The Job Guarantee, Kleptocracy and Blogging
This is a post about the job guarantee idea in the context of a historic economic crisis.
I intended to write this post on Thursday night as a response to a good post by Pavlina Tcherneva on the job guarantee that is now up on Credit Writedowns, but my schedule didn’t allow it. Now, I have a moment, so here are some quick thoughts on the job guarantee.
This post will not be like other posts you read on the job guarantee. As I said in my last post on the job guarantee, I am not going to discuss what is "real" MMT since I am not in the position to make that judgment. However, I will give you my two cents on the political economy of state job guarantees.
I have a few competing ideas that I intend to thread through here so this post my deviate from the intended outline. Let me start back to front with the blogging part of the three elements in the title.
Blogging
I wrote Pavlina the following:
"What I think your piece identifies is the need in desperate times for public voices to advocate something strongly and forcefully to prevent something truly horrific from happening. Germany and Hitler and the War come to mind. The same might be said about Serbia and Milosevic for example. What I heard you saying is that I am in that kind of position as someone with a public voice. Tell me if I got that right.
What I intend to write in response is that I feel I actually have two roles, to advocate and to predict. These two are sometimes in conflict, particularly in times of social and economic stress. But as a situation deteriorates it is the second role which increases in importance in helping people avoid worst case scenarios. How can they protect their wealth. how can they get a job somewhere where they won’t be fired, etc. There is a serious tension in these two roles and I acknowledge that. My writing is increasingly about forecasting and much less about advocacy.
Before I get to why I am putting it this way, I should point out that Pavlina responded that she feels "economists (whether they like it or not) have an advocacy role to play" but that she is more interested in the technical merits of the JG because the blogosphere is filled with a lot of disinformation about what the job guarantee is and what it means about the role of government.
For my part, when it comes to aggressive US policy responses, I think the die has been cast. That means my focus has to be less on advocacy and more on forecasting. Here’s an analogy I thought of on Thursday that works for me.
Say you are the designated emergency responder for your condominium. One day, unexpectedly, a condo resident takes an entire floor of fellow residents hostage and threatens to blow them (and maybe the whole building) up if the condo board doesn’t bail him out of his condo fees. This particular resident lives on the top floor in the penthouse and pays more in fees, although nothing commensurate with his square footage. Now, he’s broke and knows that if he doesn’t pay the whole building will fall into disrepair and cease to operate.
Anyway, now he is threatening to blow the 9th floor up. You know he is a good friend of the Condo board president and that the president has a lot of power to end this standoff and is willing to listen to residents about what to do. What do you do?
Well, in the beginning of the ordeal, your chief role is one of advocacy. You tell the tenants to exhort the condo president to not bail Jack out, but to let Jack sell off his condo and break it up into pieces or face bankruptcy.
But what if the condo president doesn’t take your advice and he bails Jack out at everyone else’s expense, yet Jack continues to hold the ninth floor hostage? At that point, you could continue your advocacy, but the reality is you are an emergency responder and you need to decide whether a catastrophe is likely to occur and prepare residents for that potential catastrophe.
Bottom line: At some point you have to switch from advocate to forecaster.
In October 2010, I made the switch with "Less Policy Advocacy and More Policy Forecasting at Credit Writedowns". For me, Credit Writedowns is now more about helping people navigate the likely economic turmoil I anticipate and much. much less about advocating specific economic policies. So when I see things like the job guarantee debate in the blogosphere, this is my mindset.
Kleptocracy
Let me switch gears and talk about an interrelated topic, Kleptocracy, for a second. To my recollection, I was one of the first in the economic blogosphere to talk about the US political system using terms like kleptocracy or crony capitalism. This framing began as "a populist interpretation of the latest Boom-Bust cycle" in March 2008. But at the time, it was only a thesis, a suggestion. Since that time, it has become an integral part of how I view the political economy dynamics in the US and in Europe.
The central thesis is that government has come to work hand in hand with powerful private sector interests to promote an ideology, a religion I have dubbed corporatism masquerading as liberty which is really a convenient way of maintaining an ever more unequal distribution of income without significant social unrest. Now that policy rates have reached their nadir without the expected economic and asset reflation, social unrest is increasing and belief in the ideology is shaken.
