Why a Job Guarantee will require higher taxation

by John Quiggin on August 1, 2020

Ever since I wrote Work for All with Australian MP John Langmore back in 1994, I’ve been pushing the idea that a path to full employment requires an expansion of publicly provided services. For about the same length of time, Bill Mitchell (also an Australian economostO has been putting forward similar (but not identical) proposals. At some point in this process, Bill became one of the advocates of what’s called Modern Monetary Theory, which makes the point that taxes don’t (directly) “fund” public expenditure. Rather, they ensure that the total demand for goods and services (for consumption and investment) don’t exceed the productive capacity of the economy, thereby generating inflation.

This reframing raises the question: does a Job Guarantee require higher taxation? The answer, using MMT reasoning, is “Almost certainly, yes”.

Suppose the economy initially has two groups of workers, employed and unemployed. Employed workers produce some quantity of marketed goods and services, as well as freely provided public services. They receive a wage, while unemployed workers get a (low) benefit. As well as workers, there are people receiving profits, interest and so on.

Now we introduce a Job Guarantee in which all unemployed workers are hired, at the minimum wage or more, to produce public services (say, extra contact tracing for pandemics), that would otherwise not be provided. The newly employed workers spend their wages (over and above previous benefits) on marketed goods and services. But where are these goods and services to come from? It can only be from reducing the consumption of those who are already receiving wages or other market incomes. Shifting the consumption to public use is the job of taxation (alternatively, the government could cut existing services, freeing the workers there to produce market goods and services, but I won’t explore this).

We can refine this a bit by allowing for a multiplier effect. Instead of employing all the previously unemployed workers, the Job Guarantee would only need to employ some. Their demand would increase employment in the market sector, providing jobs for the remaining unemployed workers. But it would still be the case that the additional output of marketed goods and services from those workers would be less than the total wage being paid to all formerly unemployed workers. The only exception is in situations where the unemployment benefit is very high relative to the minimum wage, so that the extra consumption of all the newly employed workers is less than the extra output of those who go to work in the market sector.

That doesn’t mean a Job Guarantee is a bad idea. The newly employed workers would be better off, and those already employed would get additional services in return for their higher taxes. But this isn’t a free lunch. As Oliver Wendell Holmes put it, taxes are what we pay for civilised society.

{ 34 comments }

1

Fake Dave 08.01.20 at 6:12 am

This seems to be related to the distinction between Social Democracy and Democratic Socialism. SD is basically a welfare state or “war on poverty” ethos where everyone gets to be “middle class” but some are more middling than others while DS is about creating an entirely classless society. People who don’t acknowledge the distinction presumably view slogans like “eat the rich” and “abolish billionaires” as empty posturing (which they certainly can be), but there’s a long running intellectual debate about whether you can actually end poverty without abolishing the commensurate hoarding of wealth.

It’s probably worth distinguishing between “poverty” and “impoverishment” as well. Poverty is the simple lack of resources (the Sahara is very poor in water) while impoverishment is the misappropriation of resources away from certain classes (ie privatizing and price gauging Bolivia’s otherwise adequate water supply). The poverty framing inappropriately naturalizes inequality while the impoverishment framing risks turning economics into a zero-sum game with clear winners and losers when it’s never that simple. If you think absolute poverty is a bigger problem, you’re likely place a lot of faith in “uplifting” programs like public education, subsidized food/shelter/healthcare, and job creation. If you think that impoverishment is the bigger problem, then your goal has to be (p)redistribution of resources directly from the wealthy to the poor through progressive taxes, land reform, reparations, etc. Otherwise the rich and powerful will surely stay that way and exploitation will continue in one form or another. It’s equality of opportunity vs. equality of outcome.

It seems to me like either course could eventually get us to a “post-scarcity” Star Trek utopia (which is why the “is the Federation Communist?” debate is pointless). Both SD and DS probably require some form of job guarantee, but what it would look like in practice would be very different. A socialist job guarantee would likely have to include some strong rules on what jobs people weren’t allowed to have as most rent-seeking and marketeering jobs are essentially non-productive and exist to redirect wealth toward the top. If you’re a social Democrat who believes in genuine wealth creation, however, that’s all fine because you can just keep uplifting the poor until everyone is rich. I’ll leave it to individuals to decide which way is more right. Remember though, that serfdom was also a sort of “job guarantee” right up until it wasn’t.

