THE EVOLUTION OF MMT….
I’ve been fairly vocal in comments in recent weeks about my displeasure with the job’s guarantee (JG) that most MMT proponents are in favor of. The comments have set off a bit of a firestorm with the JG coming under substantial defense and attack at various other sites. Some notable attacks came from Rodger Malcolm Mitchell, Rogue Economist and John Carney at CNBC. Bill Mitchell and several of the founders have been vocal about their support of the JG as it’s clearly a central component of their decades of work on MMT.
In his latest MMT primer Randy Wray elaborated on the debate:
“Bill’s post led to a bit of a scuffle over what is actually in MMT—with Cullen arguing that the Job Guarantee cannot be a component, while Bill insisted that it must be. Warren has sided with Bill and written very persuasive comments arguing that we need the price anchor.”
I haven’t been very clear about this so I should be. It’s not that I think the JG “cannot” be a component of MMT (Bill drew a very clear line in the sand saying that the JG is “central” to MMT and not “peripheral”), but that our knowledge, understanding and implementation of modern money need not involve the JG. The JG might be central to the idea the founders had when creating MMT, but that just means it’s central to the original concept of MMT as they saw it. And they have by no means proven the JG to be the optimal usage of the government’s currency supplier powers (despite substantial evidence and persuasive arguments). I’ll cover this in more detail in the near future, but I simply don’t believe the JG is the optimal usage of these powers and in fact could come at substantial long-term cost. Instead, I think there are better options which can also lead to price stability and full employment.
But the most interesting point that arises from all of this is the clear evolution of the theory (something which is an excellent development whether you are in favor of the JG or not). The fact that we are having these debates is important for the development of MMT. Scott Fullwiler posted an excellent comment to a reader on another site:
“where MMT or Neochartalism go is not up to Bill or any other specific person, as the Keynesians proved.
By putting MMT out into the blog world and getting our wish of having a following, the consequence is that we don’t have control over the path it takes. We can do research and hope it influences that path, but it’s no longer ours exclusively. We could have kept tighter control if we had chosen to continue to work on the fringes and remain almost completely unknown.
So, going forward, and perhaps even now, whether the JG is required part of MMT is not for us to decide, even as it certainly is central to previous academic MMT literature. Such are the costs of gaining popularity and having others jump on board. I personally prefer this reality to the alternative path of remaining obscure.”
It’s clear that the founders of MMT see the JG as a central piece of the puzzle. So exclusion of the JG would make you something other than the MMT that the founders envisioned (which is where I guess I find myself currently). The always astute JKH referred to my stance as “post MMT” or Postmodern Monetary Theory (PMT?). Whatever it is, it’s a good development. Any good school of thought should hope to evolve and expand its reach and impact. None of this implies that my thinking on the JG is somehow superior or makes for a better “brand” of MMT, but one thing is clear – MMT is becoming more mainstream and gaining a “following” as Scott said. That’s enormous progress and the founders of MMT should be incredibly proud of what they’ve built. No matter where it goes MMT will always be linked to the names Mosler, Mitchell, Wray and the other founders. And given the strength of the arguments and work over the years I am certain that MMT won’t evolve too far from what they’ve always envisioned it to be.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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282 Comments
While I said with Cullen on the JG issue, I do believe that we can implement a ‘temporary JG’ program which would hire workers in the short-term (1-3 years) to work on projects that would benefit the public, like infrastructure spending…With this I do believe we can get out of the balance sheet recession much quicker. Not only that but it would lower unemployment (and increase aggregate demand) just until the private sector picks up.
So you would have the best of both worlds; Lowering unemployment by doing some fiscal stimulus spending, and not having the problems that might come with a JG program.
As for MMT gaining steam… HELL YES IT IS! I was just on youtube earlier today reading some comments and I saw one comment talking about how Europe’s problem is the Euro and the fact that countries do not have monetary sovereignty…Asked if the commenter follows MMT, he said he did. Awesome!
“While I said with Cullen”
Should say side*
“Europe’s problem is the Euro and the fact that countries do not have monetary sovereignty… Asked if the commenter follows MMT, he said he did. Awesome!”
Come on. Even Krugman, cetainly not a MMT guy, claims that Europe’s problem is the Euro and the fact that countries do not have monetary sovereignty.
Which is, BTW, a very simplified view, and, at least as an isolated claim, simply wrong. Regardless if the school behind is Freshwater, Saltwater, Keynesian, MMT, Martian or whatever.
Just a bit of advice for you. If you do separate yourself more and more from the founders of MMT then I would do two things. Don’t forget where you came from. And don’t politicize the debate.
Plus, it’s not like anyone cares about the MMT freakshow anyway.
Of course not Jo, that’s why you come here so often to attack it……
First time poster here, but long time reader. I’ve been following the debate closely over the merits of a JG. Very interesting arguments on both sides. I’m in favour of a JG, because I think it is impossible to eliminate involuntary employment without the government stepping in. I don’t think we should accept involuntary unemployment as a necessary evil of capitalism.
You’ve said previously that you may favour a small JG that replaced unemployment benefits. You’ve also suggested tax cuts and incentives for innovation as a means of driving demand. I don’t see why all these things couldn’t be implemented at the same time. I think you overestimate the number of people the JG would employ. You mention 13 million, but you would not need to hire 13 million to a JG to create 13 million jobs as the multiplier effect would work to create additional private sector jobs. As the economy recovers, the pool of JG workers would shrink.
I do think the government needs to be prepared to employ those unable to find work, otherwise what do you do with these people?
> “I’m in favour of a JG, because I think it is impossible to eliminate involuntary employment without the government stepping in.”
Yes, this is an argument often put forth by post-Keynesians. (Maybe not “impossible”, but “difficult” to say the least.)
Neoclassicals (and new Keynesians like Krugman) believe that unemployment is in large parts due to “downwards sticky prices and wages” which in turn results from government and union intervention. “Wage cuts can clear the labor market” is the mantra, “but the government intervenes with minimum wage legislations etc which keeps the unemployed out of work” they say.
Post Keynesians (from which MMT seems to have inherited quite a bit of thought) argue that not even with perfectly flexible prices and wages, unemployment would be eliminated. Price and wage stickiness is not the issue — it’s about deficient aggregate demand.
Trying to lay out the argumentation in the MMT wiki: The_Role_of_Government_Deficits#Wage_Cuts_or_Government_Deficits.3F
MMT also emphasizes deficient aggregate demand, saying that government deficit spending needs to offset the demand drag induced by non-government “net saving desires”.
> “I don’t think we should accept involuntary unemployment as a necessary evil of capitalism.”
Agree.
Mass unemployment results in huge permanent losses every day in foregone output and income. Add to that the depreciation of human capital, increasing family breakdowns, child abuse, crime, medical costs, skill loss, psychological harm, ill health, reduced life expectancy, loss of motivation, racial and gender inequality and loss of social values and responsibility. The personal, family and community losses are enormous and persist across generations.
Yet, many seem to prefer this to a JG. Why?
There are those that argue that full employment can be achieved without JG of course. As I’ve been trying to sketch here, there are counter-arguments put forth by post-Keynesians and MMTers. It may be *possible* to achieve full employment and price stability without government stepping in with a JG program — under certain conditions? This may be what Cullen will show us?