The point here is that we lost the brief moment where "change" had any momentum in early 2009. The economic structure that remains intact is largely the same as it was in 2008. In fact, in the financial services industry in the US, Jon Huntsman correctly pointed out yesterday in a Fox News Op-Ed that the big banks are even larger today than before the crisis. So, we have a momentous conflict building between increasing social unrest and a more entrenched status quo.
My view is that the only way wholesale change is going to occur is if and when the economic system collapses entirely as it did in 1873 and again in 1929. To me, these are the antecedents for this particular economic crisis. So until then, we will have a slow growth economy punctuated by fits of recession and deleveraging until these issues are resolved. In saying that I am not fully discounting the possibility that the crisis gets resolved by socialising losses. However, I believe that this requires threading a needle and that eventually the policy errors will accumulate and bring the crisis to a head.
Job Guarantee
So, in the context of this world view, the job guarantee is a political non-starter right now.
What about the merits of the job guarantee then — advocacy, if you will? Let me say from the start that I have drunk from the cup of free market ideology just like everyone else. So it could well be that I have been brainwashed by the corporatist propaganda. While that may be true, so-called free markets are about liberty and freedom to me, not about corporatism and ideology. I fully recognize that government exists for a reason and will always exist in a large stratified society. Government, by its very existence, is always redistributive. So, the real questions about government concern how many checks to put on its coercive power and what kinds of redistribution are warranted to make government both efficient and effective.
It is a lie to say that we can ever achieve absolutely free markets and it is foolish to strive to do so.
On the other side, MMT proponents like Bill Mitchell believe that the job guarantee, where government always supplies jobs to the unemployed is core to Modern Monetary Theory. This is the antithesis of the free markets. You could call it market socialism or socialism if you like.
Now, I am quite certain that issues like the job guarantee are exactly why many people reject MMT. It is too drastic a change in economic policy. Even if you believe that we can never achieve free markets and that it is foolish to strive to do so, it doesn’t mean you accept permanent government intervention. For me, It’s not either or — or as George Bush put it "either you’re with us or the Terrorists".
What I like about the job guarantee idea is that it provides an automatic mechanism through which to stabilise unemployment without creating cash for clunkers schemes or bailing out specific sectors of the economy. It works well in creating a counter-cyclical stabilisation for any economy. I actually could envision a world in which some of the unemployed always worked in the private sector or in public works, paid for by government as an alternative to unemployment insurance. And that’s why I dubbed the Job Guarantee Unemployment insurance for the 21st century in 2009.
But there is a lot not to like. Moreover, European economies where government intervention is more accepted are far more likely to use a mechanism like this.
Here are some questions:
- Isn’t this a massive paradigm shift toward socialism? Some people may advocate this but why should we believe that such a massive shift will have positive results? Why should we believe that other people will accept such a shift? Why should we accept it?
- How do we know that employment in JG jobs won’t be considered ‘second-tier’ and have almost no impact on future employability? It could even have a negative impact. See my post "Lessons We Can Learn On How Stimulus And Jobs Programs Failed in Eastern Germany".
- In a distorted economy like ours, with excessive reliance on finance, housing, banking, a JG could retard the reallocation of resources and help prop up economic sectors with an overinvestment of real resources.
- Why should we believe that a JG can make jobs available in sectors where the unemployed have skills? All of the laid off mortgage and finance people are not going to be a natural fit for public works.
- In any economy, it can skew resource investment. For example, real resources devoted to healthcare must naturally increase as our societies age. Is it not likely that a job guarantee will hasten that change without any public debate by reallocating employment to that sector?
John Carney lays out some more. His overarching criticism, with which I agree, is that the "burden of proof is on the reformer". That will always be the case.
Clearly, if JG jobs are created by the private sector and simply paid for by government, that minimises the potential conflict between government and the private sector. But you still have the issue of wages to deal with.