2

Tim Worstall 08.01.20 at 8:17 am

“But it would still be the case that the additional output of marketed goods and services from those workers would be less than the total wage being paid to all formerly unemployed workers.”

Haven’t you just said that the value of the output is less than the costs of the inputs therefore? Output being worth less than costs? The process therefore being value subtracting which is a strange thing to want to do to an economy.

3

MisterMr 08.01.20 at 9:34 am

I don’t understand the logic of the multiplier effect example: why would the quantity of products generated by the expansion of the private sector be minor than the increased demand from public jobs?

Also, don’t the public jobs have an output too?
You make an example where the new public jobs would not get into competition against private entities, and this is likely a precondition for a Job guarantee, but this is not really an optimal job guarantee thing.

For various reasons I’m not an MMTer, but it seems to me that your example overplays the problem: if your reasoning was correct than any form of government deficit spending and also every form of private debt expansion would allways create inflation, as they are forms of spending above the total revenues created by the private economy.

4

bob mcmanus 08.01.20 at 10:00 am

“Now we introduce a Job Guarantee in which all unemployed workers are hired, at the minimum wage or more, to produce public services…”

I am fairly sure that at least the prominent exponents of MMT/JG would design the new system such that JG workers would be paid significantly less than the minimum wage, in order to incentivize workers to move to the private sector when possible, and the same for employers to hire (punctual, motivated, etc) workers. There are I think other dis-inflationary pressures in a JG economy.

(OTOH, a UBI is terminally inflationary, Wray is great on this)

A little embarrassed to link to a Bill Mitchell pdf paper from 2000 when the poster might work across the hall from him but maybe others would like to read this

The Job Guarantee and Inflation

5

BenK 08.01.20 at 10:28 am

I’m actually with the last commentator – serfdom was a job guarantee. Every kind of slavery is. Of course, if someone is forced to provide a salary, he must be provided the means to extract the labor. Some people imagine that putting these in the hands of a faceless bureaucracy is a great idea.

6

engels 08.01.20 at 10:30 am

A socialist job guarantee would likely have to include some strong rules on what jobs people weren’t allowed to have

“Instead of the conservative motto, ‘A fair day’s wage for a fair day’s work!’ they ought to inscribe on their banner the revolutionary watchword, ‘Abolition of the wages system!'” —Marx

7

ccc 08.01.20 at 10:34 am

John Quiggin: “Now we introduce a Job Guarantee in which all unemployed workers are hired, at the minimum wage or more, to produce public services (say, extra contact tracing for pandemics), that would otherwise not be provided. The newly employed workers spend their wages (over and above previous benefits) on marketed goods and services. But where are these goods and services to come from? It can only be from reducing the consumption of those who are already receiving wages or other market incomes.”

You seem to omit this possibility: The JG task “extra contact tracing for pandemics” has what is standardly seen as public health benefits which in turn makes some already existing employed work more productive – more widgets are cranked out when the worker is not home in bed sick as often. Is that not a source that the extra goods and services can come from?

Of course none of this matters very much economically anyway. Because as long as the system is built on slavery, exploitation and suffering the economic outcomes are staggeringly negative no matter what tiny adjustment you or others suggest.

8

Larry Hamelin 08.01.20 at 10:36 am

Yes, a Job Guarantee might generate unacceptable inflation and require an increase in taxes. So what?

MMT scholars say only that the government need not increase taxes to get the money to implement a JG (or anything else). They always say that an increase in taxes is one tool to control inflation when it occurs.

9

Bradley C Kuszmaul 08.01.20 at 10:41 am

That analysis has some flaws. It assumes, for example, that spending a dollar on a job produces less than a dollar of wealth. But that’s obviously false, or else no company would hire anyone. If it’s possible to produce more wealth than you spent then increased taxes don’t necessarily follow.

To conclude that more taxes are necessary you have to assume that the consumption of all the newly employed people is more than their production. But we know that, at least compared to 50 years ago, the surplus all acrues to the wealthy. (Real productivity is up, but real wages are not.)

10

marcel proust 08.01.20 at 3:22 pm

@Tim Worstall: Haven’t you just said that the value of the output is less than the costs of the inputs therefore? Output being worth less than costs? The process therefore being value subtracting which is a strange thing to want to do to an economy.

