Opportunity cost, MMT and public spending

by John Quiggin on June 29, 2019

I’ve been busy for the last week doing events for Economics in Two Lessons, so I didn’t have time to take part in the discussion arising from Harry’s post on alternatives to Sanders’ proposal to wipe out college debt.

In one way, that’s a pity because the key point of the book is the idea of opportunity cost – the true cost of anything, for us as individuals, and for society as a whole, is what you must give up to get it. More precisely, it’s the best alternative available to us.

Harry’s post was all about opportunity cost – what would be the best use of $1.6 trillion in public funds. However, the discussion was inevitably enmeshed in the complexities and inequities of US education, while comments making broader arguments about opportunity cost reasoning weren’t discussed in detail.

One of those broader arguments is the idea that, thanks to Modern Monetary Theory, there’s no need to worry about such questions. In the “chartalist” reasoning underlyng MMT, the fact that governments can issue their own sovereign currency means that there is no need to “finance” public spending by taxation; rather taxation is a tool used to manage aggregate demand so as to keep the economy fully employed but not at a point where excess demand creates inflation. That (essentially correct) position can easily slide into the (only subtly different, but radically mistaken) view that governments can spend money on anything they like with no need for any increases in taxes or cuts in other spending.

As I will argue over the fold, a correct version of MMT makes no such claim. Unfortunately, while avoiding the error themselves, a lot of MMT theorists have not shown much willingness to set their more naive followers straight.

To begin with, I’ll ignore imports and exports look at the case where workers (and capital) fully employed and expected to remain so, thanks to a Job Guarantee (a standard part of the MMT package). And, consistent with MMT, I won’t worry about whether the government budget is in balance, deficit or surplus.

Now consider a policy (such as debt cancellation) which improves the financial position of a large number of people. Naturally, the beneficiaries will want to consume at least some of their increased wealth. But since the economy is already at full employment, that can’t happen without reducing some other area of consumption or investment.

In the MMT framework, the role of taxes is precisely to reduce aggregate demand to a level consistent with the productive capacity of the economy. So taxes must increase sufficiently to reduce the consumption of those who don’t benefit from the policy. That reduction in consumption for some is the opportunity cost of the increased consumption made possible by the policy.

If the taxes were levied on the very well off, the result would presumably be socially benefical on balance. But again, we need to look at the best alternative. Assuming it becomes politically feasible to tax the rich more, an obvious option (I’ll assume its the best one) is to tax the poor less. So, the true opportunity cost of introducing the policy is forgoing tax cuts for the poor.

That’s not the only option available to government. An alternative is to match the increased expenditure under the new policy with a reduction in some other area of policy, such as military expenditure. (I discuss the opportunity cost of military spending at length in this extract from Economics in Two Lessons. As an example, for the cost of keeping 35 soldiers in the field in Afghanistan, the US could provide education for a million children there, or in other poor countries).

But to repeat, opportunity cost is the next best alternative. If we could cut military spending by $1.6 trillion, we would still be faced with Harry’s question “what could you (or a progressive US government) do with $1.6 trillion?

I’ve said more than enough on MMT, so I probably won’t engage much with comments that don’t focus fairly directly with the analysis I’ve proposed here.

{ 94 comments }

1

Zamfir 06.29.19 at 6:39 am

Most MMT seems to assume that the economy is not at full employment, and rarely will be unless the MMT framework gets adopted.

2

Larry Hamelin 06.29.19 at 9:23 am

You are correct: at full employment (more precisely most productive employment) to increase the spending of some group of people we must either decrease the spending of some other group or face inflation.

And Zamfir is (mostly) correct: MMT theorists believe on the evidence* (not assume) we are presently not at full, most-productive employment.

*briefly, relatively low employment to population ratio, especially ages 23-51, differences in all employment measures by race and sex, the vast amount of unproductive employment producing military “goods”.

3

Metamorf 06.29.19 at 9:23 am

Wouldn’t a debt cancellation worsen the financial position of at least some people (the debt holders), and so reduce their consumption to about the same degree, hence no increase in aggregate demand? If we want to think of a policy that improves the financial position of some people without worsening that of others, why not just a “helicopter drop” of newly printed money? But then of course we’d need to tax back the money to keep down inflation, and on net we’d be back where we started, no?

4

nastywoman 06.29.19 at 9:42 am

Like AOC I ‘m also a huge fan of MMT if it means that I can counter arguments of ”conservatives” who tell US we (the US) can’t spend on ”Universal Health Care” or ”taking care of the Poor” or any other ”social programs” because we can’t print as much money as we like to pay for it.

Supposedly we (the US) can? –
as ”conservatives” as Bernanke said – and Greenspan said – and it’s also a very helpful argument – when it comes to the currently most important argument for any peace-loving European-American -(like me) – that – in a ”hypothetical case” – where we can’t print as much money anymore as we want – we ALWAYS can reduce military spending to get some trillions for a Free Education system.

But then this… dude, who works for a YUUUGE American Weapon Producer married into our family – and he told his wife that the production of ”weapons” is about ”the only rest of manufacturing with well paying jobs” in THE homeland and if Von Clownstick won’t be successful in forcing some Europeans to buy more of these Americans weapons – not only would the Trade deficit growth even more BUT his wife -and the children – and him wouldn’t be able to spend their three weeks in South of France this year.

And perhaps – also NOT next year?

And as I really like this Cousin of mine -(not ”the dude”) – but her and the children – we offered to pay for her ”opportunity cost” – if her husband just would promise to produce less weapons by perhaps taking the opportunity and change to a company who produces… not weapons?

5

nastywoman 06.29.19 at 10:02 am

Oh – and about ”really” talking about (everyday) ”American opportunity costs” –
my Cousin thinks – it is/was ”the Crazy Rising of Healthcare Care – Education and Housing Costs – which (nearly) made the vacations in France impossible.

In other words:
Everybody seems to have her -(or his) unfavourable ”opportunity costs”?

6

Peter T 06.29.19 at 11:11 am

The assumption here (in standard economics AFAIK and MMT) is that “monetary” equals consumption (or production). Neither treats “money” empirically, as a separate, important, part of the economy – the latter defined as the total of production and consumption. Money is what I pay the rent with, or buy a new car part. The non-money part is the washing up, the ironing and fixing the car (assuming a modest mechanical competence). Most people juggle the border between money and non-money according to personal circumstances and the dictates of their society. The two do not translate (eg transport economists value commuting time at two-thirds the average wage, but saving an hour on the commute does not increase the money income by this value). The non-money part is, usually, about the same size as the money part in advanced economies.

So tinkering with the money part – actual or notional – may have some corresponding mechanical effect on eg inflation, or it may not. It may just shift the boundary. And the non-money part operates on very different principles to the money part. Proposals should be evaluated in terms of both.

7

Anonymous 06.29.19 at 11:23 am

>In the MMT framework, the role of taxes is precisely to reduce aggregate demand to a level consistent with the productive capacity of the economy.

“One man’s modus ponens is another man’s modus tollens”, but how is this not a refutation of MMT? This is obviously not what we observe, and monetary management of the business cycle works perfectly fine.

8

Larry Hamelin 06.29.19 at 1:27 pm

@Metamorf #3

Wouldn’t a debt cancellation worsen the financial position of at least some people (the debt holders), and so reduce their consumption to about the same degree, hence no increase in aggregate demand?

There might be an argument to reduce consumption of debt holders, i.e. big banks and their shareholders and executives, in favor of borrowers (or others). Even if the direct effect is a one-to-one transfer of income, transferring income from people with a lower to people with a higher marginal propensity to consume would increase aggregate demand. But we do not need to reduce debtors’ consumption if we simply “helicopter drop” the capital on the existing lenders; lenders could then reallocate that capital to other uses, leaving their income the same.

But then of course we’d need to tax back the money to keep down inflation, and on net we’d be back where we started, no?

At fully productive employment, yes. At less than fully productive employment, possibly no. If debtors increase their spending in sectors where we have relatively high elasticity of supply, then the increase in debtors’ income will cause short-run economic growth rather than inflation.

9

Z 06.29.19 at 2:13 pm

Many CT readers probably already know that, but a fairly complete MMT economical analysis of various implementations of student debt cancellation programs is available at the Levy Institute.

http://www.levyinstitute.org/pubs/rpr_2_6.pdf

The analysis and accompanying simulations argue for a positive effect on employment and a negligible increase of inflation, which in particular means that they (obviously) do not assume that the American economy is already at peak productive capability, as should be true in general for any sane MMT analysis, indeed any sane economic analysis.

10

eg 06.29.19 at 3:09 pm

I do not believe that the US is anywhere near full employment, given the amount of un-and-underemployment in the system with many part-time workers who would prefer full time employment, and many adults of working age who have given up looking for employment (and are thus absent from the unemployment data).

11

john 06.29.19 at 5:08 pm

“You are correct: at full employment (more precisely most productive employment) to increase the spending of some group of people we must either decrease the spending of some other group or face inflation.”

Don’t think so.

Our current full employment includes a huge proportion of people inadequately compensated in order to participate decently in our society. That kind of full employment cannot have the result you imply unless your economics requires and justifies misery.

12

Metamorf 06.29.19 at 9:58 pm

@Larry #8

Okay, so we just need to take money from people less likely to spend it and give it to people more likely to spend it? But then don’t we need to raise taxes in order to keep down the inflationary pressure? And wouldn’t those taxes themselves reduce aggregate demand? And wouldn’t the Job Guarantee (“a standard part of the MMT package”) mean that we are at full employment?

13

Larry Hamelin 06.30.19 at 12:30 am

@john #11

I’m not sure what you mean. I do not believe we are currently at full employment. If we were at full employment and some people were inadequately compensated, then to increase their compensation others would be required to decrease theirs, either directly by taking their money or indirectly by inflation. So what? I can definitely imagine* circumstances where I would endorse decreasing some people’s compensation to increase others’.

*I don’t really have to imagine; I can just look around.

14

Larry Hamelin 06.30.19 at 12:36 am

@Metamorf #12

Okay, so we just need to take money from people less likely to spend it and give it to people more likely to spend it? But then don’t we need to raise taxes in order to keep down the inflationary pressure?

If we take money from people who are less likely to spend for consumption and give it to people who are more likely to spend for consumption, then we would increase aggregate demand.

If we did not want to increase aggregate demand, we would have to raise taxes (or cut investment or government spending) to offset the increase in aggregate demand from the transfer.

And wouldn’t the Job Guarantee (“a standard part of the MMT package”) mean that we are at full employment?

If the Job Guarantee were actually in place, my economic analysis would probably be quite different. But the JG is not in place; I’m trying to look at student loan debt forgiveness in the current economic context.

15

Peter Dorman 06.30.19 at 12:51 am

I’m one of the signers-on to the Sanders et al. student debt relief proposal, although I don’t support it quite as written. Above all, I think only loans for public higher ed should be forgiven, consistent with making public institutions tuition-free but not private.

Now on to financing. First, I’m not an MMTer, although I’m sympathetic to paleo-Keynesianism, so I’m not far removed.

To estimate the consumption impact, let’s first assume that private lenders would be made whole by the government. Thus there is an aggregate increase in private wealth and corresponding decrease in public net wealth. To follow on with JQ, let’s also make the counterfactual assumption that the US is at full employment, since other measures could be taken to get there.

The immediate effect on consumption would be something like current debt service. There may be a secondary effect, a sort of rebound, due to some ex-debtors downshifting their employment. (The claim that young people carrying student debt are beholden to jobs that pay more but satisfy less is one of the arguments for debt relief in the first place.) And there may also be a pure wealth effect if you believe in intertemporal consumption optimization or something close to it.

I view this windfall as falling under the same heading as the income effect of cancelling tuition: discretionary income of students and their families rise at the expense of government net wealth. It is a one-time, transitional increase. And I would finance it, to the extent required, by increased taxes on upper-income households justified by the fact that they receive some of this windfall themselves. Even upper income households that pay for private colleges and universities would benefit somewhat, since private tuition would have to fall if public higher ed tuition were zero. I consider this a necessary part of the package, in fact, in order to avoid the regressive aspect of the policy that some centrists claim to worry about.

To sum up: yes, some increase in upper bracket taxes is needed. Yes, it is justified to offset what would otherwise be a windfall for these households. Therefore it does not compete dollar-for-dollar with other such tax-financed programs.

16

AusMMT 06.30.19 at 3:32 am

governments can spend money on anything they like with no need for any increases in taxes or cuts in other spending.

This can hold true if their is idle resources and unused capacity in the economy.

There is the potential that if the economy is at full capacity and something like this is done that progressive tax rates will do their job so once again spending cuts or tax increases may be unnecessary. Context is everything and it will depend on the specific resources being used.