> “You’ve said previously that you may favour a small JG that replaced unemployment benefits. You’ve also suggested tax cuts and incentives for innovation as a means of driving demand. I don’t see why all these things couldn’t be implemented at the same time. I think you overestimate the number of people the JG would employ. You mention 13 million, but you would not need to hire 13 million to a JG to create 13 million jobs as the multiplier effect would work to create additional private sector jobs. As the economy recovers, the pool of JG workers would shrink.”
Agree. An MMT aware government could use general aggregate demand stimulus to rebuild infrastructure, the education system, health care etc — or choose to cut taxes if that is preferred by the electorate.. This could bring down unemployment to a few million perhaps.
Eventually however, if this is taken too far inflationary pressure would build up. An inflation barrier is reached at some point. This is akin to what mainstream calls NAIRU.
A JG could then offer employment for the last few millions. With a JG program, price stability can be maintained together with full employment. There are a number of advantages of using a bufferstock of employed rather than unemployed to achieve price stability. It has even better inflation fighting effects, and results in less human misery.
> “I do think the government needs to be prepared to employ those unable to find work, otherwise what do you do with these people?”
Right.
Trying to summarize the MMT JG argumentation in the MMT Wiki: http://mmtwiki.org/wiki/Full_Employment_along_with_Price_Stability
There are huge POLITICAL problems with a permanent job guarantee. Doing it as a strictly temporary measure during Depressions to replace long term unemployment benefits is one thing, and is probably a good idea. Having it as a permanent fixture is a very bad idea because it ignores the way incentives work on humans, and the proven paths on which political systems evolve. If it becomes permanent, it is inevitable that the people in the make-work jobs will become unionized, and they will use their political clout to grab ever better wages and benefits. They will evolve into an elite entitled class, just like Wisconsin public employees. And they will be so numerous, they might even take over the State more completely than the current public employee unions have.
Those being *unemployed* today could organize themselves similarly, though? Or is there a big difference?
Honestly, I don’t really see the big problem in these workers forming lobby groups (or unions) to protect their interests. There is already so much lobbying going on all over the place. Oil industry, war industry, financial industry etc. A JG workers’ union would perhaps provide with a beneficial balancing force. I wouldn’t be too upset about it.
And it’s not like they’d have huge amounts of bargaining power.
I do think that the wage level that the JG offers should be a political question, explored in political debate — debate preferably including the JG workers as well. So yes, there would be some political fighting about this.
I realize that anything constructive going on among the poorest is a scary thought for others. Agreed, it would feel more comfy if “they” (JG workers or the unemployed) shut up while “we” discuss what wage/benefit package they deserve. And I guess people with jobs potentially constitute a stronger threatening force than the job-less.
Of course, if the electorate really dislikes the idea of these people organizing themselves, we could prohibit it. That could go for the unemployed today too — all organization forming prohibited. That would perhaps give the rest of us some peace and quiet? (I would very much oppose that though, obviously.)
But granted, it will be complicated. There will be mistakes. It won’t be smooth all the time. Instances of corruption can occur. There’s probably many mistakes to learn from yet to be done. Much like current unemployment benefit systems, or educational systems.. Or the U.S military — a hugely complex system that has the potential of running amok. Yet, over all it is working pretty well (or maybe it isn’t?). The modern states in the Western world has some experience in managing big complex “programs”.
Lots of such arguments are discussed at length in the MMT literature.
Hmm. We haven’t had a JG in the US and we not only have endemic poverty and unemployment but it is growing to the degree that some Very Serious People are proposing a “new normal,” that is, a natural rate of unemployment of not 4-6% but 6-8%. We are also faced with wages being globally fungible, cloud computing threatening to extent fungibility to a great of white collar work, and automation and robotics are soon to make more and more workers completely expendable. In addition, many countries have an underclass that results in intractable social problems that extend far beyond economic data in terms of quality of life and standard of living.
I am not saying that the JG is the only way to do this, since I am not an economist. But it seems clear that something is chronically very wrong with existing societal arrangements that result in poverty amidst plenty, ignorance where knowledge is available, disease where it could be prevented and treated, and host of other social ills that really are unnecessary given available resources including knowledge. For the most part we are not talking about it seriously in economics, politics or even polite discourse, at least for the most part, even though it is the elephant in the room globally, even in the most developed countries. This is really a shame, since MMT shows that affordability is never the problem and that real resources are the only constraint.
Good observations Tom – I agree… but when I think like that, I always end up conspiritorial. Why on earth is everything so screwed up when it doesn’t need to be?
Will be interesting to see your thoughts on all this – full employment with price stability – the holy graal of macro and generally believed to be impossible to achieve.
MMT argues convincingly (IMO) that JG solves this dilemma (although they dub their version of full employment “loose full employment”) – resulting in even better effects on price stability than today’s system (which uses mass unemployment to control prices).
Now you claim that there may be yet other ways to reach the goal (if I understand you correctly?) based on MMT insights – but without JG.
This will be very interesting!
Yes I saw that, some good discussions with Tom there
No need to stay away too long.
I doubt Adam1 is an economist by training, but he sure knows how banks operate.
Nor am I but I bring a combination of early intimate exposure to the then PTB (PTW?) and the academic world; direct and indirect experience with various minority communities and issues; housing needs, residential construction and mortgages; double-entry accounting; nonprofits; VISTA/AmeriCorps type programs; social services; and the realities of life in a rural, low-income area.
It was informative to learn a little of Tom Hickey’s background and that he is not a professional economist (he had me fooled). How if we could only figure out where Beowulf is coming from.
I’m just a simple country lawyer. Never studied economics at any level.
Of course, most PhD economists would have to agree that’s irrelevant since as a rational agent I have perfect knowledge of all economic principles.
To suggest otherwise would make the argument that neoclassical economics is nothing more than mathematical astrology.
)
The current system in the UK requires people to sign a form every two weeks to get unemployment benefit. You could say that the JG tasks people will be made to do are just more involved signing on formalities. The danger is that work done under the JG will out-compete goods and services provided by the private sector- So causing a slide away from well paid, efficient, private sector jobs to chaotic but subsidised JG provided employment.
The worst case scenario seems all too predictable where the entire private sector morphs into being a parasitic FIRE sector whilst the entire real economy is covered by an inept JG program.
I think it would be much better to have government spending matched $ for $ with an asset tax and instead of a JG program to have a citizens’ dividend paid to everyone irrespective of whether they earned other money ontop.
With a citizen’s dividend system, the buffer stock would be self employed people who were doing casual work ontop of the basic citizens dividend. Employers would have to entice them away from their own entireprises into becoming employees. Having the entire tax burden as a flat asset tax would make it much less complicated and informal to have a micro-business.
The root source of all private sector profits is either spending of previous profits, increasing private sector indebtedness or government deficits. Having no impediments to small “mom and pop” style businesses would mean that more profits got recycled back via consumption rather than leaking to savings as currently happens with corporations owned by institutional investors etc.
stone,
If JG tasks are to be little more than “signing-on formalities” then there’s surely no danger they will out-compete the private sector.
My understanding (from reading Bill Mitchell) is that JG jobs would be mainly in areas where the private sector has little interest. So the possibility of competition with the private sector is not an issue.
I also think you may be missing the really important point inherent in the JG idea, that of the “buffer stock”.
