIBER (‘Non Accelerating Inflation Buffer Employment Ratio). Can we afford it? Of course. A monetary sovereign government can always afford to buy anything that is for sale in its currency. (To be continued – after a delay, because I am busy for the next couple of weeks. The next part will explain why the Greens ought to be campaigning for a JG).
Posted on: Thu, 31 Jul 2014 02:21:28 +0000