We use MMT every day – its just macroeconomics coherently and consistently defined – that’s not to say it can’t be improved. It is a working body of knowledge.
MMT or Macroeconomics shows there are multiple uses for taxes – the first is that it is sufficient to drive the currency. The next as John says above is to manage aggregate demand/inflation/resource use. It is also used to discourage undesirable behaviours (pigouvian taxes).

Have a Modern Money Day!!

17

nastywoman 06.30.19 at 5:56 am

@1o+11
”full employment”

One day economists will learn – that ”full employment” – which doesn’t pay living wages and where you need – one – two or even three ”gigs” to pay your rent – really can’t be called ”employment” – as in such a ”A Fake Employment Economy” – you always need some boy – or girlfriend -(or a husband or wife?) – to come up with the money to cover the rest of those ”exploding living costs” -(economists might not call ”inflation”) – as they are not part of some ”basket” nobody uses anymore.

And that’s the ”opportunity cost” of turning a ”Predominant Producer Economy” into a ”Predominant Consumer and Service Economy”.

But no worry – America is about the only country who always might be able to MMT itself out of that… ”pickle”?
-(as there is sooo much money out there – that just one Bugatti pays for a lot of tips)

18

John Quiggin 06.30.19 at 6:19 am

Worth observing that despite significant unemployment and underemployment among some groups in the potential labor force, the US is generally overemployed – annual hours per worker (~1800) are around 20 per higher than most comparable countries. This reflects long hours for many jobs (especially professional), limited or no vacations and multiple jobholding because of low wages.

https://stats.oecd.org/Index.aspx?DataSetCode=ANHRS

19

nastywoman 06.30.19 at 6:36 am

@
”This reflects long hours for many jobs (especially professional), limited or no vacations and multiple jobholding because of low wages”.

And that’s the worst – as all of our friends who stayed (back) in the homeland can’t even take the six to seven weeks of summer vacations with us -(anymore) – which makes the definition of ”opportunity cost” -(the loss of other alternatives when one alternative is chosen) so… depressing?

20

nastywoman 06.30.19 at 6:46 am

But on the other hand as ”tips” in certain areas of the homeland have become so huge – we have this friend who had the opportunity – instead of working at a Design Studio in Zürich – to park cars in THE Hamptons and she thinks she will MMT in the next two month so much money that she afterwards can take off to Australia for a whole half year?

Now that makes ”opportunity costs” look a lot better again?

21

Larry Hamelin 06.30.19 at 8:33 am

@Peter Dorman #15

If we were at full employment, then Harry’s original objection in the other post would have more force. If we must give something up, even if we just have to give up some billionaires’ wealth, then it becomes salient to ask if forgiving student loan debt forgiveness is the most benefit we can obtain. I find Sanders’ proposal attractive because it increases aggregate demand at less than full employment with negligible opportunity cost.

@nastywoman #17

One day economists will learn – that ”full employment” – which doesn’t pay living wages and where you need – one – two or even three ”gigs” to pay your rent – really can’t be called ”employment”

Some of us do know this! Still, fixing distribution problems is different when everyone is working than when we have a lot of people out of work. The distinction between full and not-full employment is still important eve if it isn’t the only or even the most important distinction.

22

Chaz 06.30.19 at 9:00 am

John, very nice quick MMT summary. It’s good that you mention that some amateur MMT fans (basically blog commentators) mistakenly see it as proving we can print endless money, while making clear that the professional academic economists who promote it say no such thing. Some folks are less kind unfortunately.

I agree with your general thesis that debt cancellation would compete for resources with other humanitarian goals and maybe isn’t the best use of money. However I do think that measures are needed on the student debt front (not sure what). Some student debt (law school in particular) feels like a mild version of debt slavery: It is not cancellable in bankruptcy or by any other means. Unlike conventional debt like mortgages, it is given in huge amounts (above $200k is common) to people who do not have anywhere the income or wealth to be able to actually pay the amount. A lot of people do not actually get a high income from this education (fail the bar? drop out of med school?). The interest rates are quite high (above 8% is normal) and interest accrues while in school. And these loans are pushed on young people, who are trained by society to think that med school/law school/business school is a responsible path and that taking on this giant debt is the responsible thing to do, and they will be able to pay it off. If you take a person who failed the bar exam, is working as a paralegal for a pretty low wage, has a $200k loan balance at 8% interest on top of all their living costs, there is simply no way they can ever pay that. They will enroll in income-based repayment with 8% interest getting added to the principal each year, and the balance steadily rising. They will have the stress and fear that if they ever mess up the paperwork on the income-based repayment plan, or the loan servicer makes some error or just treats them poorly, or the federal government changes the income-based repayment terms, that they could be immediately chucked into poverty with their wages garnished down to nothing. It’s a debt you can never pay and never escape. It’s debt slavery, although as slavemasters go the federal government is more benevolent than most.

MMT/economics note: Some people here and elsewhere, unfortunately including some of the founders and core academics of MMT, tend to say the job guarantee causes “full employment” because everyone would have a job (or access to one). But my understanding has always been that in economics “full employment” is meant to mean full, maximum use of labor and of all other economic resources (land, factories, etc.). In particular “full employment” doesn’t just mean everyone has a job, it means they have a job that makes full use of their skills and that that job is more or less the best job that that person is qualified for. Basically if you have 0% unemployment but engineers are driving cabs and physicians are sweeping the streets, that’s not full employment. The job guarantee does help maintain full employment because it is a great automatic stabilizer which will support aggregate demand in recessions, and thus help support employment in the private sector. The incomes it pays will also support state/local tax revenue and reduce state/local layoffs. But a job guarantee by itself will not maintain true full employment; additional countercyclical government interventions are needed to achieve that.

23

Tim Worstall 06.30.19 at 10:30 am

@18

I know you’re not all that keen on these time studies etc. But:

“Worth observing that despite significant unemployment and underemployment among some groups in the potential labor force, the US is generally overemployed – annual hours per worker (~1800) are around 20 per higher than most comparable countries.”

It’s still true that “work” is the sum of unpaid household labour and paid market labour. Page 26 here to stick with OECD numbers:

https://www.oecd.org/berlin/42675407.pdf

Breaking it out into paid, unpaid labour, then personal time, leisure, the average American has more leisure time than the average French. Which we’d expect, the USA is a richer place, people do take part of greater income or wealth as more leisure.

At the very least it’s not so clear cut that Americans “work more”.

24

nastywoman 06.30.19 at 11:04 am

@21
”Still, fixing distribution problems is different when everyone is working than when we have a lot of people out of work”.

For sure –
When we have a lot of people out of work – depressions about being ”unemployed” are far more socially acceptable – than when we have a lot of people working so called ”gigs” -(are those ”employment” does the Uber-lawyer ask?)
– when such ”employment” is even more depressing than being ”unemployed”.

Or what might a German Bus driver say:
You are only ”employed” if you got a secure employment contract with a living wage – covered Health Care and more than a month vacation each year.

AND – if you can take that vacation without risking your job!

25

Metamorf 06.30.19 at 11:19 am

@Larry # 14

Yes, I see that you’re looking at student debt write-off in the current economic climate. I’m just trying to focus directly with the analysis in John’s post.

We seem to agree at least that a policy having the effect of increasing consumption increases aggregate demand, which is almost tautological. And if we’re at or near “full employment”, then that increase in demand simply increases inflation, which in turn reduces real consumption. So then, as John indicates, in order to prevent that generally, we need to reduce aggregate demand in some more specific way — but we’ve already done that if we simply wipe out assets, as we do if we “forgive” certain kinds of debt. So the simple old “take from the rich and give to the poor”, for example, whether it involves student loan write-offs or bank robberies, just leaves the aggregate economy in place. Doesn’t it?

The only question then seems to be what constitutes being at or near “full employment”, which has assumed a kind of mythical status. It can always be argued that as long as there’s something a bit more “productive” (which can be defined in different ways) that any of us could possibly be doing then we’re always going to be short of that ideal, and no sort of “Job Guarantee” (the caps aren’t mine) would be able to bridge the gap. But in the world as we have it, there are real economic conditions in which an increase in aggregate demand really does increase inflation mostly, and only slightly at best increases aggregate production. So in this world, it seems like we should really contrast a policy like writing off student debt with a much simpler one of just giving the Poor direct access to bank vaults. In terms of opportunity cost.

26

hix 06.30.19 at 4:00 pm

@ John Quiggin “This reflects long hours for many jobs (especially professional), limited or no vacations and multiple jobholding because of low wages.”

All true, but also: A relativly low labour force partecipation rate and little part time employment, and a more generous definition of what counts as work hours (compared to central Europe).

Suppose there are no good numbers for average actual annual hours of the full time employed?

27

pseudo-gorgias 06.30.19 at 4:18 pm

1) Millenials and the older Gen Y cohort are now the largest voting bloc in the country. Notwithstanding anti-democratic instutional arrangements in the united states, they SHOULD be voting themselves generous benefits. A straightforward debt holiday would be an effective step in that direction, esp since
2) This generation has been victimized by an older political class that viewed them as a resource to exploit, like natural gas or timber, and not as future citizens with aspirations and hopes of their own.
3) There is so much “let’s make the perfect the enemy of the good” reasoning on this blog whenever Sander’s name comes up. This usually takes the form of “couldn’t we use the money Sander’s wants to use for (politically popular, simple idea) to do (complicated, hard to sell, maybe–according to an econ 101 text book more ‘efficient’ idea). Maybe this is come residual animus from the 2016 campaign, but really, people, get over it.

28

Egmont Kakarot-Handtke 06.30.19 at 6:16 pm

Opportunity cost ― another case of poor economic logic
Comment on John Quiggin on ‘Opportunity cost, MMT and public spending

For the full text (7700 characters) see
https://axecorg.blogspot.com/2019/06/opportunity-cost-another-case-of-poor.html

Egmont Kakarot-Handtke

29

otpup 06.30.19 at 7:32 pm

1) But doesn’t the premise of MMT (that government spending being inflation constrained not budget constrained) make the whole question of “best use” into something much more complex? Most government spending has to be compared to other alternatives with comparable inflation impact. Some spending can have negligible or positive inflation impact (spending that increases growth, productivity or that removes mitigates negative externalities could fall into this category). I.e., you can’t compare spending that has negligible or a salutary inflation affect to other uses of higher impact. When you are comparing two alternatives where one reduces inflationary potential, you should do both.
2) And as a practical matter, all policy formulation in the US Congress radically are constrained by bandwidth overload. so that the perfect is almost always the enemy of the good which is comes to passing legislation. (I.e., my heuristic response is that if a policy is popular enough to be enacted into legislation, you should run with it).
3) The other objection to MMT (e.g. a la Krugman) which probably requires specific addressing is “crowding out”. Iiuc, Krugman and other neo-Keynesians would say government spending reduces private investment (except maybe near the ZLB), a view which derives from the neo-classical notion of loanable funds. MMT (and indeed all post-Keynesians school of thought as they embrace endogenous money) then implies that crowding out doesn’t happen.

30

James Wimberley 06.30.19 at 8:08 pm

Peter Dorman in #15: “I’m not an MMTer, although I’m sympathetic to paleo-Keynesianism …””
Since it was and is the free lunch and hedonistic aspect of Keynes’ thinking that raises the hackles of Puritan moralisers like Schäuble, palaeo-Keynesianism can be dubbed the Cro-Magnum tendency.

31

John Quiggin 06.30.19 at 9:03 pm

@Tim Interesting, but the graph on p26 counts sleeping, eating and drinking as work. As the paper observes, the French spend a lot of time on this. On a broad measure of leisure, the US is near the bottom.

Australia is even lower. Since we haven’t had a reduction in standard working hours for many decades, I’m not surprised to find us near the bottom, but a little surprised that we are below the US.

32

hix 06.30.19 at 10:09 pm

Tim Worstalls source is good, his interpretation let`s say unique. Still some problems emerge. Nothing new about Japan which would be an important case and paid work includes commuting time as well as breaks at work. Thats fair up to a point, but also makes it hard to compare countries that work shorter but more intense with less breaks to others with the opposite approach.

33

Larry Hamelin 06.30.19 at 11:23 pm

@Metamorf #25

I’m just trying to focus directly with the analysis in John’s post.

All right.

So the simple old “take from the rich and give to the poor”, for example, whether it involves student loan write-offs or bank robberies, just leaves the aggregate economy in place. Doesn’t it?

Not really. We have to distinguish between stocks and flows. If I have $1000 in my desk drawer that I have no intention of spending, and you steal it from me and spend it, aggregate demand has increased: my stock of money has decreased, but my flow is the same; your stock has not increased, but your flow has. I might decide to spend less to replenish my stock of cash in the drawer, but there is no way to tell if my reduced spending will be more or less than your increased spending.

But in the world as we have it, there are real economic conditions in which an increase in aggregate demand really does increase inflation mostly, and only slightly at best increases aggregate production.