In JQ’s example of a guaranteed job, the unemployed workers are hired, at the minimum wage or more, to produce public services (say, extra contact tracing for pandemics), that would otherwise not be provided. The newly employed workers spend their wages (over and above previous benefits) on marketed goods and services.

The formerly unemployed, newly employed workers are not an input to anything that is either privately produced or privately consumed. Thus, if it was the case without a GJ policy that the value of output exceed the total value of the inputs for their production, that remains the case with the policy. However, other goods & services, public goods and services, are being produced that were not being produced before, or they are now being produced in greater quantity than previously. Value is not being subtracted.

Going beyond the example, if there are resources that are
a) not employed in the absence of the JG policy, e.g. labor*
b) have higher utility as a consequence of employment than not
then value is not being subtracted.

*This gets to the question of whether unemployment is actually a possibility. Prior to Lucas, the most widely held view among macroeconomists was that it was possible: as Larry Summers wrote (in much the same spirit as Samuel Johnson in response to Bishop Berkeley) perhaps the most efficient rejoinder to the efficient-markets theory. ‘… Look around.’ Lucas of course disagreed.

11

anon/portly 08.01.20 at 5:23 pm

This reframing raises the question: does a Job Guarantee require higher taxation? The answer, using MMT reasoning, is “Almost certainly, yes”.

Isn’t the “Job Guarantee” in this scenario essentially no different from simply raising the benefit? At least if we assume the jobs produce no consumption goods? Doesn’t that mean the phrase “using MMT reasoning” could be replaced by the phrase “using standard textbook Keynesian reasoning” and it would still not only be true, but obviously true? (All caveats about the long run path of G and T and the national debt and so on aside).

The more interesting question in all this is whether in the long run the output being produced by the “Jobs Guarantee” jobs has less or more social value than the output that would be produced by simply having the monetary authority (and/or targeted government spending efforts aimed at the structurally unemployed) do a better job of eliminating involuntary unemployment in the first place. (Assuming of course the same positive externalities from eliminating unemployment both ways).

12

DocAmazing 08.01.20 at 5:32 pm

I like your typo: I’m sure Prof. Mitchell would like to be described as an economost and even economore than that.

13

MisterMr 08.02.20 at 8:29 am

There is also this problem IMHO:

Generally when we speak of inflation we mean keynesian “demand pull” inflation, and this is also implicit in the MMT reasoning.

However there is also a non keynesian “cost push” inflation. An increase in taxation might result in cost push inflation if businesses are able to transfer taxes on to consumers, but we don’t know how much businesses can do it and perhaps it depends on the kind of taxation.

But for example if the job guarantee was paid for by an increase in the VAT this would be likely more inflationary than just printing money.

This is one of the reasons I think that thinking in terms of quantity of money is confusing.

14

bruce wilder 08.02.20 at 10:16 pm

. . . where are these goods and services to come from? It can only be from reducing the consumption of those who are already receiving wages or other market incomes. . . .
We can refine this a bit by allowing for a multiplier effect. Instead of employing all the previously unemployed workers, the Job Guarantee would only need to employ some. Their demand would increase employment in the market sector, providing jobs for the remaining unemployed workers. But it would still be the case that the additional output of marketed goods and services from those workers would be less than the total wage being paid to all formerly unemployed workers.

I have my own reasons for not being a fan of the JG, but I don’t think your reasoning as expressed here is entirely sound, certainly not if it is intended as support for a conception of requiring “higher taxation” of an undefined sort.

Let’s try again, imagining a closed economy for simplicity’s sake. If more resources are employed productively, and more goods are then presumably produced, there are more goods to consume. Consumption can increase because production has increased. Full stop.

Private goods are produced by resources paid a market-income and public goods, are also produced by resources paid a market income. Different things that are, in fact, not different in that respect.

By accounting definition, the total income from selling goods is equal to the total amount spent buying goods, and that is true in every moment of time. Changes in the rates at which money is spent on goods are possible because money can be saved/dissaved by firms and households or created ex nihilo by banks and governments.

When Quiggin writes, “Shifting the consumption to public use is the job of taxation . . .” he’s failing to note that government fiscal policy is always choosing between taxes and borrowing. The state can borrow, and in doing so, facilitate private saving. Whether “borrow” is disguised money creation ex nihilo (or ought to be) is another one of those things that depend on circumstances and policy particulars. But, it is certainly not true that taxation is the only means available.