The debate here must start with political philosophy: the role of government in promoting full employment, economic and price stability and the appropriate allocation of resources as well as alleviating poverty in an advanced economy. Pavlina told me that she is hoping to begin the dialogue discussing those issues and then putting the JG in that context. I hope that’s where the discussion heads and will continue to carry posts on this issue by the MMT’ers as a result.
For me, the JG is just an idea at this stage. Crucially, it has no relevance to the current political or macroeconomic situation we face — and it will not until the economy reaches 1933-levels of Depression. My focus therefore is on whether that is a possibility and how to protect you and myself against that possibility.
Good post.
Normally, if I’m in a multi-storey building I won’t exit via a window even if someone tells me there’s a fireman’s landing mat. That said, if the building is on fire I may consider it. Now although I can smell smoke, I’m not entirely sure whether the building is on fire or perhaps more importantly which floor I’m on. ;)
In question No 2 above, Ed Harrison asks “How do we know that employment in JG jobs won’t be considered ‘second-tier’ and have almost no impact on future employability?”
Answer: a study done in Switzerland found that temporary subsidised jobs in the private sector DO enhance employability, whereas such jobs in the public sector actually IMPAIRED employability. See:
https://ideas.repec.org/p/iza/izadps/dp606.html
In question No 4, Ed Harrison asks “Why should we believe that a JG can make jobs available in sectors where the unemployed have skills? All of the laid off mortgage and finance people are not going to be a natural fit for public works.” Good question.
I think the solution is to NOT run JG along the lines of WPA (i.e. mainly public works etc). A better option is to make JG subsIdised labour available to all existing employers (public and private) – along the lines of the above mentioned Swiss system.
That system involved as far as possible allocating those with skills to sectors where their skills were of some relevance. But failing that, if someone takes a subsidised job where their skill is of no relevance (and hence they work in an unskilled capacity) the ratio of skilled to unskilled in that sector will not be greatly changed, which means that some sort of moderately productive work can probably be found for the small number of additional unskilled people.
If subsidized labor is available to an employer, why would he ever use unsubsidized labor?
JG must be structured to not compete with “unsubsidized” labor, and to not compete with private industry.
Were the holders of subsidized public sector jobs in Switzerland impaired compared to holders of no jobs? or only compared to holders of unsubsidized jobs? I have to think that holders of no jobs were more impaired than holders of subsidized jobs. Or hear some sort of compelling rationale for why that would not be true.
Or you subsidise all jobs all the way up the stack – which redefines zero upwards.
That allows jobs with a ‘zero’ private wage to exist – the ultimate aim of all businesses in the chase to the bottom – but prevents the social problems with people having insufficient to live on.
Then it doesn’t matter who people work for and you just have to ensure that there is sufficient for people to do in society.
We will have to make that transition. The 21st Century is going to be the century of the service machine and when the outdated ‘work = income’ equation has to be broken – either by redefining what income is, or by redefining what can be called work.
Hmm. A subsidy for all labor would increase the demand for labor, and if it were allowed to increase the deficit it would increase aggregate demand as well. As such, it might be a better way to do a tax cut, as it would also make some marginally unemployable people employable.
It would not address the inflationary effects of bringing unemployment way down, though, and would not provide jobs for everyone who wanted one. You still need a JG program to get full employment with price stability.
I have trouble with the framing of a JG as anti-capitalist.
In normal times, we’d be looking at what, maybe 4-5% unemployment according to conventional nairu thinking as a buffer against inflation.
A JG (as I understand it in terms laid out by Mitchell and Wray) in normal times would change that to 2-3% JG employees as a price anchor with 2% or so remaining unemployed due to frictions.
It’s different but it’s not a radical shift towards socialism. It’s an incremental change to the way we conduct capitalism which arguably (and that’s where the healthy debate is) works to capitalist benefit compared to the status quo.
I don’t see JG as antithesis to free markets, any more than unemployment insurance or any other government program to transfer income to those who need it. Less than others, in fact. In a country such as the US, which has a trade deficit and positive savings rate, it is a mathematical certainty that there will be unemployment unless the government steps in to make up the aggregate demand lost to those two things. Determining and implementing the correct level of government demand is imprecise and subject to timing problems, so we have swings of unemployment alternating with inflation.