True. An important topic in MMT is that different specific compositions of aggregate demand have different effects on aggregate supply. As I mentioned in the other thread, if we try to spend money on products with inelastic supply, we will increase inflation, even if we are not at full employment. I think Wray’s line is, “We have to buy a lot of bombs to employ one guy in Harlem.”

So in this world, it seems like we should really contrast a policy like writing off student debt with a much simpler one of just giving the Poor direct access to bank vaults. In terms of opportunity cost.

By day, I’m a third-rate economics instructor, by night, a revolutionary communist. So sure, I agree completely. Compared to the Glorious People’s Revolution, forgiving student loan debt is at best small potatoes. I don’t think Bernie is a revolutionary communist, though.

34

Larry Hamelin 06.30.19 at 11:34 pm

@otpup #29

But doesn’t the premise of MMT (that government spending being inflation constrained not budget constrained) make the whole question of “best use” into something much more complex?

I don’t think MMT “makes” it complex; I think MMT better recognizes the complexity.

When you are comparing two alternatives where one reduces inflationary potential, you should do both.

I concur. More precisely, if a policy improves welfare for some without reducing welfare to others, it’s a “free lunch”, and we should just do it; we don’t really need to compare alternatives.

MMT (and indeed all post-Keynesians school of thought as they embrace endogenous money) then implies that crowding out doesn’t happen.

I would say that the classical theory is that all deficit spending always crowds out private investment when not at the ZLB, because deficit spending requires borrowing on the open market.

MMT theorists would say, I think, that it’s more complex than that. The basic MMT idea is that deficit spending does not require borrowing the funds on the open market: this requirement is at best a political constraint and at worst a polite fiction. “Borrowing” from the Fed does not crowd out private investment, because the Fed can print the money it lends the Treasury; it need not take it from other sources.

35

Mike 07.01.19 at 5:39 am

@metamorf Only 7.63% of student debt is private ($119 billion), a rounding error in the US economy.

https://www.nerdwallet.com/blog/loans/student-loans/student-loan-debt/

36

nastywwoman 07.01.19 at 6:04 am

@
”Since it was and is the free lunch and hedonistic aspect of Keynes’ thinking that raises the hackles of Puritan moralisers like Schäuble”,

and Yes! –
”Schwaben” like ”Schäuble” are the utmost ”leisure-fans” – they insist that a worker doesn’t work one minute longer than the 8 hours a working day has – and if a workers does it anywhoo -(in Stuttgart) – the employer get’s punished with such exorbitant ”Überstundenkosten” – that ”Keynes” -(if we would have gotten him out of his grave) probably would die right away again after a shock – witnessing the awesome working conditions at Porsche or Mercedes Benz?

And about the vacations – for ”the Schäubles” of this world – the 7 -(and NOT one day less) – summer vacations are as ”heilig” -(holy) as for the French or Italians where whole nation actually shut down for ”leisure” EACH summer – a spectacle which leaves Americans -(or Australians?) ich they are able to witness it – in complete awe…

37

nastywoman 07.01.19 at 6:25 am

– and as ”Schäuble” and thusly ”the Germans” were mentioned – how about the following opportunity costs?

The German government is currently considering a ban on work-related emails after 6pm, to counter the accessibility that smartphones and constant connectivity give employers to their employees.

And Germany’s system of Elternzeit (“parent time” or parental leave) is the stuff of fantasy for most working Americans. The United States does not currently have laws requiring maternity leave, while Germany has some of the most extensive parental protection policies in the developed world.

Since “at will” employment does not exist in Germany, all employees have contracts with their employer. Parents who have been gainfully employed for the previous 12 months are eligible for Elternzeit benefits, which include up to three years of unpaid leave with a “sleeping” contract. The employee is eligible to work part-time up to 30 hours while on leave, and must be offered full-time employment at the conclusion of the parental leave. Parents may also choose to postpone up to one year of their leave until the child’s 8th birthday. Either parent is eligible for parental leave, and many couples make the choice based on financial considerations.

In addition to the preservation of the employee’s contract, the state will pay up 67% of the employee’s salary (with a cap of 1800 Euros per month) for 14 months. Parents may split the 14 months however they choose. These benefits apply equally to same-sex couples.

Have you picked your jaw up off the floor yet?”

38

Nicholas 07.01.19 at 8:25 am

The Levy Institute study concluded that cancelling all student debt in the USA would have a negligible impact on inflation.

http://www.levyinstitute.org/publications/the-macroeconomic-effects-of-student-debt-cancellation

MMT, otherwise known as macroeconomics done properly, does indeed emphasise that it is the availability of real resources that constrains a currency issuer rather than a financial constraint. At present, it is typical for macroeconomies to be far short of full employment. For example, in Australia there are 700,000 unemployed people, 1.1 million under-employed people, and 1.1 million people who are marginally attached to the labour force. So that is 2.9 million Australians whose employment needs are not being met. On top of that there are many people who are precariously employed or unhappily employed because their job is badly designed or poorly supervised or they lack meaningful choice and autonomy in their working lives. Using a Job Guarantee would be transformative because suddenly it would mean that the economy is a worker’s market. Employers would be desperate to hire you. If you don’t already have the knowledge and skills needed for the job – no problem! They will pay you while you learn on the job. It would be much better to live in that kind of economy.

MMT economist Steven Hail of the University of Adelaide is a wonderful teacher and a lucid writer. He estimates that the Australian Government could run a fiscal deficit of $50 billion or $60 billion per year right now without causing an inflation problem. There is an immense amount of unused capacity.

39

MisterMr 07.01.19 at 10:57 am

In my opinion there are two different problems in the OP argument, that reflect two different problems with the MMT:

[Disclaimer: not an economist here, just your average internet crank]

1) Exactly what is “full employment”? My understanding is that in orthodox, neoclassical economics full employment is when the supposed marginal productivity of labour matches the wages, so that additional workers would be paid more than their additional output (under the assumption of falling productivity of labor).
If this is what “full employment” means, then it is perfectly possible to be at “full employment” with a lot of people unemployed and a lot of people underemployed with sucky wages – depending on the marginal productivity of labor function.

I think that the idea of the falling productivity of labor is wrong or irrelevant, and that productivity of labor should be assumed to be constant, that leads to what is now fashonable to call “classic” economics. In this case, though, it is difficult to define clearly “full employment”, because if labor productivity is not falling there is no point when wages reach labor productivity, unless wages rise so much that they reach 100% of the output – but obviously a capitalist economy cannot reach 0% profits, so we have to hypotise that there is a “peak employment”, that is different from the “full employment” of neoclassical theories.

In operational terms “full employment” is defined as “the point after which stimulus produces a lot of inflation”, but then the whole premise of the MMT becomes circular.

The problem for the MMT is that they should make clear what they mean with “full employment”: either the neoclassical concept (in which case it is possible to be at full employment with low wages and a lot of unemployed people) or something different, that they should define anyway.

2) The second problem is the confusion (IMHO) in the OP between the stock of savings and aggregate nominal demand. Basically in case that the government assumes someone’s else debt, and pays for it by printing money, it is increasing the quantity of money, that is the stock of savings.
When we speak of stimulus, instead, we are speaking of aggregate demand, that is a flow (nominal aggregate demand = nominal GDP).
There is no direct relationship between the “quanity of money” (that is the stock of savings) and nominal GDP, otherwise the debt/GDP ratio would be constant.

For the MMT, this is also a big confusion as the seem to assume that by printing issuing money they are increasing aggregate demand, whereas they are increasing the saving stock.
In fact it seems to me that the MMT implies a very dubious quantity theory of money where the price level is equal to (quantity of money)/ (stuff produced), so that it is ok to increase the quantity of money but only as long as the quantity of stuff also increases.
But this is IMHO a wrong model of inflation, as there is no particular reason an increase in the quantity of money (stock of savings) should cause inflation.
Apparently inflation (at least demand-pull inflation) depends on wage-price spirals, and the increase in wages is likely caused by low unemployment, not by the quantity of stimulus.

40

john 07.01.19 at 11:38 am

“Larry Hamelin 06.30.19 at 12:30 am
@john #11

I’m not sure what you mean.”

Whatever full employment is, I too do not think we are there, though there seems to be universal acclamation that we are, especially among the Fed. It seems to be an extreme circumstance never observed in the wild.

In any event, if there is full employment and inadequate compensation, then the fear of inflation forces a system that includes misery, by the original macro style reasoning.

However, I would bet that if at such time we helicopter dropped an adjustment only to those inadequately compensated to bring them up to adequacy, there would be no inflation. The reason that they have no excess compensation to bid with. They already cannot afford adequacy. If prices started to rise at adequacy, they would then be shut out of the market again.

The inflation demon we fear last appeared when labor had a bit more than adequate income (though the distribution was also poor then). Labor could actually bid up essentials and some others. Labor cannot do that now. Phillips does not consider the ability to pay.

41

Larry Hamelin 07.01.19 at 11:39 am

@MisterMr #39

(Sorry to qualify everything with “I think” or “scholars say”; I’m not an MMT scholar, just a third-rate economics instructor who reads a few MMT blogs.)

My understanding is that in orthodox, neoclassical economics full employment is when the supposed marginal productivity of labour matches the wages, so that additional workers would be paid more than their additional output . . . then it is perfectly possible to be at “full employment” with a lot of people unemployed

I don’t think that’s correct. As I understand it, the marginal productivity of labor is always equal to the wage, regardless of the macro situation. Full employment is when society’s resources, especially labor, are fully employed: everyone is working as much as they want, and all other natural resources are being most efficiently employed. MMT scholars usually use this definition.

Of course, according to “orthodox, neoclassical” economics, we are always at full employment. If unemployed people really wanted a job, they would take one at a lower wage; if they do not have a job, classical economists conclude they do not want one at the lower wage.

I think that the idea of the falling productivity of labor is wrong or irrelevant, and that productivity of labor should be assumed to be constant.

Well, we can always set one thing constant and adjust everything around that, but I don’t know why you would want to to hold labor productivity constant. People can make more stuff per hour of labor today than 100 years ago, so why not take a straightforward view and say that productivity has increased?

There is no direct relationship between the “quanity of money” (that is the stock of savings) and nominal GDP, otherwise the debt/GDP ratio would be constant.

Yes, this is a core MMT concept. There are indirect relationships, though.

In fact it seems to me that the MMT implies a very dubious quantity theory of money where the price level is equal to (quantity of money)/ (stuff produced), so that it is ok to increase the quantity of money but only as long as the quantity of stuff also increases.

AFAIK, MMT scholars say the price level is roughly (flow of money) / (stuff produced), and no MMT scholar holds to the quantity theory of money.

Apparently inflation (at least demand-pull inflation) depends on wage-price spirals, and the increase in wages is likely caused by low unemployment, not by the quantity of stimulus.

And a lot of other things, notably whose wages are increasing, and whether the increase in those people’s wages is associated with increased supply.

42

Owen Paine 07.01.19 at 7:17 pm

Should we assume full employment
Is a priori knowable ?

During the arsenal of democracy
Where war production was a maximal sector

There was rationing and price controls

This is a clue to 24/7/365>> no limit time horizon

We need an efficient price level macro path system
And a public debt management system
And trade balance system
And a employment max system
And a local market job blight mechanism
And a bottle neck system
Etc

Yes Lerner’s insight of functional finance is no panacea

43

Owen paine 07.01.19 at 7:58 pm

Reading comments I see a common
Point

Assuming full employment is jumping ahead of achieved policy

Since the second world war
Not even during the early Korean war mobilization or peak Nan did the us production system go into sector max mode

Read late William Vickrey

On maximum
Market mediated employment
Thru fiscal thrust macro
Ie thru some mix of
tax cuts transfer payment and public spending

Get this onto max drive
Ie continued stimulus till corporate sector
Price increases accelerate continuously
for a year or 6 quarters
Or some such feed back warning
Recall America at the republic level
Faces no dire policies from trade imbalance
And imperial dollar forex slides
Are job class beneficial despite import
Price inflation aka the 70″s ……

IOW

We need a blast in full measure of output max macro

Preparing responses to outcome are secondary

.
.

44

Frank Wilhoit 07.01.19 at 9:56 pm

The real point is that cost and value have become totally unmoored from one another. Never have so many things cost so much more or so much less than what they are worth. The latter somewhat desensitizes us to the former, at least as long as we don’t have to buy them. But it points to a deeper and wider failure of markets than anyone is prepared to acknowledge…not of particular markets but of the idea of markets.

45

mclaren 07.02.19 at 5:57 am

As much as I admire John Quiggin (Zombie Economics is a great book and a potent weapon against conservatives who vomit out long-debunked Econ 101 or Laffer-curve junkthink), switching Bernie Sanders’ proposal to a discussion of opportunity cost proves pointless and counterproductive and altogether meaningless.