Whether an increase in the rate of total spending induced an exactly corresponding increase in the rate of production of valued goods or simply bid up the price of goods being produced without an increase in so-called “real” output is an empirical question, the answer to which can not be known a priori from reasoning alone, without reference to the parameters inherent in particular circumstances. The actual result in particular circumstances will depend delicately on those particular circumstances.

Embedded in the politics of macro policy that results in persistent unemployment and recurrent pressure to reduce wage rates and labor’s share of total income are power relations that a JG as a policy would presumably upend, both symbolically and practically.

In an advanced capitalist political economy, almost all firms enjoy some degree of monopoly pricing power and stand ready to sell more goods at current prices; many could be compelled to sell profitably much larger quantities than they do, and even to produce more with the same capital plant. The “market” wage at the lowest range of the wage scale in some countries (USA, USA) is pretty clearly substantially below the counterfactual standard of an efficiency wage — in common sense terms lazy managers hire people at low wages because they can and waste those resources by undertraining, assigning roles with low marginal product, because they can.

It might seem plausible to presume that if the state, by guaranteeing to employ the otherwise unemployed (and how far will policy go to reach the “unemployable”?) and support base incomes to some minimum standard, would be increasing the share of total resources devoted to the production of public goods, but even that does not follow from logical necessity.

The distribution of income between labor and capital and among various strata of labor would change from raising the wage floor as well as from more generous provision of public goods. Unless you know precisely what those public goods are to be, though, you cannot predict the impact on real output of goods for private consumption. Fewer potholes, better healthcare, better education, cheaper electricity, health and safety enforcement, antitrust enforcement — all public goods are not the complete waste of blowing up things in Afghanistan and some of them have a direct impact on the resource cost of producing and distributing for private consumption.

Moreover, extremes of inequality retard production efficiency. Mass-production back in the day and digital production even more so, wants to serve an egalitarian polity. If firms that today waste substantial sums on marketing and advertising to sell over-priced products into a mass market starved of income by public policy hostile to the interests of labor faced the opportunities of mass-market consumption fully funded by full-employment, they might simply re-allocate resources to production and away from the dead-weight loss of pointless “marketing” promotion.

15

bob mcmanus 08.03.20 at 12:49 am

Coincidence BW honest to G

14 comments compared to ten times as many in the cancel post tells us something. But if this goes thru, maybe I can generate a little heat over here. Let’s talk about taxes and economists.

1) I checked Biden’s website for his tax policy, and I like it. I like it a lot. There is AFAICT not one tax cut on the page, it is all tax increases. Of course it is, we need to spend money and Biden is a good Democrat.

I turned hard on Obama in Dec 2007 when he unveiled his huge proposed “tax cut for the middle class.” In Spring 2009 Obama got his monstrous tax cut which was the major part of the stimulus package and made negotiating stimulus with Congress very difficult.

He meant it when he said he loved Reagan. From Dec 2007 on I put Obama in the Republican Party along with Reagan, McConnell, and Trump. Frackin taxcutter. The following years with the bank bailout, the shafting of mortgagees, Simpson-Bowles, the sequester…nothing changed my mind.

2) “Tax cuts always grow the economy.” No No” the Neo-Keynesian goes, “we need nuance, tax cuts that go to the consumption classes blah blah.”
“Tax cuts grow the economy.” “Still not enough nuance”
“Some tax cuts sometimes grow the economy.” Economist:” Well, I guess with the qualifiers that’s kinda true.”

“Hello, I am President Trump and I am here to cut your taxes.”

Those words should never ever cross a Democrat’s lips. Republicans cut taxes. Instead:

3) “Tax increases always grow the economy.” is the decent, and I think more accurate line. I won’t bother to put forth the arguments for this, it should be a matter of progressive faith compassion and loyalty. And spending on direct capital spending goods and services, not direct cash transfers. Cash transfers look too much like tax cuts. As long as there are poor and oppressed, Democrats should tax and spend on common and collective goods.

The problem, as I understand it, is that macro-economists have a hard quantifying and including gov’t spending and gov’t capital in their analyses. How much does a city park or an aircraft carrier or affirmative action or union support contribute to annualized GDP output? Hard to say, so the neo-Ks just give up, partly for technical, partly I think for ideological reasons.