Whereas orthodox policy seeks to use unemployment to moderate inflation (the unemployed being the buffer stock), JG thinking turns that on its head and uses employment via the JG programme as a buffer stock to underpin price stability.
http://bilbo.economicoutlook.net/blog/?p=17564#more-17564
Outsider’s perspective. The intellectual elements of MMT are quite interesting (wanting to learn more). However, when you start talking about ‘founders’ and its creation, I start feeling nauseous. Maybe it’s just me.
I get that feeling a bit too.
John Armour, my worry is that what if the private sector predominately devotes itself to finance, insurance and real estate and that gives the few remaining private sector employees a very good income that enables them to buy all of the goods available (probably imported). There could be a class of people who have a rentier income and a good education and well paid jobs. There could be very little mobility between that group of people and the JG bunch so decoupling the buffer stock idea. Then thanks to the fixed JG wage, stuff becomes too expensive for the JG people. It then is a short slippery slope to having the JG people producing what the JG people need to sustain themselves all under government supervision.
“John Armour, my worry is that what if the private sector predominately devotes itself to finance, insurance and real estate and that gives the few remaining private sector employees a very good income that enables them to buy all of the goods available (probably imported). There could be a class of people who have a rentier income and a good education and well paid jobs. There could be very little mobility between that group of people and the JG bunch so decoupling the buffer stock idea. Then thanks to the fixed JG wage, stuff becomes too expensive for the JG people. It then is a short slippery slope to having the JG people producing what the JG people need to sustain themselves all under government supervision.”
Stone- why would the private sector narrow it’s selection of goods and services produced? There is no reason for this to happen. The JG would not change the fact that people have demand for televisions, cars, soda, etc- the private sector will continue to provide these things because the public sector/JG will not. You’re implying that all the major productive corporations in America would stop producing whatever they produce because the previously unemployed are now building infrastructure and community projects. This makes no sense. Your premise, contained within your first line, is simply wrong, and there is no basis on which to take it as an assumption.
“Stone- why would the private sector narrow it’s selection of goods and services produced?” (to the FIRE sector)
They would do this because the FIRE sector is the most efficient way to harvest government deficits. The finance sector cuts out the middleman (the middle man being the real economy). I suppose it is a bit like evolution of the peacocks tail. That evolved because it tapped straight into getting female peacocks to accept the male peacocks genes without getting involved in helping the male peacock live its life. Similarly the FIRE sector taps straight into gathering money from government deficits without getting involved in the real economy. You can see it happening now. In the 1960s about 5% of corporate profits were from the FIRE sector. It went to >40% in 2007. If you personally have money, you can just import any real goods you want.
Also a key aspect of the MMT cumulative deficits program is having an ever growing stock of net financial assets (bank reserves or government bonds). Government debt is just another way of saying private wealth (inevitably this filters through to a few key institutions and high net worth individuals). extracting a juicy return with all that private wealth justifies an army of wealth managers. You then get financialized “asset manager capitalism” rather than capitalism being involved in the real economy.
As I understand MMT (and I’m willing to concede that my understanding may be flawed), it appears to be just another theory providing intellectual cover for engaging in greater central planning of an economy. It seems to me that implementation of the social polices advocated by MMTers would dramatically increase US government intervention in the economy. Whether or not such central planning is considered a good thing invariably depends on one’s beliefs about a variety of topics.
Below are some of my concerns with MMT as it relates to a JG.
I believe that an announced application of MMT-inspired social policies, such as a JG program, would lead to an eventual boycott of the US dollar, and the currencies of other countries that inevitably would be forced to emulate us, by foreign suppliers. As a seller, I would not want to continue accepting or holding a currency from a government that has announced it will create unlimited amounts to satisfy domestic employment goals. Although this will play out in different ways, one likely consequence would be a more militarized foreign policy necessary to coerce to continued trade.
There appears to be no consideration given to whether skilled labor would be readily available in the amounts and locations necessary to support envisioned infrastructure spending. How would local labor deficiencies be rectified? Implementation of social policies derived from MMT, like those derived from any centrally planned framework, would require development of other polices to make them work.
By further destroying accurate price signals, MMT encourages poor deployment and overconsumption of natural resources. To see how this can play out, look at China. Think about the cost and waste of empty cities and thousands of ill-conceived infrastructure projects.
Finally, if a JG-type labor policy were implemented, in response to our current economic mess, when and how does it stop? Or does it simply become a permanent feature of our government and economy? I’ve not heard clear answers to these questions.
“As I understand MMT (and I’m willing to concede that my understanding may be flawed), it appears to be just another theory providing intellectual cover for engaging in greater central planning of an economy.”
Your opening line proves and emphasizes Cullen’s point that the descriptive and PRE-scriptive components of MMT need to be well delineated. Otherwise, we are very quickly getting into all kinds of debates that are meaningless because people are using two definitions of the same phrase (“MMT”).
A large part of Cullen’s work has been devoted to helping people understand that MMT is NOT a theory in its description of how the monetary system works, but is practical reality. The “T” in the MMT becomes very confusing, because it relates to the PRESCRIPTION, which IS up for debate. JG (in my opinion) is part of the PREscriptive side of MMT and IS theory. Unless the descriptive and prescriptive aspects are well delineated, MMT’s beautiful description of the operational realities of money risks being discredited because of its theorizing.
First off, we need to get people to understand how money actually works and the fact that we are NOT on a gold standard any longer. Then we can have an intelligent debate about JG.
Just read Krugman’s article in NYT today to see how far we still have to go in basic education. AAARRGH!! He still thinks foreigners are holding our “debt” and that our taxes fund our debt.
“My understanding (from reading Bill Mitchell) is that JG jobs would be mainly in areas where the private sector has little interest. So the possibility of competition with the private sector is not an issue.” – John Armour
This is crucial. Moreover, and perhaps this is what sticks in the throat for some of the more right-leaning commentators, including Cullen Roche is that there are some things which really shouldn’t be subject to private sector commodification and profit-taking. The JG could render some things, that which we might deem ‘the commons’ to be off-limits and not-for-profit for the sake of a viable and healthy society. If the current financial crisis has shown us anything, it’s the importance of protecting a sense of commons.
The arguments I’ve seen thus far against a full-time JG essentially amount to falling back on Neoclassical fallacies and appeals to American exceptionalism and ‘progress’. Both contentious at best and at worst, pernicious myths.
(Warning: comment by newbie) There seems to be a hint of morality in the objections to the JG (encouraging laziness?). One could say that the goal should be to consider only an objective reality — i.e. ‘what works best’. But, morality can intrude into this pristine goal, if it indeed led to some loss in optimal efficiency … or whatever measure of ‘goodness’ an economic system should have.
I totally get your suspicion of an open-ended government jobs program, Cullen. If you know of a way to avoid it in the long term, then I’m all ears. You might simply reach the conclusion that a certain level of (necessary) involuntary unemployment is an acceptable price to pay to avoid further government intervention into the economy. If so, I suggest it would be odd to deny the unemployed a basic subsistence income at the very least, along with basic services (either subsidised or directly provided) such as healthcare, education etc.
During normal times some unemployment has to be the price you pay. Having a WPA like program during Depressions is a good idea.
Cullen, seen krugmans post on income from US “debt”?
http://krugman.blogs.nytimes.com/2011/12/31/us-net-investment-income/
Great stuff for kitchentable MMT-propaganda..