The plain fact of the matter is that opportunity cost can’t be calculated. It’s an ignis fatuus. To figure out what opportunity cost really is, we’d have to be able to see into the future and figure out with perfect clairvoyance all the effects of our actions. No one can do. No economist can do this. No policymaker can do this. And no one should even try because we’d contort ourselves into pretzel knots and wind up in a dead-end of infinitely branching possibilities.

Campbell’s Law and the Cobra effect assure us that whatever ingenious calculations we try to make to predict people’s future actions and “nudge” society into a better world will usually backfire. The Lucas critique not only applies to inflation, but probably also to unemployment and deficits and most of the rest of the things we can measure about the economy. Simply put, when you put a policy in place and spend money on it to change society, people game the system and you typically get results that turn out to be the opposite of what you expected. So targeting full unemployment (1945-1975) creates runaway inflation and a resurgence of neoliberal oligarchy, whereas people who argued in favor of targeting full employment in the 1940s-1970s claimed that the opportunity cost of failing to do so would be a return to the Great Depression and huge economic inequality of the 1920s.

The switch to targeting inflation (1975-2019???) creates runaway college/personal debt and a gig economy that doesn’t pay people enough to live and a resurgence of full-on naziism.

Since we can’t meaningfully calculate the opportunity cost of alternatives to Sanders’ proposal to sink 1.6 trillion into canceling college debt, how about we take a more pragmatic approach? Do what common sense and the empirical signals tell us might help boost aggregate demand, and then change the policy (radically if necessary) as unforeseen and counterproductive knock-on effects from the policy start to pop up. Pretty much the same way FDR and his economists (most of ’em not academics) handled the New Deal.

In any case, if we want to take a stab at guessing about opportunity costs, forget college debt. That’s a one-shot deal. We can do a crude Fermi estimate about the opportunity of America’s insane military/security spending, which, broadly construed, runs about 53% of the current federal budget. That’s around 1.5 trillion dollars per year, year after year after year after year after year we’re throwing away, pissing that 1.5 trillion down a rathole and getting nothing for it other than corrupt Pentagon contractors like “Fat Leonard” and million-dollar luxury homes for CIA torturers and military contractors paid $400 a day to run sex trafficking operations and the misbegotten F-35, that can’t even fly.

Fat Leonard, the F-35, and so on:
https://harpers.org/archive/2019/06/the-pentagon-syndrome/

CIA torturer’s million-dollar home:
http://fortressamerica.gawker.com/this-cia-torturers-1-3-million-house-sure-looks-nice-1671406406

Sex trafficking by military contractors in Iraq:
https://apnews.com/ebe9f147ebcd44589749a6359dc2e462

A recent economic study suggests that military spending is the least effective way of creating U.S. jobs. The study found that spending that money on education would create twice as many jobs:
https://www.brown.edu/news/2017-05-25/jobscow

Do the math. If we slashed crazy U.S. military spending by, say, 90%, that would give us somewhere in the ballpark of 1.3 trillion extra dollars per year to play around with. That’s per year. So after 7 years, you’ve got 10 trillion extra dollars. After 14 years, you’ve got 20 trillion extra dollars. And so on.

Permit me to suggest that 20 trillion dollars is real money. The 1.6 trillion bucks Bernie is talking about looks like a rounding error when you’re talking about the kind of Himalayan mountains of cash America pisses down a rathole on its endless unwinnable foreign wars for weapons that don’t work and an American military that hasn’t won any wars since 1945.

Want to talk about opportunity cost? Let’s talk about slashing American military spending, not natter on about nitpicking Bernie Sanders’ proposal to cancel college debt.

P.S.: various ignorami will predictably claim that the U.S. spends only 760-something billion per year on its military. Utterly false. The Pentagon has perfected the art of disguising what it actually spends, hiding the actual costs of its programs, and misrepresenting its actual yearly budget — aided greatly by the fact that the Pentagon has never passed an audit, and thus cannot produce actual hard numbers for what it spends per year.

Examples: the 298 billion dollars in the U.S. annual budget for military pensions are magically not part of “military spending.” Classic creative accounting. The Department of Energy, which nowadays mostly spending its budget on exotic weapons for the DOD, also likewise magically gets its 20 billion dollar budget counted a non-military spending. The Department of Homeland Security’s 70 billion dollar annual budget likewise doesn’t count as military, even though it uses that money to put cities like Chicago into martial-law-style citywide lockdowns with tanks roaming the streets after a couple of kids blow up a black powder bomb. And so on. Examine the figures, and the best guess you come up with for a real U.S. military budget it north of 1.5 trillion per year.

For confirming guesstimates, see:
https://www.pogo.org/investigation/2018/02/americas-national-security-budget-nearing-12-trillion/

https://www.thenation.com/article/tom-dispatch-america-defense-budget-bigger-than-you-think/

46

nastywoman 07.02.19 at 6:41 am

– and this ”full employment thing” – somehow – always reminds me on myself:

As I once predicted that one day every American will have a job by driving other Americans around. And then have a second or third job in order to pay for the car to drive other Americans around.

47

nastywoman 07.02.19 at 6:58 am

– and as there seems to be this very unpleasantly growing dilemma for so many Americans about opportunity costs about what to pay first?

Should always the rent or mortgage payment be payed first and then risking that already at the 20th of the month there is no money for food anymore – or is the car payment the most important – as when th car get repossessed there is no way anymore to drive for uber or to get to the second or third job to pay for the car -(and especially the gas) –
and don’t laugh – as these are the real serious ”opportunity cost riddles” and not some ”financial mumbo jumbo”?

48

Cian 07.02.19 at 3:20 pm

At the very least it’s not so clear cut that Americans “work more”.

Having spent time in France and now living in the US it is clear. I’d guess the problem is in the methodology used by the OECD. I can think of dozens of possible problems, ranging from economists strange ideas about ‘work’ (cooking being the most notorious), bad statistics (it’s very hard to compare statistics across countries due to different collation methods) and also collection issues (Some of the US stats undercount US working hours due the definitions used. Sure you may be at the office for 10 hours, but if you’re only paid for 8…).

I don’t care enough really to find out what the problem is though. US working life sucks compared to the UK, and the UK sucks compared to northern Europe.

49

Cian 07.02.19 at 3:21 pm

The inestimable Matt Bruenig points out that the statistics undercount the amount of student debt that low-income people have:
https://www.peoplespolicyproject.org/2019/06/27/low-income-people-have-more-student-debt-than-realized/

50

Z 07.03.19 at 6:23 am

John, delete this if you consider it too off-topic (it is a comment on Harry’s original post rather than on yours).

Harry All I did was check his website, where it says he plans to do exactly what I said he plans and nothing else (in terms of spending). Of course, he might add plans, and that’d be great.

Sanders’s website has a long and detailed section on K-12 education (that existed at the latest in late May, so well before your piece). I’d be glad if you would give your thoughts on it.

https://berniesanders.com/a-thurgood-marshall-plan-for-public-education/

Diane Ravitch (from whom I heard about it) likes it.

51

nastywoman 07.03.19 at 6:36 am

Now I’m really happy –
as this thread has come to a very ”constructive” solution from:
@45

”Want to talk about opportunity cost? Let’s talk about slashing American military spending, not natter on about nitpicking Bernie Sanders’ proposal to cancel college debt”.

52

nastywoman 07.03.19 at 6:42 am

– and about
@48
”US working life sucks compared to the UK, and the UK sucks compared to northern Europe”.

– as we have made exactly the same experience – we -(some ”friends” who are currently are working simultaneously in the US – the UK and Northern Europe) – we – very much care ”to find out what the problem is though”.

And we have found out what the problems are – and bit by bit we posting it -(not only here).

53

nastywoman 07.03.19 at 7:16 am

– and as the major question for so many American families has become:

”Do you want to be bankrupted today – or rather be tomorrow?”
– or ”what are the (psychological – philosophical and financial) -opportunity costs of working for companies – which ultimately always bankrupt YOU?

As American employers have invented all these type of ”employments” –
(which are legally ”not employments” anymore) – BUT they give ever American ”the chance”
(haha!)
to be a ”free contractor”.

And then this nation of ”free contractors” –
(with – at the same time – some little – truly wonderful ”employment” – one only gets – by having invested in a real expensive Harvard education) –
becomes what @44 said:

A system were cost and value have become totally unmoored from one another.
”Never have so many (opportunity costs) so much more or so much less than what they are worth”.
and
”The latter somewhat desensitizes us to the former, at least as long as we don’t have to buy them”.
AND as long as the car – we need to drive for uber – which for sure will bankrupt US in the future – but haven’t bankrupted US yet – will NOT be repossessed – yet!

54

Hidari 07.03.19 at 8:53 am

@45
Yes.

It’s probably true, sadly that the (white, male, straight) working class in the 1950s and 1960s benefited from the American Empire, the financial arrangements of which essentially worked as a highly militarised form of Keynesianism. But covertly since the late 1970s and overtly since 2008, the American Empire is no longer helping the white American working class (it never really helped the African-American working class at any time). If anything it’s a drag on them because America’s infrastructure (and public school system) is disintegrating and badly needs investment. The money for this is available but at the moment it’s being spent on pointless tanks/aircraft carriers/fighters etc. Not to mention endless (and pointless) foreign wars and occupations.

Trump is awful, but one of the key points he continued to hammer home in his Presidential run was America’s decaying infrastructure and the illegality and pointlessness of America’s foreign wars. It turned out his proposed solutions to these problems turned out to be lies, but at least he mentioned the issues.

This opens up a gap for a genuinely anti-imperial Left in the US for the first time in decades in that the case can now be made: ‘You are poor because they are rich, and they are rich (partly) because of America’s foreign wars, and the endless military spending’.

In other words, Sartre’s point about war being a situation where rich people order poor people to go off to foreign climes and die for objectives that would only ever benefit rich people, assuming the objectives were ever achieved, which they never are. (‘When rich people fight wars with one another, poor people are the ones to die.’).

This would be an ideal situation in other words, to link inequality and poverty with anti-imperialism. Whether any Democrat has the nerve to make this link, on the other hand, is a moot point at present.

55

harry b 07.03.19 at 9:18 am

Z — yes, that’s what I read and I added up the spending commitments to which he gives figures (the stuff on teacher’s salaries, which I agree is crucial though I might have liked more subtlety, uses the phrasing “will work with States to” which I take to be a a way of saying “want to signal I support this but won’t fund it” — contrast with his willingness to say that he will fund cancellation of all medical school, veterinary school and law school debt: note, that by the time the debt forgiveness happens, teachers will be graduating from UW’s teacher ed program debt free because the Dean is securing funds to ensure that, so Bernie’s funds will flow to new doctors and new lawyers, but not new teachers, graduating at that time from our institution). Any of 100 people I know could have written his platform (including me), and yes, I think most of it is fine. I’m on holiday, so won’t say more for now, but will try to do a post in a few weeks looking at it piece by piece.

56

nastywoman 07.03.19 at 9:30 am

@
‘for the first time in decades in that the case can now be made: ‘You are poor because they are rich, and they are rich (partly) because of America’s foreign wars, and the endless military spending’.

As a lot of Keynes Fans considered the ”endless production of weapons” -(around WW2) – and thus ”endless military spending” afterwards – as ”very stimulating” for the economy –
and there are these very infamous jokes – that all WE need is ”another war” – or an ”Alien Invasion” – America firstly – has to be turned into a country – where the production of Rubber Duckies – or High Class Kitchens -(or similar ”peaceful” products) will – as the bible says – turn:

”Schwerter into Pflugscharen”!

57

Larry Hamelin 07.03.19 at 9:38 am

@john #40

Whatever full employment is, I too do not think we are there, though there seems to be universal acclamation that we are, especially among the Fed.

I don’t think we’re there either, and most MMT scholars think so too; the acclamation is not universal.

In any event, if there is full employment and inadequate compensation, then the fear of inflation forces a system that includes misery, by the original macro style reasoning.

No, you just have to take spending away from people who are spending too much to increase the spending of people who have too little. The fear is the fear of redistribution, not really inflation.

58

Larry Hamelin 07.03.19 at 10:08 am

@mclaren #45

The plain fact of the matter is that opportunity cost can’t be calculated. It’s an ignis fatuus. To figure out what opportunity cost really is, we’d have to be able to see into the future and figure out with perfect clairvoyance all the effects of our actions.

I pretty much completely disagree. I “agree” insofar that opportunity cost can’t be calculated perfectly, but I think we can get good approximations.

Do what common sense and the empirical signals tell us might help boost aggregate demand, and then change the policy (radically if necessary) as unforeseen and counterproductive knock-on effects from the policy start to pop up. Pretty much the same way FDR and his economists (most of ’em not academics) handled the New Deal.

But what is “common sense”? How do we interpret the empirical signals? Common sense is usually the speaker’s prejudices, and empirical signals require an underlying theory to interpret.