I wish to hell economists had argued against the Obama tax cut in 2008. We probably wouldn’t be a dying country if they had shown some courage.

16

Christopher Herbert 08.03.20 at 12:22 pm

Maybe a more recent Mitchell post on the JG would be appropriate. http://bilbo.economicoutlook.net/blog/?p=45487&fbclid=IwAR2Kcai3fDFhiwV9mq1W_MMeCQ8bx
And as to the pay of JG jobs, this essay maintains: 1. A guaranteed job for anyone who wants to work and cannot currently find a job.

They would receive a socially-inclusive minimum wage.
They would receive holiday and sick pay entitlements, superannuation contributions from the employer, and other special leave entitlements that are common in the permanent workforce.
They would be entitled to undergo training (on-the-job or in outside environments, including going back to school, college or university).
They would receive social wage benefits – what some might call guaranteed levels of services – such as health care insurance, free child care, transport allowances, access to legal aid supplements, etc.
Family Income Supplements: The Job Guarantee is not based on family-units. The Job Guarantee wage (available to anyone over working age) would be supplemented with benefits reflecting family structure. In contrast to workfare there would no pressure on single parents to seek employment.
They could choose whatever hours they desired to work – effectively eliminating time-based underemployment.
IMPORTANTLY, a worker would be given a grace period on accessing the Job Guarantee. Their wage would start immediately but they could have 3-4 weeks before having to start work where they could sort out their affairs, ‘take a breather’, engage in job search if they wanted, etc. During this period they would be paid the standard wage rate.
The job would be permanent if they chose.
The job design can be flexible to help workers with special difficulties enjoy a productive working life (for example, the provision of clinical support within the workplace to help people burdened with episodic illnesses)

17

Ebenezer Scrooge 08.03.20 at 12:24 pm

Tim@2: By “value,” I take it you mean “wealth.” But economics works in terms of utility. Wealth is an imperfect metric for utility, especially since almost everybody agrees that the marginal utility of wealth is declining. A transfer from rich to poor therefore creates utility. If this utility exceeds whatever loss to net wealth, social welfare increases. It is possible to take wealth transfers too far. But most liberal democracies are light-years away from Harrison Bergeron.

18

marcel proust 08.03.20 at 4:25 pm

@bob mcmanus:
… Those words should never ever cross a Democrat’s lips. Republicans cut taxes. Instead:

3) “Tax increases always grow the economy.” is the decent, and I think more accurate line….
The problem, as I understand it, is that macro-economists have a hard quantifying and including gov’t spending and gov’t capital in their analyses.

The problem, as I understand it, is that Americans won’t vote in sufficient numbers for a candidate who promises to hike taxes, no matter the purpose. Do you not remember the 1984 campaign? Mondale may have had a host of other problems, but stating that he (as well as Reagan) would raise taxes certainly didn’t help in his losing the EV by 512 votes (out of 538) and the popular vote by nearly 20%.

Obama tried to split the difference, lowering taxes on “the middle class” and allowing the Bush tax cuts on the very wealthy to sunset in 2012. And until Trump/McConnell, it worked, no?

19

MisterMr 08.03.20 at 8:07 pm

@Ebenezer Scrooge 16

I’m going to be a bit of a pedant but value in this sense is “income”, not “wealth”.

There is a big difference between income and wealth and I would argue that most wealth is financial, aka fictitious capital. The wealth to income ratio is in fact increasing as a secular trend, so the difference is not moot.

This is also relevant when discussing money printing of various sorts IMHO because a lot of people aren’t really clear if they refer to the increase in the quantity of money (a stock, hence wealth) or in the flow of money (a flow, hence nominal income).

20

J-D 08.04.20 at 12:14 am

But economics works in terms of utility. Wealth is an imperfect metric for utility …

True. But is there a better one? If not, how is anybody supposed to conduct quantitative analyses in terms of something which can’t be measured?

21

Kurt H 08.04.20 at 10:53 am

Of course this argument applies to any spending, not just a Job Guarantee. When you increase spending you either have to raise taxes or increase inflation. Even borrowing is just future taxes or inflation.

It really irks me that MMT people act like this is some brilliant insight that no one has ever thought of before, when it is, in fact, what every economist already knows.