Rather than simply transferring income to the unemployed as an entitlement (which would be the socialist model), JG puts them to work doing useful things for the community, and for themselves. Freedom and free markets confer great benefits on the population as a whole, but not in a uniform way, and sometimes the net impact on a minority of individuals is negative (i.e., unemployment). So far we have been largely tolerating that negative impact, because of the net benefits. JG is a more compassionate accommodation for part of that negative impact.
Good article. Regarding: “Clearly, if JG jobs are created by the private sector and simply paid
for by government, that minimises the potential conflict between
government and the private sector. But you still have the issue of wages
to deal with.” And therein lies the primary problem with socialism. It can’t perform the economic calculations that capitalism does automatically and effortlessly.
So what, exactly, is “the issue of wages”?
JG pays a fixed wage, plus some benefits, more than unemployment but not so much as to attract workers from the private sector. Do you mean to say that you think workers will be attracted from the private sector to JG programs?
JG only sets a floor of sorts under wages, at least wages for full-time breadwinners. Part-time, piecework, and temporary employment in the private sector might still pay less than the JG wage/benefit package, as long as employers can attract the workers they need. Any economic calculations regarding relative wages for different jobs or skill levels is left untouched by JG, to be done just as automatically and effortlessly as it is today.
Capitalism, or individualism, itself creates public governance, so it’s useless to suggest the two are separable. Nothing scales unchanged across population changes from a few million to hundreds of millions (or billions). Deal with it, quickly, and get on with all the options we can explore.
the currency itself is a simple public monopoly, with
taxation necessarily coercive.
monetary and fiscal policy is therefore about how the govt. manages it’s currency monopoly.
and we all know that a monopolist restricting supply is evidenced by excess capacity.
So let me suggest starting over from that point of view and you’ll come up with something
like ‘full employment and price stability’ at http://www.moslereconomics.com under ‘mandatory readings’
warren mosler
Edward,
Corporations are the biggest players in the market. Please explain to me as to how a limited liability C corporation, or a LLP, or a LLC is a creation of the free market that you so idealize? These are all creations of the Government that you so ideally despise.
“government exists for a reason and will always exist in a large stratified society. Government, by its very existence, is always redistributive. So, the real questions about government concern how many checks to put on its coercive power and what kinds of redistribution are warranted to make government both efficient and effective.
It is a lie to say that we can ever achieve absolutely free markets and it is foolish to strive to do so.”
Randall Wray wrote me as follows:
Dear Ed: As we have discussed, you and I share a fear of “big government”. I came of age during the war against Viet Nam. War-monger Johnson and Tricky Dick. I can assure you, I shared your views of government run amuck. And I am as mad as you are about the rampant kleptocracy now corrupting our government. But when I come across your following statement, I wonder where it comes from:
“On the other side, MMT proponents like Bill Mitchell believe that the job guarantee, where government always supplies jobs to the unemployed is core to Modern Monetary Theory. This is the antithesis of the free markets. You could call it market socialism or socialism if you like.”
Let’s dial back the ideology just a bit. What if government told every local Red Cross branch office in the country: “We will pay the wages if you will hire two more workers, at a basic wage of 8 bucks an hour. You run your program exactly as you do now, or would if you could afford 2 more workers. We will not interfere in any way. Just do more of what you are doing now. We like what you’re doing. We will only monitor you to ensure the wage is paid to a worker. We hope you will not squander this opportunity. We think you won’t.” If you happen to have a beef with Red Cross, fill in the blank with any community group you do support. Support for homeless puppies. Bed-ridden seniors. Whatever jerks your tears.
Is that the antithesis of free markets? Is it socialism? Does it threaten the existence of Capitalism? Do we all instantly turn “Red”–in the Commie sense (not the Red Cross sense); or “Pink” (Socialist, not in the breast-cancer-fighting sense)?