My common sense tells me that the Earth is at rest and the cosmos spins around me; happily I know better because Science. My common sense tells me that SLDF is not a particularly big deal, a good primary effect and little downside. Harry’s common sense tells him that SLDF is a Bad Idea, perhaps even a Very Bad Idea. Who’s right? How do we decide?

Campbell’s Law and the Cobra effect assure us that whatever ingenious calculations we try to make to predict people’s future actions and “nudge” society into a better world will usually backfire. The Lucas critique not only applies to inflation, but probably also to unemployment and deficits and most of the rest of the things we can measure about the economy.

They tell us no such thing. They tell us only that economies are not made up of mechanical parts: we have to take into account that an economy is made of people who can anticipate, plan, and react. Yes, it makes economic planning more complicated, but it doesn’t make it impossible.

And if you were correct, why shouldn’t Campbell and cobras and Lucas apply to the application of “common sense and empirical signals”? Should we go back to 1929 and say, “We’re not going to plan; we’re just going to uphold gold standard and let the economy sort itself out”?

Just because something is hard, and we can’t do it perfectly (or even very well) is not by itself an argument that we should dispense with theory in making our decisions.

So targeting full unemployment (1945-1975) creates runaway inflation and a resurgence of neoliberal oligarchy . . .

Wow. If you could prove that, you’d win the Nobel Prize for sure!

We can do a crude Fermi estimate about the opportunity of America’s insane military/security spending . . .

But doesn’t Campbell et al. argue that would have possibly disastrous unintended consequences? I mean, our present military spending is at best barely enough (and perhaps entirely inadequate) to prevent the Chinese and Russians from invading America, taking away our Freedom, and making us eat borscht with chopsticks?

I’m completely kidding! I absolutely agree that our military spending is insane. We should definitely cut military spending a lot; 90% might be too little. And we should erase student loan debt.

59

eg 07.03.19 at 10:58 am

@Larry #57

This “fear of inflation” thing seems odd to me.

Who, exactly, is supposed to be afraid of it? Near as I can tell, the only people it hurts are creditors, and since we are almost all debtors, shouldn’t we welcome rather MORE inflation than we’ve been “enjoying” the last 40 years or so?

60

steven t johnson 07.03.19 at 3:10 pm

Going to comment on economics from what seems to be an almost unique perspective.*

mclaren@45 argues that there is no reasonable way to calculate opportunity cost. I suggest that there is a rough measure for estimating them, which is return on investment. This is the principle that leads to a general rate of profits. Epistemological consideration mean neither the rate of profit, the ROI and the projected ROI if capital is transferred to pursue an opportunity will ever be perfect. I think this is the only kind of opportunity cost that matters in economies where capital investment is a private decision, and a fortiori in all orthodox economic theory.

I don’t think any strictures from Campbell, Goodhart and Lucas matter for this measure. The only way to game profits is the state, therefore limit everything to private decision about capital investment. Sure, there’s the general idea that relying on the rate of profit to determine capital investments may not lead to optimal outcomes. But this assumes that other kinds of opportunity costs can be calculated. But they cannot. Even the Lucas critique as I understand it doesn’t help, because in capitalist economy preference is opportunity cost which depends on projected ROI in the long run. If other preferences really mattered so much, would there be such uniformity in capital goods?

As to the notion of full employment, it seems to me the true orthodox definition of full employment is the distribution of capital, as defined in orthodox economics, which includes human capital, i.e., employment, where all firms have the general rate of profit, insofar as this can actually be measured. Any “firm” (individual) not engaged in production for profit uses epistemologically unmeasurable preferences, which can be neither questioned nor asserted.

Similarly, it seems to me that inflation is when capital, especially financial capital such as money or debt held by the investor, loses value. The worst examples of inflation are when the guarantor of national markets and currency, the state, is defeated in war. Loss of value of currency due to other cause, such as changes in international economy can cause this kind of inflation.

And increased employment seems to cause inflation by several mechanisms. One is direct pressure on profits of individual firms as wages rise. Also, lowered financial profits due to foregone interest when the market for loans advantages the buyer reduces the projected ROI. Also, the expansion of production pushes all spheres to their limits, which are not likely to be compatible with other spheres, that is, causing bottlenecks, gluts and other disruptions that that render the old methods of calculating opportunity costs unreliable, not least in leaving the “real” value of current capital held uncertain. And last, the decrease in the profitability of financial instruments destabilizes financial markets, promoting illusions about the further profitability of new investments. Asset inflation is not a thing in this perspective, especially if it increases profits, whatever the effects on net consumption. Production for profit is not production for use, therefore use is irrelevant.

Now by this eccentric view, it is not amazingly impossible to have stagflation. And by this view it is not clear whether MMT addresses this kind of inflation at all. Thus it is hard for me to conclude that MMT policies will achieve full employment at all, much less stabilize the capitalist economy. I’m pretty sure it’s not a funny money scheme, any more that Keynesian economics was really just Major Douglas’ Social Credit.

Hidari@54 thinks the empire was profitable for white workers in the Trente Glorieuses. I’m not so sure. The massive destruction of capital in WWII made profitability for US manufactures very easy. But I’m not sure that should be considered imperialist white workers sucking the blood of brown people. I suspect there has been either relative constancy in the profits of empire devoted to the white workers (as opposed to buying labor lieutenants of capital to lead an aristocracy of labor, unacceptably old fashioned concepts.) Or, that as unions have declined the benefit to white workers from imperialism has declined with it.
But I admit I appear to be in a minority on this. Most seem to believe that all government spending that marginally benefits whites more than others are intrinsically oppressive. This view seems to me to imply that white teachers at all levels are possibly the greatest oppressors of the world proletariat (though maybe postal workers?) Somehow this seems very wrong to me.

Off topic, anyone know why no one pays any attention to Heinlein’s Beyond This Horizon and For Us, the Living in ruminating about UBI/GMI/GAI/Negative Income Tax and so forth?

*Most of my notions about economics tend to be limited to those which seem to fit the facts of economic history. Any theory which doesn’t quite manage to explain why there has been a business cycle for so long doesn’t pass muster and I tend to dismiss it as ideology. My ignorance of all the facts and/or misunderstandings of the theories interfere with my personal success at this. But I am quite confident the principle that economic theory and economic history have to connect or you don’t have anything but vapor is entirely correct. It is sort of a map, with the reminder that the map is not the journey. As an example, as I recall trying to understand von Hayek’s theory of the business cycle, I thought I couldn’t find any reason for his economic crises to be so regular, averaging five to ten. Thus, I tend to find people taking von Hayek seriously of doubtful interest.

61

William S Berry 07.03.19 at 9:59 pm

What McLaren said

62

Larry Hamelin 07.04.19 at 5:06 am

@eg #59

I don’t really “fear” inflation. I was an engineer before I was an economist, so I tend to dislike (too much) inflation as kind of inefficient. We want our monetary system to roughly correspond to real production, and too-high inflation is a sign that the correspondence is slipping.

In MMT, inflation is a sign that either we’re at or near full employment, or that existing spending is not engineering-efficient, and we should reallocate spending.

We want some inflation (about 2 percent according to conventional wisdom) to create some policy space to make real interest rates negative and to discourage people from hoarding cash.

Inflation doesn’t really hurt creditors; they build expected inflation into the nominal interest rate.

We tend to model inflation as all wages and prices going up all at the same time, but IRL, wages and prices don’t go up all at once, and wages, especially for people who actually work, tend to lag prices. So unexpected inflation tends to make workers worse off in the short run.

63

reason 07.04.19 at 7:29 am

mclaren@45
“Hasn’t won any wars since 1945” … na they beat Granada.

64

reason 07.04.19 at 7:39 am

Just as an aside about US Military Keynesian. As I see a major part of the reason for it, is as a substitute for regional policy. As an Australian, I am well aware of what urbanization and centralization looks like. Something like 95% of Australians live within an hours drive of the coast, inland is largely depopulated. In America, you (or at least your family) can continue to live in your 1 horse town if you join the military (or work as a prison guard). There are huge federal flows of money to red states, and a lot of it is military related.

I very much prefer a UBI as regional policy. I thin the jobs will follow the people and money to places where people can afford to live rather than people having to follow the jobs to expensive places to live.

65

mclaren 07.04.19 at 8:01 am

Military Keynesianism is actually official U.S. policy. Paul Nitze’s NSC 68, presented as policy recommendation to Harry Truman on 7 April 1950, explicitly stated that America should pivot to an economic policy of growing its economy by producing weapons & military services:

https://en.wikipedia.org/wiki/NSC_68

As many have pointed out, that worked economically for a few decades, then began to break down as weapons contractors/congresscritters/Pentagon careerists began to game military procurement and military-industrial-complex system.

See “America’s Defense Death Spiral,” 2014:
https://nationalinterest.org/commentary/americas-defense-death-spiral-9980

And Chuck Spinney’s article “Why the Defense Budget is Always Underfunded,” replete with wonderful tricks like “front loading” and “bow waves”:
http://chuckspinney.blogspot.com/p/the-defense-death-spiral-why-defense.html

The opportunity cost of military spending is probably even bigger than I guesstimated, because we’re now stuck permanently near the zero lower bound in interest rates. And as Krugman et al. point out, near the ZLB, the multiplier effect of government spending skyrockets. In a normal economy with moderate growth and moderate interest rates (guesstimate a normal interest rate somewhere in the ballpark of GDP growth rate + 2 to 3%, no, this is not NAIRU, it’s just a Fermi estimate of what a non-pathological economy with real growth looks like when the financial sector hasn’t metastasized out of control and 94% of all new jobs since 2005 haven’t turned into $3/hr temp gigs courtesy of Silicon Valley and the NLRB isn’t ignoring gross violations of minimum wage law and the FTC doesn’t ignore gross violations of the Wright-Patman Act and the Sherman Act), in a more or less normal economy like that, the fiscal multiplier in recessions typically runs somewhere around (???) 2 to 3, if memory serves. But that’s in V-shaped recessions caused by the Federal Reserve slamming on the brakes.

Right now, we are not in a V-shaped recession. We’re in a balance sheet recession. Right now, the Fed has been pumping nitrous oxide into America’s economic engine courtesy of negative real rates on long-term inflation adjusted bonds (people are eagerly paying the U.S. government for the privilege of lending America their money), yet we’re barely getting a sputter. So the multiplier effect of fiscal spending right now is almost certainly much higher than normal. 4? 5? 8? Who knows? But that’s a huge opportunity cost.

The other issue is that the Lucas critique absolutely applies to today’s “employment” numbers, because so many of the new jobs created since 2005 are low-wage temp gig junk jobs that aren’t even really jobs. They’re creative-accounting magical fantasy “independent contractor” Potempkin-village work that boils down to companies lying in order to undercut the minimum wage. Look at Amazon’s mechanical turk and you’ll find independent contractor (so-called) gig “jobs” that pay around $1.35/hr. That bottom-feeding garbage gets counted in the federal employment statistics. Look at the Uber drivers sleeping in their cars. They’re technically independent contractors, but in reality they’re serfs making ~ $5/hr after expenses and fuel and repair costs etc. Look at the hordes of migrant retired elders living in their cars working at Amazon warehouses and barely scraping by:
https://www.thenation.com/article/qa-jessica-bruder/

Seems to me as though numbers like U6 and U2 have been as thoroughly gamed by employers as full employment was gamed by workers back in the 1960s and 1970s courtesy of out-of-control inflation. So talking about slack in the economy and the headroom for full employment involves a hall of mirrors today. Current definitions of a “job” have gotten so distorted by employers misclassifying their employees and outright lying and going on an orgy of wage theft, and the minimum wage has so thoroughly been destroyed as the bottom level of pay in the American economy, that there’s almost certainly a huge amount of employment left, if we define that as a real job, rather than some 70-year-old guy sleeping in his car and working seasonally in an Amazon warehouse as an “independent contractor.”

29 U.S.C. § 201 only requires employers to pay the minimum wage to employees. Employers do not have to pay the minimum wage to:

independent contractors
outside salespeople (a salesperson who works a route, for example)
workers on small farms
switchboard operators employed by phone companies with no more than 750 stations
employees of seasonal amusement or recreational businesses
employees of local newspapers having a circulation of less than 4,000
newspaper deliverers, and
apprentices, students, and learners

Well, you can see the net result. Uber and its wretched ilk are now the new American business model. There’s a new gold rush on to classify essentially every worker in America as one of the above categories, then piecework and nickel-and-dime ’em to death (in the same way the old coal mine operators did in the 1870s) where “independent contractors” must pay exorbitant fees to the company for services/equipment they need to do their job, while getting grossly underpaid for their piecework or independent contracting work.

Take the derivative of this trend and what do you get? Workers now routinely take home far less than minimum wage.