22

Zamfir 08.04.20 at 1:16 pm

I would like to have better impression what people on job guarantees will do. My impression from existing programs, is that they have set a course between skulls and charbidis, and there might be much in between.

On the one hand, you aim the program at clearly benefially production. JG mentions contact tracing, Bruce says repairing potholes. For such things, you have to deliver a minimum of quality to be worthwhile. Bad contact tracing or bad road repair can literally worse than doing nothing.

In practice, that means that the program must have some ability to choose applicants, and to send them away if it doesn’t work out. The program also will require non-idle resources. Materials, equipment, external services. Every work program I have ever seen also employs a core staff of people who were mostly hired from the regular job market. Just for stability, or because they have skills that were not found in the target group.

At that point, the programs starts to look a lot like regular government work. It doesn’t guarantee work to everyone, it requires a substantial budget beyond the salaries of the otherwise unemployed. At that point, you’re usually better off to put its workers all on the regular payroll. Yes, I have seen multiple programs where part of the workers were originally fired when their regular job was cancelled in favour of the job program – after all, those are the people in the unemployed pool who are best matched to the work.

Charibidis on the other side is true workfare – no one cares what the program delivers, most people in it just show up for the bennies, and motivated workers get either demotivated by the uselessness, or they jump ship as soon as they can.

There are programs that fall genuinely in between. Those are super useful, but it is not obvious that you can scale that to any size you want. My father spent his whole life organising such programs. It was never-ending work – circumstances would changes programs would disappear again,new opportunities had to be found, and there were never enough functioning programs for the particular group that his work was aimed at.

Of course that is just one personal perspective. It does makd me feel that “job guarantee” advocates are heavy on the assume-a- can-opener.

23

Tim H. 08.04.20 at 6:19 pm

Anything to do with people is liable to be uneconomic, but people are what’s available and a jobs guarantee or basic minimum income could improve the odds that the handful of incredibly gifted people (That can show up in any skin) reach adulthood in a condition where they would be able to contribute towards the solutions we’ll always need. Not a waste of money, an investment.

24

Andres 08.04.20 at 6:33 pm

Sorry I’m late to the party. While I’m in broad agreement with John’s analysis, I have to take issue with at least one of the details. Namely:

“The newly employed workers spend their wages (over and above previous benefits) on marketed goods and services. But where are these goods and services to come from? It can only be from reducing the consumption of those who are already receiving wages or other market incomes.”

There are two counterarguments. The first is that John is (unconsciously?) assuming a closed economy. The extra marketed goods and services can be supplied by imports, which the U.S. is more easily able to obtain because it also has the international borrower-of-last-resort currency. It is possible that even the value of the dollar will not be affected, since foreign exporters might well decide to keep their increased dollar earnings rather than convert them to foreign currencies.

Second John is assuming that the economy is already at full capacity with regards to marketed goods and services. But that might not be the case: the current quantity of employed workers producing marketed goods and services might well be able to ramp up production to supply the consumption of their newly employed colleagues working in public services.

If these two counterarguments are not operable for whatever reason (e.g., if we are talking about a non-reserve currency country with limited industrial capacity), then there is a displacement effect where there is greater spending on marketed goods and services that can only be offset either by actual taxes or by the inflation tax.

But I would argue that this above effect would be dwarfed by the class conflict effect. That is, businesses and especially financial rentiers would see anything like a full employment guarantee as a declaration of war. Visions of spiraling employee turnover and increased wage demands that are more effective due to the lack of unemployment deterrence would cause businesses to reduce or even cease investment, take their capital abroad, and cut down on output. Ditto for financial rentiers, especially as a Job Guarantee would make the government a strong competitor in the area of controlling the country’s physical investment and GDP growth. Implicit class conflict would thus create a negative supply-side effect that would have at least as strong an effect on the price level as would the positive demand-side effect from full employment.

(Maybe I’m barking up the wrong tree: my landmark orienting case for populist macroeconomic policy is Chile 1971-1973, which has also pushed me to the outlook that MMT is not so much incorrect as incomplete. Even heterodox economists can obsess over the 1970’s.)

But this logic also explains a political reality: no non-communist country that I know of has ever succeeded in instituting an explicit Job Guarantee, though there have been a few implicit ones of temporary duration. UBI has gained more traction but even in Europe, most UBIS are either geographically limited (province rather than national governments) or are national but inadequate according to critics.