What if we offered this to a few more well-established not-for-profits? Are you as hostile to such community service organizations as you are to “government” with a big “G”? Should all not-for-profit activity be derided? What about parents who “work for free” to take care of their kids? Should all human activities be subject to the “market test”?
I do not think any MMTer has ever advocated for “government always supplies jobs to the unemployed”. That is not it. We say only the sovereign currency issuer can “afford” to pay the wages. I’d hate to see a program proposed in which the Federal government “supplies jobs” to all the unemployed.
I have no idea how much the Red Cross pays its workers. I suspect the rank and file are not getting rich, but they may be making more than $8 an hour. What is the effect on the economy if the Red Cross says “Oh, Goody, I can take these two $8 workers and the next 2 $12 workers who quit, I don’t have to replace them. Then I have $24 an hour more to spend on my non-labor costs”.
I would make that offer to non-profit organizations who are using volunteer labor, but I would be very careful about offering it to employers, even non-profit employers.
And Professor Wray could dial back the rhetoric a little bit, too.
Ed,
The system as designed at present ensures that a number of people will always remain unemployed.
Millions of them. Several cities worth in fact.
When you state that the “burden of proof is on the reformer” I would say that the burden on those suggesting the status quo is to explain why these unemployed people shouldn’t be fully compensated for their loss. Not just wages, but the pain they suffer due to the lack of socialisation.
After all that loss is a result of macroeconomic design, not individual actions. There is nothing the individual can do to fix the problem.
Therefore, given that we are talking about the US here, shouldn’t we be allowing on of your famous class actions on behalf of unemployed people against the state?
Because all the arguments against JG I’ve seen boil down to “I want them to get less so that I can have more” – which is the usual flawed crowding out argument.
The political argument is really fully compensate the unemployed for their loss, or provide something for them to do instead.
The current position of demonising them as feckless is immoral and prejudice.
The burden of proof is ALWAYS on the reformer. That’s simply the way I see the political economy. Wholesale change never occurs unless sponsored by powerful interests, unless the status quo is shaken by economic and social unrest or reformers can prove their case to enough people that society moves to accept the reformer worldview. Bottom line: the status quo in any large stratified society is entrenched by multiple reinforcing institutional arrangements and basic human psychology.
This is why I say only a Depression of major proportions can make the case for a JG with someone like Obama or Mitt Romney in the White House. Otherwise, reformers will need time and effort to get movement on this issue.
As I said above, I can see a world in which enforced idleness is partially replaced by a JG program. Once long-time unemployment frays the gains won by the middle class, people will come to view it this way as well. In the meantime, discussion on the JG has to be about the political philosophy in support of it: the (minimal) role of government in promoting full employment, economic and price stability and the appropriate allocation of resources as well as alleviating poverty in an advanced economy. When the framing is done in that way, the discussion will be most productive even if ideology gets in the way.
Even Obama or Mitt Romney can learn. The burden is on the MMT proponents to teach them.
In my view, the JG is not a socialist measure unless the goverment decides where to employ all of these workers. If the local, NGO or the private sector plays a significant role on it, it will be ok.
For Spain, the case for a JG is more clear. Our main problem is a huge gap in youth unemployement (50%). Even worst, we have a good public education systme to no avail, since they cannot get qualified jobs in high tech industries and the like. A massive public investment in investagation will be a great solution for us I think.
Agree here. When I last talked about the JG, I said that Spain would be an optimal place for it to be implemented. But I doubt the Partido Popular would ever do so.
And having spoken to Randall Wray about the issue in the past, I know his view is that how the program is administered depends on political philosophy. I see this much like the healthcare debate in the US where there are a lot of single payer options where the private sector can administer and provide service but the public sector guarantees as in Switzerland or where the public sector also administers the program but the private sector administers the healthcare as in Canada or a full-on government system as in the UK.
In all of these cases, the charge will still be that it is a dramatic paradigm shift. And I think that’s true. The government’s being more involved means that it will also be seen as market socialism instead of free market capitalism. And I actually think there is truth to that. Clearly, the government will have a bigger role. The healthcare debate in the US is the analogue here. Same issues.