94% of all new jobs created since 2005 are low-wage temp gigs:
https://qz.com/851066/almost-all-the-10-million-jobs-created-since-2005-are-temporary/

“Facing poverty, academics turn to sex work and sleeping in cars”
https://www.theguardian.com/us-news/2017/sep/28/adjunct-professors-homeless-sex-work-academia-poverty

“Most jobs created since 2005 are non-traditional”:
https://www.nbcnews.com/business/consumer/most-jobs-created-2005-are-temporary-or-unsteady-n693631

“Are we living in a ghost job market?”
https://www.usnews.com/news/articles/2016-12-27/the-new-normal-alternative-jobs-drove-economic-recovery-report-suggests

“Five reasons why zero-hour contracts are the future of work”:
https://www.entrepreneur.com/article/235568

“Record number of UK workers are living on the edge with zero hours contracts”:
https://www.occupy.com/article/record-number-uk-workers-are-living-edge-with-zero-hours-contracts#sthash.HktfVayU.dpbs

Lots of economists currently that claims about robots wiping out middle class jobs are nonsense. Probably technically true. What those economists don’t seem to fully recognize is that while robots aren’t reducing the net number of total jobs, there’s strong evidence (recent paper by David Autor et al.) that robots are reducing the total number of high-wage jobs in the U.S. economy. In other words, while the lump of labor fallacy may be technically correct, robots clearly are transforming the nature of jobs so that an ever increasing number of new jobs are ever-lower paid.

“Polyani’s Pardox and the Shape of Employment Growth,” David Autor, 2006:
https://www.nber.org/papers/w20485.pdf

“The Polarization of the U.S. Labor Market,” Autor, Katz and Kearney, 2006:
https://www.nber.org/papers/w11986.pdf

“Recent Change in the European Employment Structure: the roles of Technology and Globalization,” Goos, Manning and Salomons, 2009:
https://core.ac.uk/download/pdf/34459389.pdf

And, in particular, “Robots and Jobs: Evidence from US Labor
Markets,” Acemoglu and Restrepo, 2017:
https://novafrica.org/wp-content/uploads/2017/06/Daron-Acemoglu.pdf
https://www.nytimes.com/2019/02/04/business/economy/productivity-inequality-wages.html

To put it another way, automation once upon a time got deployed to increase production efficiency and produce more widgets (or more services) per hour. But automation is now increasingly deployed by employers not to increase efficiency or to produce more widgets/hr or more services per unit time, but to destroy unions and pound down the wages of employees by fraudulently reclassifying ’em as “independent contractors” and gaming their actual pay down as close to zero as employers can get away with.

You can see the endgame here. Eventually all U.S. jobs, except for a tiny scrim of ultra-elite positions like Dean of Harvard or AI researcher or Nobel laureate materials scientist or governor of the Federal Reserve Board, will pay as near zero as makes no difference. These new sub-minimum-wage gigs will also be automated into and out of existence so quickly that employees will need special apps to tell them how many minutes they worked that day. Some finite difference app will shave gig workers’ hours down on an asymptote toward zero.

You can’t run a viable economy that way. Between the rich hiding their income in tax shelters overseas and the bottom 90% of the workforce on a glide path toward homelessness and starvation, the logical decision for ~90% of the electorate is to use the Samson in the temple strategy. Just smash it all. Bring it all down. Thus the recent votes for Trump, Brexit, Marine LePen, and who-knows-what in the future. When Lord Humungous, Ruler of the Wasteland, runs for high office, he’ll win in a landslide.

“Tax Evasion and Inequality,” Alstadsæter, Johanssen and Zucman, 2018:
https://gabriel-zucman.eu/files/AJZ2017.pdf

“For the biggest group of American workers, wages aren’t just flat. They’re falling,” The Washington Post,, 15 June 2018:

`The fall in those wages has alarmed some economists, who say paychecks should be getting fatter at a time when unemployment is low and businesses are hiring.

`“This is odd and remarkable,” said Steven Kyle, an economist at Cornell University. “You would not normally see this kind of thing unless there were some kind of external shock, like a bad hurricane season, but we haven’t had that.”’

Since the U.S. economy no longer offers anything but eventual immiseration and death sans healthcare for ~90% of the population when you project the status quo forward, it makes no sense for most voters to vote for folks who promises to grow the economy. “Growing the economy” is now just a code phrase now for “making the rich limitlessly wealthier while starving you.” In that kind of world, when the alternatives are [1] become eventually homeless & starve & die, or [2] crash the economy and pull it all down and blow up capitalism entirely, in which case you will still starve and die–but maybe the rich will too…

…Well, option 2 starts to look kind of appealing, doesn’t it?

If voters reach that kind of nihilistic and despairing ne minus infra, watch out. So it’s starting to look as though economists don’t have all that much time to suggest some viable alternatives to the status quo before the electorate starts to figure “If employment now means `It rubs the lotion on its skin or it gets the hose,’ maybe I’d just better grab that guy’s poodle, and maybe even eat it too…”

66

Hidari 07.04.19 at 8:51 am

@58

Hysterical fear of inflation, or even ‘hyperinflation’, is an interesting one.

We have to ask: what does history teach us?

But first we have to ask: who writes the history books, which decide for us what history teaches us?

The answer:

Disproportionately white middle class males with savings in their 40s and 50s at elite Universities (Russell Group, Ivy League).

And what does inflation do? Who does it hit?

Obviously inflation makes life difficult for everyone, and hyperinflation does indeed make life very unpleasant. But the people who it hits disproportionately are the group I mentioned above: middle class people with savings. People with savings get hit by inflation because, obviously, inflation ‘inflates’ their savings away, leaving them with nothing (at least in a situation of hyperinflation). How many times have we read of (e.g.) Karl Popper’s parents having their savings wiped out by the Weimar hyperinflation? Hayek’s parents also had their savings wiped out by hyperinflation, leaving both of these men with an exaggerated horror of inflationary policies which they came to associate with the economic policies of ‘the Left’.

The working class are not so badly hit by inflation as they have no savings (or for that matter, any money at all, at the lower levels), and the upper classes and capitalist class don’t really care either as their money is always saved outside the national borders in whatever is the global world currency of the time (pounds or dollars). Historical research has been done which has shown that the German hyperinflation wasn’t really as bad for big business as has been made out: given that big capitalists had access to money in the form of dollars, they could buy up capital (e.g. machinery) cheaply.

It’s the middle middle classes (i.e. the ‘professional classes’ of the bourgeoisie and small businesses) which get wiped out by inflation/hyperinflation. And its these people, especially the former, who create the ‘national narrative’ within which we all live.

At times this narrative is so far detached from reality it’s almost funny. Paul Krugman wrote a column a few months ago in which he pointed out the American Right’s constant attempts to link the rise of the Nazis to the Weimar hyperinflation. But the numbers just don’t add up. The hyperinflation was awful, yes, but it was relatively short term (almost all hyperinflation events are relatively short term, unless there is some reason that the obvious solutions to the problem can’t be used: i.e. pegging your currency to the dollar, or just starting a new currency). Also it was 10 years before the rise of Nazism. There’s no link.

Austerity, on the other hand, a recession or depression, can cause an economic crisis that can stagger on for decades, and in some ways, the damage can be permanent. The UK economy e.g. has never really recovered from the self-imposed 1981-1983 Thatcher recession, in that this destroyed the social-democratic compact which commenced in 1945.

Moreover, as Mark Blyth has constantly pointed out: it was austerity, not inflation, that ’caused’ the rise of Nazism, and numerous other far right regimes throughout the world. It was the Weimar Republic’s exaggerated fear of inflation, leading to it choosing austerity (i.e. contractionary, anti-inflationary) policies in the early 1930s, which caused the disintegration of Weimar democracy, which led to Hitler.

In other words: both inflation* and recessions are bad. But if you have to choose you are better off choosing inflation, even at the risk of hyperinflation, than contractionary economic policies.

*Actually in small doses, inflation is a good thing, as inflation is caused, in part, by capitalists raising prices because people have more money to spend and capitalists want to take more of this to get more profit for themselves.

In other words, inflation is caused, in part, by rising wages, and therefore rising living standards. This is a good thing, not a bad thing. Even a small recession, on the other hand, is a bad thing.

Inflation has few benefits, but austerity has no benefits.

Inflation might lead to a new currency. Austerity might lead to Auschwitz. You pays your money etc.

67

Nicholas Haines 07.04.19 at 10:38 am

It is possible and desirable to have an unemployment rate that is never above 2 percent and underemployment and marginal attachment rates that hover around zero.

The way to do it is to set up a Job Guarantee whereby the federal government makes an unconditional offer of living wage employment to everyone who wants employment.

The employers in the program would be local governments, state governments, NGOs, not for profit social enterprises, cooperatives… anyone except for-profit firms (it is important that it doesn’t degenerate into a wage subsidy scheme).

It is a good idea to be very creative and imaginative when we think of what counts as a valid job.

Caring for children, elderly relatives, and relatives with disabilities could be a paid Job Guarantee job if a person wanted it to.

A Job Guarantee could validate and affirm caring work that is currently hidden and underappreciated.

Participating in education and training could be a paid Job Guarantee job if a person wanted.

Planning, launching and consolidating a small enterprise could be a paid Job Guarantee job if a person wanted.

There would be a panoply of Job Guarantee jobs related to social and community services, environmental services, artistic and cultural services, and small-scale public works.

The employer and the jobseeker would design a role around the jobseeker’s interests, preferences, and abilities.

For the vast majority of people, a Job Guarantee job would be a transition job – a stepping stone to a higher paid job in the private sector or in the regular public sector.

But there would be no obligation to move on. If a person wanted to do a Job Guarantee job on a long term basis there would be nothing stopping them.

A Job Guarantee would make it easy for people to create a role that is rich in meaning and purpose, that serves an obvious public good, that has positive social interactions, and that has relevant and rewarding opportunities for learning and development.

Macroeconomically the Job Guarantee would have one purpose: to be an automatic stabiliser that ensures that the federal government is automatically doing precisely the correct amount of spending to achieve full employment with stable prices.

When the private sector is recovering, federal government spending would automatically fall as people leave the Job Guarantee for higher paid jobs elsewhere.

According to economist Steven Hail of the University of Adelaide the Australian Government could increase its fiscal deficit to $50 billion or $60 billion per year without causing an inflation problem. The amount of unused real resource capacity is simply immense.

Enacting a Job Guarantee today would probably involve the expenditure of $30 billion per year.

That would leave another $20 billion or $30 billion of fiscal room for other expenditures (given that the fiscal position is presently balanced, more or less).

A macroeconomically literate Australian Government would be scrambling to find efficient and welfare-enhancing ways of filling that fiscal space. The Grattan Institute’s proposal for a universal dental care scheme would be an excellent choice.

If there were no fiscal space in the macroeconomy at present – if unemployment were 1 or 2 percent, with close to zero under-employment and close to zero people marginally attached to the labour force – then yes, it would be necessary to enact fiscal offsets (tax increases and / or spending cuts) to make a large new program non-inflationary.

But our fiscal context today is very different from that.

The Grattan Institute’s excellent proposal for a universal dental care scheme could be implemented over the next few years without the need for any tax increases or cuts to other spending items. In fact, the challenge would be to find other ways of expanding the Australian Government’s fiscal deficit.

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nastywoman 07.04.19 at 1:19 pm

@65

Amazing – how you well you always… say – what I hardly risk to say?

But about this @66 – and this… idea – that
”The working class are not so badly hit by inflation as they have no savings (or for that matter, any money at all, at the lower levels)”

Sorry! –
BUT the working class always get’s hit HARDEST – when the cost for ”shelter” – or for ”health care” or for anything – which get’s ”more expensive” – get’s more expensive.
-(while ”the middle class and Paul Krugman utmost always will be able to still pay the bills – even if their savings might be reduced)

So – in other words I really might have to go with Mc Laren -(the racing car!)

and his thoughts about a worker who has been hit hardest by inflation – and starts to think:
“maybe I’d just better grab Paul Krugman’s poodle, -(if he has one) – and maybe even eat it too…”

69

Zamfir 07.04.19 at 1:56 pm

@Nicholas, it is not easy though… I have seen well-intended and reasonably well-thought job programs that still end up as Kafkaesque hell.

The job has low priority (or they would have hired someone already). The workers are not a good fit (because the whole point of such a program is that it doesn’t easily reject people). Turnover is high, you never build up a smooth experienced workflow. Motivation is low (because people aren’t stupid and they notice those earlier problems). People are stressed out, because they still have to run a household on a small budget, and want to apply for regular jobs. Costs are disappointingly high – there’s always side costs like offices, tools, materials. And relatively high effort in administration, training, management, due to the turnover etc.

It doesn’t have to be like that, there are brilliant super-useful programs. But they don’t fall from the sky, and can’t just be whisked in and out of existence based on the whims of the macroeconomy. And if the program isnt brilliant, you are easily better off just to pay out unemployment benefits until they find a regular job.