Filled in the last piece of the “take away grandmas pension income”-argument for me. Another step in krugmans learning of MMT?
Cullen:
I agree with this post 100%. The fact that we can debate a controversial aspect of MMT in a civil and productive manner is rare in the blogosphere. I cannot tell you on how many economic blogs, as soon as someone crosses a deeply held point, the discussion becomes impossible and nothing of value is gained. That is incredibly frustrating.
This discussion is good in another sense – I often read comments that state how difficult it is to communicate MMT to friends/associates, as soon as the statement “the government in not revenue constrained” comes out, the blinders come down and the conversation stops. There is no doubt that all of us are subject to that same tendency. The JG is one of those sensitive areas where we may make assumptions that are true in certain contexts, but keep us from understanding all the consequences of our assumptions.
The only way we can move forward and have MMT become more mainstream is by having these conversations to shape and sharpen our thinking. Otherwise we fragment and weaken the message.
This does not mean that we should sweep disagreements under the rug – the discussions should continue while we agree to disagree on certain points.
Very good post.
A JG is such a ridiculous concept to most Americans, it is difficult to see how it can even get a start, even if it is a good idea. Because it goes against the “grain” for so many American people, all kinds of arguments are put on the table to disqualify this notion as remotely sensible. Because everybody is biased, there can be no objective discussion. There is no such thing as an objective personal idea. That is how people work. There can only be acceptance of a particular bias and rejection of other biased ideas.
We all have to walk and chew gum at the same time. There’s work to be done in debating public policy within MMT paradigm and there’s work to be done dragging the masses, often kicking and screaming one at a time into that paradigm.
Well now I know why the “T” in MMT. Whatever label is given to the descriptive (in which JG is not inherent but just one of the tools) I sure hope it doesn’t incldue “T”. Modern Monetary Operations?
But if we’re talking theory, how about government spending on improving infrastructure without using debt to fund it. Yes, print it out of thin air; but only so much it doesn’t cause out of control inflation – how much that is would be an interesting discussion.
Modern Monetary Operations.
I like that. It fits nicely with the often used phrase “…the operational realities of our monetary system…”
I’m casting my vote for Modern Monetary Operations (MMO) to be the new phrase to refer to, and only to, the descriptive aspects of MMT.
My post wasn’t an attack on JG, but rather I wanted to point out that it needed clarification on duration, and that there should be more yardsticks to deciding whether to grow such a program than just looking at how many people are applying for it. Program administrators need to be cognizant of what the regular economy is already trying to do, otherwise, it’s no longer just a countercyclical program. It would already be an alternate economy by itself. I want to stress that I agree that we need some sort of jobs program to get people working when the private sector is not hiring.
But given that MMTers have indicated the JG is meant to provide ‘transition jobs’ only, I don’t get the insistence to continue it when the economy has jump-started and the private sector is already willing to hire.
I know all the arguments for helping people who have lost jobs, I’ve made them myself. But now I’m going beyond, so that when we do agree to institute a jobs program, it’s clear what its aims would be,and to what extent its reach would be made. Otherwise, it risks having a mission-creep, and before we know it, it’s become the main constraint to encouraging private sector to create jobs.
While the JG should help people survive loss of their regular jobs, it should not completely shield them from the difficult decisions of making the necessary adjustments and learning new skills, so that they can rejoin the regular economy, wherever its growth is going to be.
Thanks Rogue. Didn’t intend to mischaracterize your perspective. Duration is the most important of these concerns. For instance, there is a reason why UE claims are finite. If they weren’t the beneficiaries would be less inclined to look for work. This creates a sense of urgency and motivation. I would imagine that the same sort of complacency would arise from a JG without a specific duration. That’s just one of the many issues here. The bigger issue, in my opinion, is that the obsession with FE and filling it with govt programs that just offer a mundane job and a steady wage is a misguided approach to economic prosperity. It helps economist’s models look pretty, but that doesn’t make it a long-term solution leading to prosperity. I am working up a process streamlining this thinking….More to come.
> “That’s just one of the many issues here. The bigger issue, in my opinion, is that the obsession with FE and filling it with govt programs that just offer a mundane job and a steady wage is a misguided approach to economic prosperity. It helps economist’s models look pretty, but that doesn’t make it a long-term solution leading to prosperity. I am working up a process streamlining this thinking….More to come.”
Your position is still somewhat unclear to me (although you probably stated it several times already — sorry)
MMT holds that involuntary unemployment can be eliminated, pretty much for free.
Do you hold that:
1) Sure, but that’s not that important after all. There are more important things. Unemployment is acceptable. And compared with a JG program, it’s even preferable. Nobody died from a little unemployment. Or maybe they did, but the society as a whole is still better of without a JG program.
2) Yes, that is all very good important, but there are better ways to eliminate involuntary unemployment than using the JG. Faster, more efficient etc..
3) Something else?
Also, it sounds that you are not in favor of “economist’s models” and making them look pretty etc. Not sure how to think of the economy without using models though? That would just be random chaotic ad-hoc thinking, wouldn’t it? Or is your point rather that they use the wrong models, and you suggest that other models should be used? I could agree with that (depending on which economists you would be referring to).
“MMT holds that involuntary unemployment can be eliminated, pretty much for free.”
Not so sure about that. Let me ask you a question – what is the best way to achieve prosperity in this world? What is the very best gift one generation can give to another? Is it to fill the employment gap? Or is it to fill the productivity gap? Is it the ability to be employed by the govt holding a rake on I-95? Or is it the gift of time and the ability to live a fuller and more meaningful life via the prosperity that innovation and productivity create?
What is the holy grail of economics? Full employment and price stability? Absolutely not. It is full productivity. Full productivity will lead to FE and PS (or at least an economic environment in which people are indifferent to their fluctuations). We do not increase our stds of living by giving people a rake and a pay check. We increase stds of living by becoming enormously productive. I would argue, from a moral perspective, we have a responsibility to ensure that our children and future generations live better lives than we did. The single best way to do that is to maximize productivity. We need more Bill Gates’ in the world. Not more people getting handouts from the govt. And yes, the govt can help create more Bill Gates’. We just need to refocus our efforts on productivity and stop obsessing with policy targets that lead economists to think that PS and FE are the holy grail here….
I fear that economists are obsessed with plugging in variables in their models. That makes for great publishing opportunities and potential awards, but it doesn’t lead to a better world necessarily.
> “What is the very best gift one generation can give to another? Is it to fill the employment gap? Or is it to fill the productivity gap?”
Fill’em both.
Don’t think millions of involuntary unemployed is a very good gift.
Productivity will suffer if you hold millions of people out of employment (with all resulting human costs), rather than “job ready” in the context of JG.
JG is good for productivity, not some obstacle.
How do we know when we cant produce any more than we are Cullen?
Seems that the *productivity* metric is one that is very hard to define. Output per dollar spent.? Output per hr worked?
Is doing boob jobs productive work? How about fixing hips on demented 95 yr olds?
What would you look at so you could confidently say ” Hey, we are absolutely at maximum productivity”? No matter what metric we use there must be way to measure and quantitate that which we think is important. Thats why we do accounting, to keep track of what is important. The more important it is the more precise our accounting
I’m working on that.