So in fact I think John’s conclusion is correct but not very relevant. For any country with the possible exception of the U.S., a Job Guarantee would require increased taxation in order to keep inflation at bay. But increased taxation would hardly be sufficient in and of itself: you would also need a corporatist-type coalition between government and private business to also make sure that there is no private sector output and investment strike and no financial sector capital flight. And that is a very tall order.

25

Fake Dave 08.05.20 at 12:54 pm

As for whether people on job gurauntee would actually be doing anything useful, we might as well ask that of the whole society. All jobs exist because someone decided there was a need. Even a relatively inept or corrupt government employment agency would be able to identify some needs that the invisible hand alone would miss.

It’s worth considering all the different kinds of capital an economy as a whole can benefit from. States can invest in cultural capital through public arts program or develop their human capital through training and education, or even focus on accruing social capital on the world stage through soft power diplomacy and international investment. Corporations and other private actors can value these things too, but even the largest multinationals have strong incentives to prioritize short-term profitability.

One obvious way to do a job guarantee is to tie it in with universal higher education. We’re already halfway there with tuition wavers and work study programs, but could take it much farther if we were willing to abandon the tuition model entirely. Paid internships and apprenticeships for public sector jobs would also be a viable route. We could also make cross-training in different fields less painful for people by treating professional development and training programs as paid work in themselves. If teaching useful skills is productive work that adds value to the labor pool, then couldn’t the same be said for learning? I’d be very interested to see how much value we could add to the labor force just by paying people who go (back) to school instead of charging them.

26

MisterMr 08.05.20 at 4:44 pm

In my view, increased spending per se doesn’t cause inflation, because in reality the “money supply” is rather elastic, and it is inflation that causes an increase in the (endogenous) supply of money and not the reverse.
What causes inflation is that when unemployment is low wages tend to go up, and prices follow them (as buyer have higer incomes) causing a wage-price spiral, which is what we usually mean by inflation (as opposed to other forms of inflation, such as cost-push inflation, that also exist but are not the kind of keynesian inflation we’re interested in).

A job guarantee could certainly lead to inflation, as its purpose is exactly to reduce unemployment and give workers higer bargaining power. However one could make the case that this kind of inflation is worth its price, and anyway the wage share tends to rise in periods of low unemployment and high inflation.

IMHO the purpose of taxes, if we keep the MMT view that taxes are only needed to balance money printing, is to reduce profits, but these profits would be spent mostly in inflating bubbles, not in buying immediate consumption goods and services (this at least seems the case in reaganomics economies), so the idea that inflation is the only drawback of deficit spending IMHO is wrong.

27

bruce wilder 08.05.20 at 7:00 pm

I do not like the intellectual parsing involved in this kind of macro policy argument, quite apart from the points of false assertion already mentioned. As a baseline, I would ask, what work is worth doing? and, are we as a society organized to do it? Work is not such a good thing that we ought to do it for its own sake alone, the claims of artistic expression notwithstanding.

Objectively assessing our circumstances in the developed world, at least, I think a good case can easily be built on the proposition that rather than a JG, what is urgently needed are severe constraints on energy use, which would consequentially limit work and jobs. Job sharing schemes would make sense in a constrained energy economy.

Moreover, it seems imperative that the economy be restructured over the course of the next generation-and-a-half to almost completely remove reliance on fossil fuels. If we are to also radically reduce total energy use, the infrastructure of housing, transportation, agriculture and industry will have to be re-structured on different architectural principles and replaced entirely. That by itself is a lot of work to do, so perhaps having enough work is not the near-term problem, but energy conservation certainly is.

Yet, here we are discussing macro policy in terms of how “high” taxes will be, rather than how we get the work done, necessary to save the natural world from an extinction event and civilization from collapse. Do I need to point out that how “high” taxes are is so purely nominal as to be almost entirely symbolically, while an extinction event or the collapse of civilization fall into the category of serious consequences?

28

Zamfir 08.06.20 at 8:25 am

Fake Dave say s: “Even a relatively inept or corrupt government employment agency would be able to identify some needs that the invisible hand alone would miss.”

You might be underestimating the difficulty. There are many agencies worldwide , in government or as NGO, that (in some variation) organise work programs for people who can’t easily get a job on the regular job market. When it works, such programs are highly useful. But it is not easy to organise, and it only gets harder if you want to place more people.