70

LFC 07.04.19 at 2:02 pm

Agree that US military spending is too high, but the case is not helped by asserting that the US military has lost all wars it fought since WW2. The Korean War (fought w coalition) was basically a draw; the Persian Gulf War (again w coalition) a mil. success. To mention two. More relevant in a way than defeat/victory are the assumptions guiding decisions about long-range planning, force structure etc. These are all related to the justifications (such as they are) for high spending and all in need of reexamination.

71

nastywoman 07.04.19 at 2:06 pm

and about this:

”*Actually in small doses, inflation is a good thing, as inflation is caused, in part, by capitalists raising prices because people have more money to spend and capitalists want to take more of this to get more profit for themselves”.

Is this why so many Americans can’t afford to live in America anymore?
And if it is – why NOT inflate about a 100 times more in order that not only ”the poor” but also the so called middle class and the rich can’t afford to live in the homeland anymore.
And then they ALL move to London – and in America there will be so many empty Villas and luxury apartments that the poor can occupy them?

How does that sound Hidary?

72

steven t johnson 07.04.19 at 2:16 pm

Questions: 1)Is “opportunity cost of military spending” a meaningful phrase, as the US government is not a business? Everyone else here is pretty happy the USSR was destroyed but didn’t that require massive military spending in general and for wars in Korea and Vietnam in particular? And doesn’t such wickedness from Venezuela and China still threaten us? Doesn’t Iran still threaten democracy=Israel? (Not my opinion but I don’t count.) How do you decide the monetary benefit of the widespread use of the dollar as reserve currency versus the military cost of maintaining it?

2)Hasn’t the Federal Reserve embarked on a version of MMT in response to the 2008 crisis? Hasn’t it ignored the supposed inflationary effects of creating vast sums of money, which haven’t appeared?

3)Would a jobs guarantee include paying housewives and mothers for their work?

73

bob mcmanus 07.04.19 at 4:27 pm

Hidari covers most of it

After some study of the history of colonialism and playing SimCity (kidding, study the inflation history in the US), I have become convinced that “boom and bust” is the way to go. This should be obvious, in that conservatives hate inflation more than recessions, and Greenspan’s “Great Moderation” was so beloved.

Booms leave infrastructure behind. Not just roads and schools and stuff labour likes, but also unions skills solidarity generous voters. China has a whole lot of empty buildings, and probably the best construction workforce in the history of the world, now working in Central Asia and Africa. Used to be Americans.

Love Mark Blyth a bunch, but “austerity” is not recessions, but the gov’t failure to adequate provide automatic stabilizers and ramp up social spending during recessions. MMT and JG would do much to fix that, but banks need to fail and be failed, and moderation won’t do.

So an inflation goal of 3-5% wth spikes to 10% would be my tolerance.

74

Faustusnotes 07.04.19 at 10:40 pm

A question for the MMT folks: what happens to me if I don’t take the govt up on its offer of a job through a job guarantee? Every time I read those words I remember being on the dole in Australia, when I had to prove I applied for ten jobs a fortnight and could get cut off my money for refusing to move across the country to do any job I was physically capable of, and I think I don’t want the officious arsewipes who managed my life then being in charge of job guarantees. Those words sound very authoritarian to someone who has actually experienced modern social welfare services and I wonder how a conservative society like the uk or a macho society like Australia would administer such a guarantee…

75

Nicholas Haines 07.05.19 at 5:58 am

@72

No, the Federal Reserve has not made any net additions to the non-government sector’s financial assets. Only the Treasury Department can do that (after the spending has been authorized by Congress).

Quantitative Easing is not a fiscal stimulus. It is just an asset swap. The Federal Reserve buys government bonds, corporate bonds, and other odds and ends and it hands over reserve deposits in exchange.

Not surprisingly this hasn’t accomplished anything useful.

For ideological reasons and because of the appalling failures of New Keynesian and Neoclassical and New Monetary Consensus macroeconomists, too many politicians and bureaucrats are fearful of using fiscal policy.

There is this widespread and hugely counterproductive bias towards monetary policy.

Monetary policy is not very potent. Fiscal policy is incredibly potent.

76

Nicholas Haines 07.05.19 at 6:44 am

@74

A Job Guarantee would be nothing like being on the dole.

You and an employer would design a job around your interests, abilities, and preferences. Designing the job would be a flexible and creative process.

There would be an extremely wide range of jobs available. A Job Guarantee would radically expand the concept of what a job is.

Your job might be to interview older people in the community for an oral history project.

Your job might be to teach people how to surf.

Your job might be to care for your dependent child, or a relative with a disability, or an elderly relative.

Your job might be to satisfactorily complete a program at university or TAFE.

Your job might be to paint murals or perform concerts or organize theatrical productions.

Your job might be to teach music or to do band rehearsals at schools so that students can learn about musicianship and intra-band dynamics.

The only limit would be your imagination and the availability of other people to cooperate with you.

Today’s unduly narrow concept of what counts as a job results in so much important work being hidden and under-appreciated. That would change with a Job Guarantee in place.

77

Matt 07.05.19 at 8:05 am

Your job might be to interview older people in the community for an oral history project. Your job might be to teach people how to surf. Your job might be to care for your dependent child, or a relative with a disability, or an elderly relative. Your job might be to satisfactorily complete a program at university or TAFE. Your job might be to paint murals or perform concerts or organize theatrical productions.

I mean, this sounds great – but let’s be honest – some of things are not actually “jobs”. Some are jobs (I’ve paid people to try to teach me to surf!) but not ones that can, in fact, support many people. Why not just have a UBI, and then let people do these other things on their own, if they want to? Why pretend that these are “jobs” and put an extra layer of bureaucracy and make-believe in between? What’s the point of doing that?

I have a number of friends who would love to be rafting and kayaking guides and instructors. But – not enough people want to pay enough to make that viable. With a UBI, they could then do that. And, they wouldn’t need anyone else coming between them. Why wouldn’t that be better than a “jobs” guarantee? This is really unclear to me.

78

reason 07.05.19 at 8:19 am

Nicholas Haines @74
So you think this friendly paternalism makes sense – as against just giving them money and letting them decide what useful role they can play? I don’t see the value to be honest. It just seems to me to represent the idea that people need “jobs” even if jobs really are “jobs”. Won’t people just see it as meddlesome BS?

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Nicholas Haines 07.05.19 at 9:43 am

I think that Philippe Van Parijs, the Belgian economist who is the world’s leading theoretician for a UBI, regards a UBI as an indispensable precondition for genuine autonomy and freedom in a monetary production economy. I think he also sees a UBI as a good transition step towards post-capitalist possibilities.

The way that he justifies the UBI relies heavily on New Classical assumptions such as the claim that work is a form of disutility that people want to avoid. In my line of work (mental health, disability support, and research assistant work) I am highly sensitized to the psycho-social benefits of paid work and to the social and cultural exclusion that accompanies involuntary unemployment.

I reckon that designing a UBI and a tax policy so that the UBI is genuinely large enough to live on while participating fully in the life of the community (what Parijs would call a “highest feasible level” or “highest sustainable level” of UBI) and while encouraging enough production to meet everybody’s needs is a difficult needle to thread. I think that if a Job Guarantee and a highest sustainable level UBI were both offered, I would be ok with it, but if we could only have one I would much rather have a Job Guarantee combined with generous income support for retirees, the temporarily ill, and people with disabilities. I think it would be necessary to have a JG to provide a strong macroeconomic stabilizer and to mop up any residual unemployment.

Personally I consider a Job Guarantee to be a more helpful transition to non-capitalist, highly productive modes of economic and social organization because it appeals to people’s preference for mutuality and reciprocity, it is less vulnerable to losing political support because of perceived free-riding, and it can directly transform our cultural concept of what counts as efficient, productive, and worthwhile activity.

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Nicholas Haines 07.05.19 at 9:46 am

I share the aspiration of the UBI proponents. I disagree about the best mechanism for achieving the aspiration.

A JG provides an inflation anchor to stabilize prices. A UBI does not. A UBI with no JG would be highly inflationary because the federal government spending would be constant – it wouldn’t fluctuate in response to the private sector’s demand for labour.

A JG provides a lot of support and structure so that people have access to resources, assistance, guidance, and supervision, which will maximize their probability of getting what they want. A UBI would be a shemozzle.

A JG involves accountability and reciprocity, which makes it much more acceptable to the community. A UBI would be beset with free-rider problems and the same kinds of stigma that attach to Newstart recipients. The fact that a UBI is universal would not counter the tendency of the community to stigmatize people who receive the UBI but are perceived as not doing anything worthwhile with it.

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Nicholas Haines 07.05.19 at 9:48 am

A well-designed JG would be highly decentralized; the JG employers would be cooperatives, NGOs, not-for-profit social enterprises, local governments, state governments. The funding would be federal but the program would be administered at the grassroots community level.

A JG is an automatic stabilizer that ensures that the federal government is spending precisely the right amounts in precisely the right places to achieve full employment alongside stable prices. The size of the JG workforce changes automatically and quickly in response to the private sector’s demand for labour. A JG is a price anchor. It achieves inflation control.

A UBI, on the other hand, has no price anchor. It would be very difficult to contain the inflationary pressures of a UBI.

A UBI also provides none of the psycho-social benefits of participating in paid work.

A UBI that is set at a level that is sufficient to live on would cause workforce participation to fall, which would cause output to fall. UBI proponents have no plan to ensure that sufficient goods and services would be produced to meet everybody’s needs.

And a UBI is based on an impoverished understanding of what it means to be human (consumption entity) whereas a JG resonates with people’s yearning to contribute, belong, learn, and create.

UBI proponents do not grapple with the macroeconomic implications of their idea. They have no plan for price stability. They rarely show any interest in genuine full employment. They evince a vague hope that inflation won’t be a problem.

UBI has the dubious distinction of simultaneously being one of the most discussed and least developed ideas in public policy.

It is truly an awful idea in every respect.

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Nicholas Haines 07.05.19 at 10:20 am

I have a number of friends who would love to be rafting and kayaking guides and instructors. But – not enough people want to pay enough to make that viable.

If the rafting and kayaking guides and instructors are Job Guarantee workers, their wages are paid by the federal government, and their students don’t have to pay anything. It would be a public service offered free of cost.

I mean, this sounds great – but let’s be honest – some of things are not actually “jobs”.

One of the great advantages of a Job Guarantee is that it widens our concept of what counts as a paid job.

It just seems to me to represent the idea that people need “jobs” even if jobs really are “jobs”.

If a person is learning, contributing, belonging, having positive social interactions, having mastery experiences, getting a range of psycho-social benefits, and earning enough income to be able to participate fully in the life of the community, that is vastly more powerful than a UBI.

Also, macroeconomically a UBI would be a disaster. In order to provide a living wage UBI in a non-inflationary manner the scale of tax increases required would be eye-watering. Steven Hail of the University of Adelaide analysed the Greens’ proposal for a UBI that is set at the level of the Age Pension. He found that even if a UBI of this level replaced all existing welfare and social security spending by the federal government, total federal spending would still have to increase by well over over 50 percent. It would be necessary to double the GST, increase every marginal tax rate by 10 to 15 percentage points, and eliminating all existing tax deductions (including the popular deductions for superannuation) in order to make this increase non-inflationary.

It would be difficult to set up the UBI and the tax increases in such a way that enough people would still be willing to produce the output that is necessary to support everyone. I know the UBI proponents often assume that artificially intelligent robots are already producing everything (or will be any day now) but in the real world human workers are extremely important and we don’t want to tax them so heavily that their incentive structure dissuades them from producing.

A further problem is that a UBI is not counter-cyclical. The spending doesn’t increase automatically when private sector spending is declining. The spending doesn’t decrease automatically when private sector spending is rising. A UBI does not serve as a macroeconomic stabilizer. A Job Guarantee does. And a Job Guarantee provides the many benefits of participating in paid work. And it adds output. And it develops the knowledge and skills of the labour force.

UBI proponents assume that paid work is inherently oppressive and dull and exploitative. The reality is that a lot of jobs are like that now but only because the economy is far short of full employment. With a Job Guarantee in place, workers have great options and there is no involuntary unemployment. Businesses are desperate for workers. In that environment, the risk of oppression and exploitation is radically reduced.

Changes to industrial relations laws would also help improve people’s experiences of paid work.

So would a transition to an economy in which workers exercise very high degrees of democratic control and autonomy in owning capital stock and making production decisions.

The point is we have options to make paid work a lot better than it is now for many people.

UBI proponents are far too pessimistic about paid work and they ignore the many benefits of paid work for psychological health and social inclusion.

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reason 07.05.19 at 10:35 am

“A JG provides an inflation anchor to stabilize prices. A UBI does not. A UBI with no JG would be highly inflationary because the federal government spending would be constant – it wouldn’t fluctuate in response to the private sector’s demand for labour.”

It is hard to prove speculation, but I see no reason for this to be true or likely.

