Saturday, March 19, 2011

The Humanity Standard, not the Gold Standard

One of the most appealing parts of the MMT framework is the idea of a Job Guarantee (JG) program, also called the Employer of Last Resort (ELR) program. If one examines MMT literature and discussions available on the web, the topics have tended to be about macroeconomic operational realities. This is mainly because the economic and political arenas are currently dominated by fear of government debt and deficits. Hence, specific MMT policy prescriptions are often given short shrift (a prominent exception being Warren Mosler’s proposals and Tom Hickey’s recent post).The JG idea deserves more attention as it has many positive features that should appeal to individuals across the political spectrum.

The Job Guarantee program should appeal to progressives because it would achieve a high degree of social justice: full employment. The socially corrosive effects of joblessness have been well documented (see here and here). Increases in drug abuse, alcoholism, depression, and crime are all linked to being unemployed. As a countervailing force to these social cancers, the JG would offer a full time job at a living wage to any individual who is willing and able to work.

A Job Guarantee program would be implemented as a non-discretionary spending program. It would be added to the tool kit of already existing automatic stabilizers. This means that it would be largely resistant to the political business cycle and the machinations of opportunistic politicians. Furthermore, the JG jobs could be provided through non-government, non-profit agencies. This should appeal to those who have an innate distrust of all things government.

The most powerful feature of the Job Guarantee program is that it would provide a large measure of price stability, much like the Gold Standard. By governmental decree, the JG wage can be fixed (at a living wage) much like the price of gold was fixed under the Gold Standard. A pool of low skilled employed labor at the JG wage is then created. If firms try to exert downward pressure (below the JG wage) on the wages paid to their low skilled workers, then the workers can join the JG labor pool. If low skill workers demand wages above the JG wage, then firms can obtain replacement workers from the JG pool. In this way, price stability is obtained.

The Job Guarantee program would deliver a perfect trifecta: social justice through full employment, great immunity from political manipulation, and price stability. Why do so many individuals desire to return to the archaic Gold Standard? Instead they should embrace the idea of a Job Guarantee program. Perhaps MMT advocates should use another name for the Job Guarantee: the Humanity Standard.

10 comments:

Mario said...

Furthermore, the JG jobs could be provided through non-government, non-profit agencies. This should appeal to those who have an innate distrust of all things government.

great point...never thought of that option, which in fact also creates another "tier" of jobs right there as well. ;)

You don't mention however why conservatives would like this policy. Is it b/c it can create a decent pool of low-skilled workers which then creates downward pressure on wage rises for low-skilled work? They also won't be able to use the "welfare state" slogan they love to tout about any government program that helps people since the people would be working...earning their way. ;)

Calgacus said...

I prefer the phrase "labor standard".

If you boil it down, the idea of a monetary economy without a JG is so insane - so ridiculous - so Kafkaesque it's practically in Kafka (e.g. The fragment about the door, the guard, and Joseph K in The Trial). And even if you were a dictator at the top of an economy, what possible reason could there be for making some of your subjects not work for your greater glory?

Our unemployed Joseph K is confronted with a government (a landlord, a supermarket - much the same thing relative to him) which demands something useless to it, money, whose only function is to get the value/labor from J which he wants to give. But the (crazy) Man says no, you may not enter through this door which was made for you.

The JG is the sine qua non of a rationally ordered MMT economy. Understanding its manifold virtues is one of, if not the biggest advance of MMT over its last incarnation, Lerner's Functional Finance.

Mario said...

I've heard some people say that with more people working we'd have more labor competition which would likely bring down wages across the board.

Unless output in the private sector could increase to contain these new workers or these new workers could stay within government jobs...wouldn't this likely happen? Plus we'd also see dollar purchasing power drop. And since demand would increase, producers would likely NOT drop their prices...heck they may even raise them!

Wouldn't all of this put even more pressure on the workers PRE the JG? Yes total benefits of all would increase but relative benefits for some will likely decrease too.

Are these costs worth it? I am willing to take a marginal cut so long as the aggregate grows...but I think that effect needs to be discussed as well no?

This may have been what Musgrave was saying in the other post?

Kevin Fathi said...

"I've heard some people say that with more people working we'd have more labor competition which would likely bring down wages across the board".---I don't see how employing low skill labor via a Job Guarantee is going to drop the wages of more skilled laborers. A person with a high school education is not a candidate for computer programmer or CNC machinist.