I certainly am not in favor of paying someone to stand out on I-95 with a rake in the rain. But unemployment is a scourge. It destroys lives and families and their dreams along with it. We seem to have entered a time when unemployment is persistent and increasing. The numbers are in the twenty million plus range for the unemployed and underemployed. We also have fifty million living in poverty and an equal with poor or now health care. So the potential GDP lost is very large. Will productivity handle that?
Mitchell will tell you that due to the thing they call NAIRU we now spend more time worrying about inflation than we do enmployment – - and that might be the right thing to do. So the JG is proposed as the price anchor when the fed steps in to control the inevitable inflation deriving from increased employment. When is the last time we had unemployment of 3% to 4%? It keeps getting higher. We may have entered the range of 8% or above.
John Carney, on the other hand, worries about crony capitalism, oh hell corruption by any other name, that emerges with stimulus spending on things like construction, etc.
So, I don’t know. The JG seems very hard to make it work (pun by accident). Mitchell has a 300 page report on the JG. Maybe worthwhile reading before you throw it away. It seems pretty dense to me. But this needs to be debated in some detail before we all stand in separate corners with the guns out.
We can eliminate unemployment for free? Are you delusional? So, you think the government can employ a few more million people by giving them a pay check to pick up garbage so they can go out and bid up gas and food prices and your definition of that is free? Why should I pay more for food and gas so that other people can have a job? Is that free? Is that fair? The JG sounds like an excuse to spread the wealth. Nothing more.
Keep it civil there, dickweed. Seems you need to read up a bit.
Name calling is so unbecoming! We are to learn and teach or we will find a new forum. Someone new to the discussion needs a civil answer, don’t you agree?
“So, you think the government can employ a few more million people by giving them a pay check to pick up garbage so they can go out and bid up gas and food prices and your definition of that is free? Why should I pay more for food and gas so that other people can have a job? Is that free? Is that fair? The JG sounds like an excuse to spread the wealth. Nothing more.”
So its your position that we are currently maxed out in what food and fuel we can produce? We’ve reached peak production in food and fossil fuels? You might be right about fossil fuels which is why a huge renewable energy push needs to be made ( How bout all JG recipients use battery powered transportation) but you are dead wrong about food production.
What else exactly might a person making 320$ week be in the bidding for besides food and fuel? 600$/month housing?
Clothes form the salvation army?
So these people are going to be farmers? Oil producers? Engineers. Not exactly. They’re going to be people picking up garbage in parks or filling out forms so I can go hunting this season where the government lets me. Meanwhile, they’ll be driving up the price of everything else that they’re not helping to produce. This is a direct redistribution of wealth from those of us with real producing jobs to people who are essentially getting a government handout. This isn’t rocket science. I am surprised at how the MMTers just shrug this subject off as if it’s not a concern. It’s a real weakness in the argument.
“So these people are going to be farmers? Oil producers? Engineers.”
No, but isn’t it conceivable that those who are already farmers, oil producers, engineers etc, when faced with increased demand for what they produce could quantity expand rather than just raising prices?
Your missing the point LVG. You dont have to have these people doing the farming in order to increase food production. The question is will the demand they produce at the grocery store be met with simply higher prices or do we have excess capacity for additional food production? I say we do. If your story were true these millions of unemployed people with their decrease in demand would have had a downward affect on food prices. Is that what we’ve seen?
Oil prices may not be so inelastic simply because weve reached peak oil, in my view. But that still is not a justification to leaving millions of our brethren without an income.
The point is that MMT postulates that none of this money the government uses will come out of your pocket, your children’s pockets or anyone else. Feel free to read up on Modern Money Theory and join the discussion.
The real problem is that the government guaranteeing the unemployed jobs comes across as a left-wing fantasy and many of us understand the political realities and your post re-emphasizes that simple fact.
Do we pay these people more than I get? Why would I work for Walmart and wait on your sorry butt? Does the government ever pick and choose winners and losers?
Are you and I on the list?
Jump in the water is fine and friendly.
I don’t see duration as being an issue. If training is an element of JG work (as is advocated by its supporters), and those in JG jobs never have a prospect of career progression or increased earnings whilst in the JG, then that should be incentive enough to encourage workers to seek work with better prospects elsewhere.
Those without the ability to improve their skills might wish to remain in JG work, but with unskilled jobs increasingly being replaced by machines, down the road an increasing number of workers will need to upskill or be placed on the scrapheap. For me a JG is preferable to parking those people on welfare indefinitely.
I am also an interested observer of MMT and still thinking thru how it works.
I agree (for now) with Cullen about the problems of including a Job’s Guarantee in MMT. It’s a great idea until you try to implement it. (It’s those pesky details that get you every time).
It has five defects.
• It competes with the private sector for workers.
• There isn’t a way to end it when the labor is in short supply.
• There isn’t an easy way to determine what the pay for the workers will be or how the qualifications of the workers vs pay is calculated.
• In the private sector, the ultimate penalty for a worker not performing is firing. What could possibly induce a JG worker to perform if it is truly a guaranteed job? Who decides that a GJ worker isn’t performing?
• What effect will the undocumented workers have on this? The GJ program will remove the competition for low end jobs which will increase the demand for undocumented workers.
Great comments by Hugo Heden,
“Post Keynesians (from which MMT seems to have inherited quite a bit of thought) argue that not even with perfectly flexible prices and wages, unemployment would be eliminated. Price and wage stickiness is not the issue — it’s about deficient aggregate demand.”
And I think the Post-Keynesians are entirely right. Think of it this way: One way of viewing an employed worker is as a firm consisting of a single person. That firms provides services to other firms for a price. We happen to call the service “labor” and the price a “wage.”
Now what happens to firms in a capitalist economy? Some thrive and grow. Some thrive more or less, but a stable long-term plateau. But many firms go belly up. Firms fail very frequently.
And what happens when a firm fails in a competitive capitalist economy? Does it retool itself and go back to work doing something else? Sometimes. But mostly firms that fail are liquidated. So I see no reason to think that the natural endpoint for a lot of the labor in a capitalist economy – one run on market principles alone without an active, exogenous social support system, isn’t failure and liquidation.
Of course, in our society, we don’t liquidate human beings in the most draconian ways one could imagine. We’re too civilized for that. Liquidation in our society means instead that we permanently jettison people from the productive sector of our economy, putting them either in jail or on a subsistence dole, and then forget about them.
Now of course some people are able to re-tool and reconstitute their labor “firm”. If they were fortunate enough to have adequate savings, they might be able to do the re-tooling on their own. But many people who successfully retool don’t retool themselves; they get retooled by others. That is, some source of exogenous support comes along to finance the retooling, just as a failing firm of some other kind might rescued by an outside investor, and reconstituted and rebuilt for new purposes. Or the investor might juts buy of the firms assets, and then disaggregate and repurpose them.
But that model of opportunistic capitalist finance buying up firms or their assets doesn’t work with individual people. People aren’t owned by other people. So know one can buy the failed human being, or part of the human being, and then invest in it to re-open it as a reworked “firm”. Even less is there a morally permissible, non-barbaric way for an investor to buy up a human beings “assets” and then disaggregate them for other purposes.
I think that’s the way we need to thing about programs like the JG or similar proposals. We have many people who “fail” as labor firms. Sometimes the cause is a general downturn that temporarily shrinks the market for what that firm offers. Other times there are structural changes in the economy that permanently destroy the market for that firms offerings. What kinds of exogenous public investments make the most sense, then, to deal with these failed one-person firms?