Under a JG people are not employed producing goods for the free market to keep prices down (if they are then we are talking socialism and if we not talking socialism then those people would not be unemployed in the first place). Under a UBI, the incentive to work remains and the value of UBI is specifically determined by what is produced. That is UBI is significantly redistributive and so will increase the demand for basic goods increasing the money available to employ people to produce those goods. I am confident that people will in general choose productive employment for more pay rather than idle poverty. I’m also confident that involuntary unemployment will become less likely with more redistribution and that employers will make jobs more attractive in response to people not being forced to work. But the real issue is the bureaucratic cost of the JG – JG will certainly increase employment, but how much of it will be useful?

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Matt 07.05.19 at 10:41 am

Nicholas – as I understand your position (and that of other people I’ve seen who support a “job” guarantee over a UBI), part of the idea is that people “value” work, and wouldn’t value getting “money for nothing” that they would under a UBI. But, part of the “jobs” guarantee that you propose involves paying people to do things that are not now seen as, and have never been seen as, a “job” (interviewing old people, for example), or doing things that are, plausibly, jobs, but only in cases when people are not actually willing to pay (so, teaching surfing lessons, or raft guiding). But why do you think that people would be so dumb as to think that these are jobs, and not “jobs”, in the cases you present, and so worthy of value? That seems pretty dubious to me. I don’t think that people are any more likely to believe that than that they are likely to believe that people should, say, work part time (at surf instructing or raft guiding or whatever) even though it doesn’t pay enough to make a living) but then live, modestly, off of a UBI. And, the second option involves less bureaucracy and less (to my mind) magical thinking about good NGOs and the like running organizations. So, without either taking on a fetish for work, or else assuming that people can never move past it, I don’t see the plus of the “jobs” guarantee over a UBI.

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MisterMr 07.05.19 at 10:52 am

@Larry Hamelin 41

Sorry for the late answer, I wrote an overlong answer two days ago but got eaten by the intertubes, so short version:

In my understanding, in the neoclassical theory the wage rate is supposed to match the margianl productivity of the last worker, in a situation of “full employment”.
Capitalists are supposed to hire people as long as worker productivity is above wage, so the market is supposed to tend to “full employment”.
Keynesian interventions are supposed to bump the system up when something doesn’t work (“market failure”), so that the economy can happily gravitate towards “full employment” again.

In fact this is the definition of the concept of “full employment”, at best of my understanding.

This is most likely wrong IMHO, it is better to think in terms of waves of boom (euphory, investment) and bust (unsold stuff, disinvestment).

But, many economists, while they don’t give much credit to the concept of the neoclassical equilibrium, still speak of “full employment”, though this only makes sense in terms of the neoclassical equilibrium theory.

Keynesian stimulus works basically by bumping up profits and enticing capitalists to invest more, so it is not automatically a “lefty” policy, it can and in fact very often is used in order to create a more inequal society (see Trump’s tax cuts), so while I think most MMTers are lefties, they are openin the road for reaganomics/trumponomics.

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Zamfir 07.05.19 at 11:53 am

Nicholas, this part feels to me like the crucial step:
“A JG involves accountability and reciprocity, which makes it much more acceptable to the community. A UBI would be beset with free-rider problems[..]”
If you set the accountability and reciprocity low, the Job Guarantee is just a thin disguise for a UBI. But set it high, and there is no guarantee (since people can fail to meet the reciprocity standard). Then it is just activities that the government will pay for, if someone meets some “useful enough” requirements.

My (Dutch) government already pays people for every item on your example list. Some of them are regular jobs. Either directly employed the government, or heavily supported by government subsidies). Historians, sports teachers, daycare workers, nurses, artists, music teachers. There is a program where disabled or elderly people can employ close family as caretaker, and the government pays (according to a set schedule).

Others on that list are not official jobs, but are still not too different from what you propose: students get stipends (if their parent have a low income, otherwise they get a loan). Single parents with young children can receive welfare without requirement to find a new job.

All of these programs are contested! Some people want to expand the programs, or pay higher amounts per person. Others want to shrink or eliminate the programs. Regular politics, in other words.

This political struggle is what “accountability and reciprocity” looks like in practice. Those are not objective standards, but have to be negotiated through some political process. For every activity separately. There is no common standard that automatically covers historians, painters, students and caretakers of disabled parents. I don’t think it makes sense to wrap them all in one program.

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reason 07.05.19 at 1:08 pm

Addendum to previous response to Nicholas Haines

There are two logical fallacy in your statement that federal government spending being constant regardless of private sector demand for labour.

Firstly, a transfer payment does not have the same demand effect as direct government purchases because it be saved.

Secondly, the transfer payment will be offset at high employment by higher tax revenue.

So this argument seems to me irrelevant -sorry I didn’t make that clear above.

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steven t johnson 07.05.19 at 3:22 pm

Nicholas Haines@75 correctly tells me that QE is not a fiscal stimulus. But I don’t see how trading worthless assets for good assets doesn’t increase the ability of banks to continue creating money rather than going bankrupt. It is not clear to me that MMT requires the power of the state to create money to the point where full employment (whatever that is) requires taxation to stop inflation (admittedly I’m also not clear on why MMT assumes full employment–>inflation.) It seems to be true that MMT tends to favor fiscal stimulus over monetary stimulus, like the original Keynesians who also tended to favor social spending over military spending. But it seems to be no more intrinsic to MMT that the money-creating powers of the state need be used for jobs guarantees rather than bank guarantees.

But Nicholas Haines@74 agrees that making a home could be remunerated, and one ups me by adding higher education (stipends for students, in effect,) as jobs. A jobs guarantee could (should?) lead to emancipation of youth, though the prospect of an emancipated fifteen year old would likely inspire sexual heebie-jeebies.

Jobs guarantees and unionization seem to me to go hand in hand along with a much larger degree of planning, not least because increased consumption is implied, which in modern views is deplorable, because environment.

Little to none of this seems to me to be acceptable to the academy as a whole.

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hix 07.05.19 at 8:28 pm

Pretend work is an ugly business. We really need to get away with that obsession about working to contribute as only viable idenity between 25 and 65.

We`ve got somre really ugly stuff going on in Germany regarding the “second labour market” which are government subsidiced jobs for the disabled, physically as well as mentally. Quite often those jobs consitute of sth like: 900€ subsidy a month paid to the employer, 150€ a month paid to the employed. Usually the work is idiotic, sth. like folding cardbords. Now you might think they suggest that job just to people with a severe condition limiting the ability to think. Oh no, they got no inhibition to send someone with a social anxiety disorder there, because you know one less unemployed in the official numbers. Its supposed to great for “day structure”. Now imagine how much great and cheaper day structure you could create without the obsession that it has to consist of pretend work. Oh and those employed there quite often do it for the money, because they get it on top of welfare/or disability pension.
Usually there is also a pretense that working there would enable the future ability to work on the regular labour market, ofc in reality working at some make work project for the mentally disabled is pretty much makeing sure one will never get a regular job, at least if one mentions it at the applicatioin.

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hix 07.05.19 at 9:00 pm

The only way paid work per se is good for mental health is if we make it the only acceptable place in life. It is a self fulfilling prophecy. I know a hell lot of people who are genuinly unable to work a non pretend job or have no real market chance to ever get a real one. Most of those who dont do pretend jobs are afraid to start a conversation with a person they consider healthy because they are afraid of the second small talk question what`s your job. If they work a pretend job, they are happy they can answer some job instead. The worst part is, many support the system based on the notion that only convincing people they do meaningfull work (in their pretend jobs) is a way to give them meaning in live. Basically yes you have to dupe the rubes and pretend work is the only believable con. Now suppose we really need a con (which i doubt), how is a job like enveloping instead of a machine that does it cheaper or sth. like that the most believable con? Tells you sth. about a societies work obsession that many think that is the case.

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Nicholas Haines 07.06.19 at 1:20 am

Some people argue that we should deliberately keep wages artificially low so that firms keep employing people instead of investing in automation.

That is a terrible thing to do.

It denies the workers the benefit of increased living standards.

It keeps productivity lower than it could otherwise be, which suppresses living standards.

If wage rises encourage firms to invest in technology and innovation, that is actually a good thing.

We can create new jobs for any workers who are displaced. Not just public sector jobs, but also new private sector jobs that are crowded in by the increased federal government spending.

Because total productivity has gone up we can give everybody a pay rise without it being inflationary. This includes people receiving income support payments.

Consequently, everybody’s real living standard improves.

We can also improve people’s quality of life by shortening the working day and gradually moving to a four-day working week without reducing anybody’s overall pay.

Productivity growth is great if the federal government uses fiscal policy and industrial relations and corporate law to ensure that the benefits are enjoyed by everybody.

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Nicholas Haines 07.06.19 at 2:01 am

When I read these comments about “pretend jobs” I am reminded of how heavily conditioned many people are to be pessimistic about job creation and pessimistic about the capabilities of the federal government.

I think a key difference between advocates of a Job Guarantee and advocates of a UBI is that JG proponents are accurately optimistic about job creation whereas UBI proponents are unduly pessimistic.

The extent of unmet needs in our communities is vast. Particularly social and community needs, environmental needs, artistic and cultural needs, and demand for small-scale public works. There will be no problem finding enough real fulfilling work for people to do. It shows a lack of imagination, a lack of connection to communities, and a pessimistic temperament to assume that a Job Guarantee would provide “pretend jobs”.

UBI proponents routinely understate the scope of unmet needs in our communities. They really need to read the literature on what local governments, state governments, and service organizations are saying on this issue. Here is what they say: The needs are vast. There is more than enough work to do. What is lacking is the funding to make it happen. The Job Guarantee can fix that problem.

When people say that a Job Guarantee would be too bureaucratic, that is a conservative or libertarian talking point, not a considered critique.

Any government program needs to be designed carefully and imaginatively. The structure needs to be appropriate to the program’s purposes. The staff need to be suitably trained. A positive culture needs to be developed in the organizations and work teams. A learning culture needs to be developed and maintained.

These are all challenging things to do – no doubt about it. But it is realistic to get these things done.

For the guy who said that a JG would be too bureaucratic, should we follow Milton Friedman’s advice and abolish medical licensing? Let market outcomes deal with bad doctors? At some point you have to trust that it is possible for government processes and programs to be well-designed and useful.

There is no particular reason to think that a JG would be more bureaucratic – more inflexible and unduly focused on rules and procedures – than any other government program. In fact, the literature on a Job Guarantee recommends a highly grassroots driven, decentralised structure in which the federal government provides the funding but the decisions and administration are all done at the grassroots community level in a way that involves the workers, local governments, state governments, NGOs, cooperatives, and not-for-profit social enterprises.

The JG is not just a job creation program (valuable though that function is).

It is a macroeconomic stabiliser that maintains genuine full employment with stable prices at all times.

It does this because it acts counter-cyclically.

When the private sector increases its spending, people move from JG jobs into higher paid jobs in the private sector. Consequently, the federal government’s spending automatically falls, and inflation is averted.

When the private sector cuts its spending, people lose their private sector jobs. They take up jobs in the JG. Consequently, the federal government’s spending automatically rises, and deflation and rising unemployment are averted.

The macroeconomic stability mechanism operates quickly and automatically. It does not depend on discretionary decisions by the government.

By contrast, a UBI cannot serve a macroeconomic stability function because it is not counter-cyclical. That is just one of the many disadvantages of a UBI.

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Faustusnotes 07.06.19 at 2:15 am

Nicholas Haines, have you ever been on the dole or had to engage with the organs of the state who typically deal with poor people? Because if you had you would know that their agents are not typically the kinds of people who will help you fashion an artisanal job that you can enjoy doing for public money. They’ll send you to the other side of your state to dig potholes in the sun and yank your rent assistance if you even look sideways at the assignment.

I’m not arguing with the principle of the job guarantee, just saying it sounds like it would be horrible in practice. I think there are some chapters in the dispossessed that spring to mind …

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Zamfir 07.06.19 at 9:11 am

Nicholas says” Here is what they say: The needs are vast. There is more than enough work to do. What is lacking is the funding to make it happen. The Job Guarantee can fix that problem.”
There are indeed lots of valuable programs looking for funding. They want regular funding, from which they can hire permanent staff. Selected to match the job, paid enough that they will stay, and funding not dependent on the whims of macroeconomic policy.

If they can’t get that funding, some will take workers from a jobs program instead. Many will not, because it takes a lot of effort to train and manage the jobs-program people. This can easily overwhelm any benefit from having more workers.

You describe this as a hypothetical plan, which puzzles me. Perhaps it is different in other countries? We get lots of programs that try to match long-term unemployed people to some socially useful project. My father worked his whole life for an NGO, where his main task was to find opportunities for such jobs programs (for a particular group).

It is hard! People pop champagne and invite the press when a jobs program works out. Many fail, even well-run promising attempts.

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