Keep in mind: all the obvious stuff is already covered by regular programs. Pretty much by definition, you are looking at needs that could not find regular funding. Perhaps they should have found regular funding (in the opinion of some people) but that is a different issue.

Then, the program will require some basic funding even if you do not count (all of) the income of its target workers. That leaves a small bandwidth: needs that can get that basic funding, but that did not already get regular full-cost funding.

Then within that bandwidth, you have to find work that actually matches the workers in your pool. In practice, that often means very simple work. Not because the people in the pool don’t have other skills, but because you cannot count on them having specific skills – you might have some suitable candidates today, but not in few months time. And turnover in the project will be high.

And finally, you have to find and organise these programs with very limited overhead – otherwise, you further eat up that basic funding. This further reduces the scope to somewhat largish projects – you simply cannot afford to do small scale matching.

29

nastywoman 08.06.20 at 11:56 am

and as my ”hint” – that A.V. –
(After the Virus)
”EVERYTHING has changed” –
somehow? – didn’t make it at the ”What’s wrong with “cancel culture”? – thread” – and also EVERYTHING in economics has changed – and Economies and Economists – who are very well aware – that something like a ”Job Guarantee” -(some Economies already have in the one or other form) – ALWAYS will require higher taxation – the question REALLY is –
and didn’t I asked this before:

What y’all going to do –
(especially in teaching) –
if y’alls type of (B.V.) teaching – has changed in a way – where it can’t be saved –
neither with some kind of job guarantee or higher taxation?

30

nastywoman 08.06.20 at 12:05 pm

”if y’alls type of (B.V.) teaching – has changed in a way – where it can’t be saved –
neither with some kind of job guarantee or higher taxation”?

and I ask that because I have this… friend who is this Prof. who teaches ”Communication Design” in Germany and he came to the solution – that he and ALL of Germany will need a new way of ”Gesamtheitliches Denken” very, very quickly – or the economy will have ”lost” so much -(not only ”growth-wise”) – that questions about ”job guarantee or higher taxation” – are like answers – that we all can go back to B.V. if we only will have a working vaccine…

31

BillyT2 08.14.20 at 10:00 pm

Why wouldn’t the “excess” benefits simply end up being skimmed off by the capital owners (profit/rent)? Then recycled back to the government by way of bonds?

Or the gap is simply filled by imported goods, again flowing back to the debt.

32

John Quiggin 08.15.20 at 3:37 am

BillyT2 @31 The problems with the “free money” argument are illustrated by the suggestion of relying on imports to meet the gap between total demand and the productive capacity of the economy. In general, the suppliers of imports want to receive goods and services in exchange. So, the economy (already fully employed) needs to produce exports.

But what about just going into debt, as in your final suggestion? Think about a world with two countries and suppose they both try to adopt this approach. Clearly that can’t work for both of them. That’s the benefit of thinking in terms of real goods and services rather than in terms of monetary values.

But if you think about it in dollar terms, a country that borrows abroad and has no obvious capacity to repay the debt will face a depreciating exchange rate, which will cause inflation, at which point (with a fair bit of reluctance) MMT says it’s time to raise taxes to reduce domestic consumption.

33

Ralph Musgrave 08.15.20 at 7:38 pm

Re Bob McManus’s claim that MMTers envisage JG people getting LESS THAN the minimum wage, they actually advocate a wage DOUBLE the existing minimum wage. At least that’s the case according to an article (link below) by Robert Skidelsky entitled “The case for a guaranteed job.”

According to Skidelsky JG enthusiasts want a wage of $15 an hour compared to the existing minimum of $7.25 an hour.

For me, the words “raving” and “bonkers” spring to mind, but I appreciate others may see things differently.

https://robertskidelsky.com/2019/08/16/the-case-for-a-guaranteed-job/

34

Creigh Gordon 08.15.20 at 9:33 pm

Money insertion via JG would indeed increase demand for consumer goods and services. The private sector would respond by hiring to increase production of those goods and services, and it would have to hire from the JG pool. The Government would not try to compete for that labor, it would allow the JG pool to shrink. It doesn’t seem to me that inflation would occur until the JG pool hits zero (economy is at full capacity). Then taxation would be needed to control inflation.

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