But there is a moral dimension here that goes beyond the purely economics-oriented approach of optimizing value through investment. Economics treats workers simply as “resources”, and applying economic reasoning alone in a vacuum of morality and humanity would just recommend liquidating or disposing of the workers that have little productive value, and for which the cost of the investments needed to raise their productive value are higher than the added value that would be realized by the investment. So ultimately, it comes down to what kind of society we want: a social Darwinist, sink-or-swim society in which people are regarded as economic inputs who are disposed of, jettisoned and excluded from the productive sector when they are no longer as productive as prevailing market conditions require? Or a society in which we make commitments to each other and continue to invest in developing each other and working with one another even when the costs of these commitments exceed their marginal value?
good comments dan. you seem to be getting to the heart of how to think about labor.
My first comment here too, after lurking a long time….What the hell, it’s a new year.
I’ve argued over at Warren’s site that “MMT” be redefined as “Modern Monetary Truths”, as opposed to “Theory” because it is, in its very essence, based on observation.
As in, “we hold these truths to be self evident”: The US Govt is not revenue constrained; deficit spending is private sector saving, etc. In other words, it’s a description of the way the current monetary system works.
The job guarantee, on the other hand, is different. It is not based on observation, but is still just a theory of what MIGHT work. At least I am unaware of any cases where it has actually been successfully implemented under a modern fiat system.
So in that way, it is separate from the core current operational realties of MMT.
i agree jaymaster. btw, i am also a long-time “lurker”. my 3rd comment was to dan above.
MMT is very clearly a theory as Bill Mitchell envisions it. He is explicit about the JG being a core point in MMT’s framework. And that means that MMT is something entirely different than what Cullen often describes. The MMT of Bill Mitchell has no operational reality vs prescriptive aspects. It is a core set of beliefs based on very theoretical ideologies.
Scott Fullwiler has been less explicit at points and I believe Warren would even agree to a large degree. Wray and Mitchell seem more rigid about the JG. Cullen clearly is post MMT and views its operational aspects as being totally outside of the prescriptive options.
I think Cullen has the most accurate and reasonable perspective here. Bill Mitchell has been (unsuccessfully) selling his brand of MMT for 20 years. Cullen has sold major mainstream Austrians and Keynesians in less than a couple of years. Bill Mitchell (stupidly) drew a line in the sand pitting Cullen against the others. Cullen’s position is so much more reasonable that I have no doubt where the public will fall and who will lead the MMT influence going forward.
I really don’t like how people are trying to pit me against other people. We are on the same team. We just disagree how the team should be run.
I don’t know why you’re so intent to hang onto THEIR mmt. People like Bill Mitchell, with socialist tendencies, are holding you back. Unleash yourself Cullen. You’re an innovator in your own right. You’re an entrepreneur. You can take MMT to the next level. But not if Bill Mitchell is poisoning your water with socialist programs.
” People like Bill Mitchell, with socialist tendencies, are holding you back. Unleash yourself Cullen. ”
Yeah Cullen is being held back. What a piece of work you are LVG…… *dick*
” The MMT of Bill Mitchell has no operational reality vs prescriptive aspects. It is a core set of beliefs based on very theoretical ideologies.”
And of course YOUR core beliefs are simply based nothing theoretical, youve got just the facts!
More to the point of course is that the neoliberal econ mindset that Bill is attacking is PURE fantasy, PURE ideology with no backing form real world facts
Yeah, Bill Mitchell is so righteous huh? He is trying to sell an economic theory as politically unbiased when it involves a government job guarantee. Are you kidding me? Read some of his work. This is a man who hates capitalism. If he had it his way he’d blow up wall street and redistribute the wealth to the poor. He’s the definition of political.
LVG, you need to stop making this so personal. It’s not personal. Let’s stick to the facts of the discussion. Thanks.
First off no one, including Bill, has ever said this isnt political. Virtually all societal decisions are political, you are trying to paint him as the only political player here. Where we sit today is not because of natural forces or physics its because of politics. We dont have millions unemployed and hoping for a job in an apolitical environment, it is politics which has put them there.
The politics which says regulations are bad, the politics which says govt can do NO good, the politics which says privatization of all services is superior. There is no unbiased observer which can arbitrate and say this is true or not. You’re spewing garbage LVG, simply trying to argue that only a left leaning view is political.
I think the most interesting development here is the dividing lines. We see Beowulf, Traders Crucible, Rogue Economist, Rodger Mitchell and Cullen all falling on the anti JG side while the academics are almost universally in favor of it. Warren is obviously pro JG, but I wonder how much he has simply been influenced by the academics.
The difference is clear though – the academics are just trying to fill in models. The other non-academics are trying to fill in a reality.
I appreciate the gracious tone here, especially with regard to those Cullen clearly values as mentors and colleagues.
However, I’m also heartened by the emotions aroused in previous debates. They indicate a deep concern that makes a refreshing contrast to indifference/denial/stubborn adherence to ‘knee jerk’ stereotypical reactions.
A couple of quibbles related to undocumented labor. A properly designed, publicly funded workforce to meet part of the demand that has relied on such labor (offering a competitive balance of cost/efficiency) could reduce the reliance on the former.
Also this labor is commonly provided by ‘contractors’ (typically older residents of the same ethnicity) who provide legal cover to the end user, can pay less than the legal wage, and exercise other controls that to an extent amount to ‘ownership’ of the labor of other human beings.
It’s a shame that MMT, which has always claimed to be apolitical, is threatening to split along political lines. I prefer to keep it simple:
1) Decide as a people how big a government you want (i.e. get the politics out of the way first).
2) Adjust the deficit accordingly to ensure full employment/price stability.
Bam, you’re done.
Geoff
NOTHING is a-political. Nothing
I disagree, Greg. The circulation of the human body is a-political. MMT’s description of money flows IS apolitical. That’s the NON-prescriptive part. I agree that as soon as prescriptions are included in the theory, a la JG, a la Bill Mitchell, then things become politicized…….
Let me restate.
Nothing which involves human choice is a-political. All our choices are influenced by how we think and how we think is influenced by where we were raised, when we were raised etc etc. We choose what we like for political reasons on a certain level. The bigger the decision, the more political.
Totally agree, Greg. That is why I’m so keen to get the descriptive aspects of MMT clearly delineated from the PREscriptive aspects. Otherwise, politics enters and the operational aspect that is so clear in describing “money circulation” gets thrown out and we go back to leeching the patient based on an erroneous operations construct……..
I think there are two distinct questions here related to the job guarantee about what is “part of” MMT. We can distinguish these two statements.
1. Given the nature of our modern monetary system, it is possible to create a job guarantee program that would serve to stabilize prices and achieve full employment.
2. Monetarily sovereign countries should institute a job guarantee program.
The first is a more directly factual statement that can be evaluated with respect to its truth or falsity on the basis of theory and empirical evidence. We can ask whether it is true or false, and what kinds of evidence support it, and to what degree that evidence supports it. But even if one becomes convinced that (1) is true, it is still an open question as to whether we should or should not institute a job guarantee program. Someone might become convinced, for example, that even though (1) is true, there are other factors in play, beyond price stability and full employment, that would make a job guarantee a bad idea.