Why is this discussion even couched in terms of jobs or employment, instead of full utilization?
Does anyone ask the DoD whether it leaves a fixed % of soldiers idle or at war? What any surviving mgt team does, from termite colonies to parents to corporations, is practice full resource utilization. As people grow, mature & age there’s a fixed, accruing cost of NOT developing & honing skills, a cost that can never be recovered.
Just call it a question of full utilization of human resources, then look for options worth exploring. Anything less shows the ignorance, stupidity & lack of imagination of a group that should recycle it’s policy leaders ASAP.
No, it’s ideology.
For many, it has nothing to do with ignorance about idle workers, It has to do with political philosophy about the role of government. Again, the paradigm in the US has shifted very far from where the government is seen as a useful agent in supporting the economy. Only in extreme circumstances does government have a role. Do I support that world view? No. I think government has a role to play. I would limit that role, yes, but that is a debate we should have. It’s not all or nothing as some on both sides have made it seem.Marshall Auerback said it well:
https://pro.creditwritedowns.com/2011/05/more-on-unemployment-insurance-for-the-21st-century.html
“Given the nature of today’s “predator state” (to use Jamie Galbraith’s felicitous phrase), politicians have a proclivity to reward those who “pay to play”. They tend toward wasteful spending and give goodies to campaign contributors. But we could take this power away from sock puppet politicians through a mechanism that automatically adjusts to insure the private sector can actually realize its desired net nominal savings position ”
Marshall’s view is not going to win the day politically, however until the economy collapses because the view that government promotes waste and cronyism — and therefore should play no role in promoting employment and be cut down to size — rules the day. Obama and Geithner have done much to entrench this view.
And the DoD argument you make is also coming in the coming review of the defense department’s budget.
In the military, you never commit all your troops to battle except in extremis. There are always reserves, “unemployed” as it were, waiting for the next opportunity, or prepared for a new enemy to attack. Not a good analogy for economic unemployment. Since termites are not a monetary society, I’m not sure how their behavior is relevant, but in a well-managed, growing corporation, there are always trainees and assistants and others being mentored for advancement, and in some cases held in reserve for “peak season”, and thus not “fully utilized” as such. Also not a good analogy for economic unemployment.
Government by its nature is intrusive on the economy. It taxes, and that is enough proof in itself. It also spends, which reallocates resources. The amount of taxing and the amount of spending influence the general macroeconomic environment. For government to stay out of the economy is not an option.
In the US, we like to think that our Constitution defines and limits the role of government. One of its limited purposes is to “promote the general welfare”. That phrase was written long before Keynes or Minsky or any of the rest, but it is even more applicable to MMT than to any previous economic theory. MMT holds that government, as the monopoly supplier of the currency, has not only the ability but the RESPONSIBILITY to manage its activities for the benefit of the people. This is not to say that the government should own the means of production (communism) or be the single customer of non-defense industries (socialism), but it does imply more than just getting out of the way of the private sector.
I’d describe myself as a libertarian, and if something can be done by the private sector, that’s what I would prefer. Managing the money stock is just not one of those things.
Ron Paul is also a libertarian, and a Libertarian, but being not educated on MMT he does not know the proper way to manage the money stock. He does not realize that the trade deficit and private savings must be (as a matter of mathematics, not policy) offset by a government deficit, and that the savings of the non-government sector is what causes potential aggregate supply to exceed aggregate demand, and that such a situation necessarily causes unemployment. If everyone were working producing stuff, that would be more stuff than we are willing to buy (because we want to save a bit, as well as spend), so some of us HAVE to stop producing stuff. Nobody wants it, and there is no more room to store it.
Once you realize that government has the responsibility to mange the money stock for the benefit of the people, it is no great leap to realize that a JG program is superior to our current system of idle unemployment and unemployment compensation as a means of managing the excess labor capacity without causing supply constraints and inflation. (Yes, if government had a high enough deficit, larger than the trade deficit and desired private savings combined, then virtually everyone would be employed, but their production would not be enough for the demand, and the only way to spend all the income that we want to spend would be to bid up prices – inflation.)