Those who beyond statement (1) to assert the advisability of a job guarantee program, by making an outright prescriptive like (2), are committed to more than those who simply assert (1). And they are also probably relying on values or moral commitments that go outside the realm of economic expertise per se.
Perhaps we could all agree that at least (1) is part of MMT?
Cullen, MMT began with Warren’s “Soft Currency Economics,” and then Randy and Bill incorporated this into a macro theory drawing on a lot of input from the history of economics, bringing it together as a unique macro paradigm to challenge New Classicalism, especially its neoliberal variety, and New Keynesianism, as well as to develop Post-Keynesianism in a different direction. Warren funded a lot of the research and academic work in creating the new macroeconomic school of thought now called MMT or Neo-Chartalism, although some incorrectly call it Chartalism, since predates MMT.
On the other hand, Warren, like you, is a financial guy, and he wrote his “Soft Currency Economics” based on that experience independently of academic concern with macro. It was the academics that came later that have developed MMT into what it is today as a specific macro school of thought through their professional publications — which, by the way, many people who consider themselves pretty well versed in MMT have read only a smattering of. Many focus chiefly on the soft currency economics underpinning of MMT rather than the macro theory, and some of these think that the macro theory itself is peripheral to MMT, not to mention the JG.
I think you have two basic choices. You could take off in a different direction from “Soft Currency Economics,” emphasizing the monetary and financial aspect of MMT instead of entering what is now an academic debate over the future of macro, or you could enter the academic debate and attempt to influence the debate through contributions to the professional literature, which alone will be considered serious.
But whatever you choose to do, one of these options or something else entirely, I think that being very clear about this upfront is necessary to keep the discussion on track and avoid confusion. Right now I am not clear on where you intend to go with this.
Wray said that Warren gave them funding to pursue MMT. But the MMT developed by the academics is specific about the JG. Warren’s MMT is not. In SCE he says:
“There is a very interesting fiscal policy option that is not under consideration, because it may result in a larger budget deficit. The Federal government could offer a job to anyone who applies…It is meant to illustrate the point that there are fiscal options that are not under consideration because of the fear of deficits.”
The key word is OPTION. Unlike Bill Mitchell who says the JG = MMT. The academics have muddied the waters here by politicizing Warren’s theory.
“Warren, like you, is a financial guy, and he wrote his “Soft Currency Economics” based on that experience independently of academic concern with macro.”
Huh?
Mosler is a macro thinker, big time.
Macro is not the academy.
Well, Jamie Galbraith publicly referred to Warren as an inspired “amateur” in praising him. I took that to signal something.
BTW, did you read Winterspeak’s recent?
“I think that being very clear about this upfront is necessary to keep the discussion on track and avoid confusion. Right now I am not clear on where you intend to go with this.”
or exactly what is not necessary upfront, Tom
this is not an exercise in control
its an exploration of ideas
JKH, I am all for an exploration of ideas, and I have insisted that thinking out of the box is required. I am not attempting to dissuade Cullen or anyone else from exploring ideas freely. I went into philosophy because it is a license to explore.
Hereare my thought on this just up over at Mike’s place.
For example, in my own field of philosophy I decided long ago to abandon academia since I found it to be a wall instead of a door, or even a bridge. One forgoes the feedback of professionals in one’s discipline through ordinary channels, which is extremely useful, but one can find people to work with outside of normal channels, and I have done so. Nothing wrong in my book with being an independent thinker.
What I see in the MMT debates, however, is a lot of potential misunderstanding, as well as and actual misunderstanding and confusion judging from many comments on the blogs. As we all know from experience, even some very smart professional economists say some stupid things when they venture out of the confines of their specialty.
I am just saying to be clear, and suggesting a couple of avenues that would be taken seriously by people that count. I am saying to choose what people actually count in one’s opinion and then craft a presentation to reach them and position it in the appropriate venue. That will determine the results one gets.
“I think you have two basic choices. You could take off in a different direction from “Soft Currency Economics,” emphasizing the monetary and financial aspect of MMT instead of entering what is now an academic debate over the future of macro, or you could enter the academic debate and attempt to influence the debate through contributions to the professional literature, which alone will be considered serious.”
The only professional literature that will really counts are those papers that begin with the words, “Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled”. The rest, as Rabbi Hillel said, is commentary.
Beowulf, I think that Winterspeak has this about right.
One point I will add, though, is that I think attempts to pin the failure of MMT to spread (Steve Keen, Steve Keen! seems to be doing better) on politicians is misplaced, as are attempts to make it easier to understand to laymen, and attempts to reconcile it with standard macro.
This stuff is technical, and on technical material like this the government takes its marching orders from the University. If Obama or Paul or Cain or whomever were to take to the podium and begin spouting MMT he would be a laughing stock before the ink on Paul Krugman’s takedown column was even dry. The Fed and the Treasury are staffed by guys who learned from the same textbooks written by professors at Harvard or Princeton. A populist movement to take over the academy in this day and age is ludicrous, it ain’t 1968 and it ain’t going to be….
Secondly, while making MMT easier to understand is a laudable goal, the outcome of this will be to win over Austrians, the other leading candidate for a “people’s economics”. This will not help in the Academy, but it will fill the blogosphere with semi-correct rantings and it will make Austrians really mad.
Finally, the history of paradigm shifts in the Academy is well documented, and they have always happened via dead bodies, never by the future playing nice with the past. When something is true, that is enough. (source)
I guess why supply-side economics didn’t go anywhere in DC until after Art Laffer won his Nobel Prize.
)
Hey, maybe we need to set up our own prize and hype the hell out it.
I’m glad to see the conversation returning to a more open discussion of the merits of a JG. Thanks Cullen. Dan Kervick hit most of the arguments I would have made, but here are some thoughts.
It sounds to me like much of the opposition to the JG is due to it’s “permanency”. A temporary jobs program is fine, many readers argue, but a permanent arrangement to absorb those that are periodically “released” by private firms into the pool of the unemployed isn’t considered necessary or efficient. I wonder whether some of the opposition rests on the mistaken notion that supporters of the JG want to offer a government job for life. The job, itself, is supposed to be temporary — a resting place that affords our fellow citizens the opportunity to continue to work for a basic income even when there is no demand for their services in the private sector.
No capitalist economy has ever *sustained* full employment. OK, some economists will argue that market economies exist in a perpetual state of full employment as every unemployed person is simply revealing her preference for leisure, given the current structure of real wages. Others design arguments like a NAIRU (non-accelerating inflationary rate of unemployment) to disguise the fact that market economies will never achieve and sustain full employment on their own. Best to redefine full employment so that we are conditioned to view 5, 6, 7, or 8% unemployment as a practical best. But anyone who hasn’t had his head fuddled with this nonsense by a Chicago-type knows better.
So what do we, as Americans, want to do to cope with the fact that millions of citizens who are ready, willing and able to work will be denied, by the impersonal forces of the market, employment in the private sector?
Warren used to tell the story of the dog and the bones to make the point: Burry 95 bones in a field and send 100 dogs out to look for them. The best possible outcome is that 95 dogs return with bones. The more likely outcome is that some of the dogs (because they are more skilled or just luckier) return with more than one bone. The dogs without bones are like workers without jobs. No matter how much training they receive or how much discipline you impose upon them, you will never succeed in bringing all 100 dogs home with a bone. Like jobs, there just aren’t enough of them.
Can policymakers stimulate job creation without a JG? Of course. Can they adjust taxes, interest rates, etc. enough to bring about *and* sustain full employment? Not a chance. There will be economic booms and the private sector will create millions of jobs during the upswing. But there will also be busts — Enrons, AIGs, bubbles, etc. — and millions will become unemployed. A JG is the impersonal mechanism that absorbs and releases workers in response to these endogenous cycles. We can (and should) attempt to limit the size of the JG by preventing the kinds of bubbles, failures, etc. that have avoidable causes (e.g. control fraud). But we will never eliminate the business cycle, I have not encountered a better way to deal with the resulting (involuntary) unemployment than the JG. I am open to suggestions.
“It sounds to me like much of the opposition to the JG is due to it’s “permanency”.”
I haven’t researched JG enough to offer much on this.
But I’d say scope is as much the concern as permanency, if not more so.
And if 100 per cent scope is inherent in the mission statement of MMT, it seems to me that permanency is a moot issue anyway.
Cullen, I think you may be missing the central argument underlying the JG concept: i.e. that a certain portion of the population will always have to be unemployed without it.
Heteconomist explains this quite well (from a left perspective):
“Unemployment is a macro problem. It is not due to shortcomings of individuals. MMT makes clear that the problem occurs whenever the non-government intends to net save more than is possible given the government’s fiscal settings. Unless markets can induce a change in non-government net saving behavior consistent with full employment, unemployment will persist. Past theoretical attempts to demonstrate such a capacity of the market mechanism have failed, and so no automatic tendency to full employment has been established.
Earlier neoclassical economists did claim such a tendency, but the work of Kalecki and Keynes showed that they had succumbed to a fallacy of composition. The capital debates further undermined the notion of a full-employment tendency, and aggregation problems uncovered by general equilibrium theorists ended the efforts of the neoclassical orthodoxy to make its case.
The bottom line is, any argument that depends upon the price mechanism having systematic effects on aggregate output and employment is without legitimate theoretical foundation. Therefore, those who oppose both a job guarantee and a basic income guarantee need to explain how this is morally justifiable given that unemployment is beyond the control of the individual.”
He neglects to mention the phenomenon of accelerating inflation beyond a certain employment rate, which the NAIRU attempts to pin down.
By the way, in many countries unemployment benefits are not automatically finite. In the UK you can theoretically claim benefits your whole life, however after a certain period you are obliged to take whatever employment is offered or face having your benefits cut.
Have you ever wondered why there is so much crime in the US compared to most other western countries?
I agree that the aim should always be for maximum productivity. The problem however is that even maximum productivity will not provide full employment. Even with a low unemployment rate, the US could still end up with millions unemployed.
Either these people need to be given a (conditional) basic income, or they need to be given a job at a fixed wage. The charity sector is incapable of covering them on its own, and shouldn’t even have to.
However, the government could potentially pay voluntary organisations, charities etc to employ them rather than employing them all directly.
It is unlikely that the only job that could be provided is the raking of leaves in the local park.
The point of the basic income is both a moral and an economic one – it also serves as an automatic stabiliser during economic ups and downs.
The JG concept takes this one step further to argue that it is better to give the unemployed an opportunity to work than to pay them to be ‘idle’.
However, I can see why one might dislike the idea of a government jobs program. But I would argue that even if you reject this, you will still need to provide a basic income.
I disagree with this, Cullen, and the pope agrees with me.
CARITAS IN VERITATE
The fact is that in a modern complex society a person needs at least a subsistence income. In fact, according to traditional Catholic teaching, a person that cannot make subsistence is morally obliged to take other means, including stealing from those who have a surplus that they refuse to share.
Addressing unemployment is a moral question as well as an economic one.
But it is also a question of efficiency (doing things right) and effectiveness (doing the right thing). In a society in which the government is formed to provide for the common welfare (Preamble to US Constitution) one of the goals determining the effectiveness of economic policy has to be providing the means of livelihood where the individual cannot for no personal fault provide. This is also a matter of economic efficiency, that is, optimizing resources use, human resources being the most valuable.
Ugg. Let’s not bring religion into this. Are you trying to make the internet explode?
Not a matter of religion but of morality and human rights. A problem that many find with the way economics is practiced is that it is assumed to be amoral. I am not the only one who has a problem with that, as the reference I provided shows. I could have provided other references, too, but I think that Benedict has stated this pretty well, following on Rerum Novarum, Quadragesimo Anno, Mater et Magistra, Octogesima Adveniens, Laborem Exercens, and Centesimus Annus, source.
The problem is Human Nature. There are Homeless that are there by choice… they are not drunks or in-between jobs. Some people will refuse a JG.
Also, many who could be economically viable will choose a JG as the path of least resistance and as it has been stated- what doesn’t kill us makes us stronger.
Humans need the struggle.
That fact does not obfuscate our Moral obligation to help our fellow man.
These are two different debates.
SDG
“Human nature” is what exactly? That’s kind of like saying, Oh, it’s there karma. Philosophers have been arguing about this for thousands of years, and now psychologists and sociologists are investigating it empirically. The fact is that there are swaths of people chronically in poverty, ignorance, and disease around the world, even in supposedly highly developed countries like the US. This is not only a huge social problem, it is an economic one. That’s huge resources going to waste because they are not being developed. Macro is about aggregates. The data are indicative of extreme inefficiency, and also a failure of effective political management based on human rights and providing for the general welfare.
Human Nature has been discussed for thousands of years, as you pointed out, because it can not and never will be reduced to a formula or definition. Yes, there are incredible inefficiencies and the world is a screwed up place… always has been… even in the hunter – gatherer phase there were leaders and followers and those who got less to eat because of their station in life. The uncertainty principle is real and here every day; but there is one thing I am certain of… a JG will not transform humanity into utopia. Perhaps in the domain of unintended consequences, it will just serve to enshrine a new form of serfdom.
Hi,
You all are making way too much out of the jg.
it comes down to this:
with ‘state currency’
there necessarily is,
always has been,
is,
always will be
a buffer stock policy.
call that the mmt insight if you wish.
so it comes down to ‘pick one’-
gold
fx
unemployment
employed/jg/elr
wheat
whatever!
I pick ‘employed/jg/elr
as it works best as a buffer stock based on any/all criteria for a buffer stock.
so yes, it’s an option.
you are free to pick one of the others.
Best!
Warren
Now I’m really confused. Randy’s article said you sided with Bill. But now you’re saying that the buffer stock of unemployed is not necessarily a key piece of the MMT puzzle?
I believe a careful read of Bill will show he entirely agrees with me.
mmt shows how there is necessarily some kind of buffer stock at work with state, tax driven, currency.
mmt shows how using one buffer stock or another alters outcomes:
http://www.moslereconomics.com/mandatory-readings/full-employment-and-price-stability/
http://moslereconomics.com/2010/10/04/exchange-rate-policy-and-full-employment/
MMT shows how the outcomes of an employed buffer stock/jg/elr serve public purpose as currently defined as full employment and price stability vs the other buffer stock choices.
And you can know all this and still select any buffer stock you want, each with its associated outcomes, which MMT also describes.
Does that help?
It helps me. Thanks for contributing here. Just like Krugman jumps to criticize MMT without having all the facts, or doing much reading on the subject, it seems that many people are quick to attack the JG without a full understanding.