Kevin Fathi said...

"Plus we'd also see dollar purchasing power drop. And since demand would increase, producers would likely NOT drop their prices...heck they may even raise them!"----If there was an initial bout of inflation from full employment via JG, there would be no mechanism for escalation. If unskilled labor makes excessive wage demands, firms can threaten to hire from the fixed wage JG pool. As for the bargaining power of skilled labor, the percentage of the workforce that is unionized is small compared to the workforce during the stagflationary 1970's. Also, a JG program does not rule out the use of discretionary fiscal policy to combat inflation.

Mario said...

don't see how employing low skill labor via a Job Guarantee is going to drop the wages of more skilled laborers. A person with a high school education is not a candidate for computer programmer or CNC machinist.

eventually the entire work force would be required to raise their skills up a notch when you put a floor or standard of labor...otherwise the hungry bottom will eventually out-perform the middle. I have nothing wrong with that at all...in fact I think for some reason over the years we chose to "forget" that competition is an ongoing factor in work & life...and we always need to keep going, keep progressing, etc. My friend has a saying, "don't sit on your assets." ;) It's really not too dissimilar to the illegal workers situation we find in America today.

If there was an initial bout of inflation from full employment via JG, there would be no mechanism for escalation.

if everyone "grew" in their labor and output abilities then it would be an increase in the standard of living which is great. However, the more likely scenario, at least at first is that the middle people don't improve their skills and companies don't improve their output abilities, and we'll find a "pressure build" in-between. Too many Americans are looking for free lunches (myself included...we all crave economic rent I think...right Tom!! ;) Again it's not too dissimilar to the illegal workforce in America today. People will eventually feel threatened, their standard of living may be comprised, they find they are working next to "different people," etc. Unless everyone "toughens up and improves" across the boards (that includes companies...and those bailouts didn't help this process) some people will get marginalized as people on the bottom push further into the work force as they want a better and better standard of living. Staying hungry is important I think...a JG just stabilizes the economy and therefore allows for the bottom to gain more traction. That's good overall imho but does has consequences.

These times are fascinating b/c there is such a confluence of social and economic and political and national identities all converging on each other at one time. I think it'd be worthwhile for all of us to let go of the way things "used to be"...realize the way they are now...and seek to re-arrange our systems to support the most people possible.

I'm still all for a JG...I just think there are ancillary "consequences" that people need to realize.

sforst said...

I think it's more accurate to say that anti social behavior creates unemployment. You can fight it all you want, but you are always going to have the bottom rung of society that just doesn't know how to produce. We all know stories of that kid from a good family that ended up bad; it happens. Kids make horrible decisions, especially when life is handed to them; and they lead their own lives into a path of destruction that no government policy will stop. I'm fine with the JG, but we need to be careful to NOT sell it as a fix to everything bad; it's not.

Letsgetitdone said...

I love the JG idea too. Don't forget that Warren's JG proposals include full fringe benefits for people. So, for the private sector to compete it would have to add health insurance equivalent to Medicare. This, in turn, would create great pressure from business to pass Medicare for All and bring America into the second half of the 20th century when it comes to health insurance.

In connection with Warren's plan, I'd modify it to a basic wage of $10.00 per hour for the median cost of living county in the US with corresponding cost adjustments up or down depending on the value of the CPI. I'd also improve the CPI so that it gives a greater weight to necessities as opposed to other commodities.

In addition to the above, I'd increase State revenue sharing from $500 per person to $1,000, since States are now a disaster area job-wise. I'd also lower the standard work week to 35 hours. Americans work way too many hours relative to people in other nations. This, along with health coverage, may well be a factor in the gap developing between our life spans and those of people of other nations.

I agree with the rest of Warren's program.

Mario said...

totally Letsgetitdone. great calls. that really changes everything. ;)

Matt Franko said...

sforst,

"I think it's more accurate to say that anti social behavior creates unemployment."

Maybe I agree with you to a certain extent, for instance, substance abusers perhaps find it hard to hold a job, etc... but the vast amount of unemployment/underemployment comes about due to fiscal policy that is too tight, coupled with what Tom calls 'demand leakage' to the external sector. Those two factors probably account for more than 95% of all broad unemployment.

To your larger point that a new policy set on a full understanding of MMT: of course that will not cure all social problems, but that is not what we are talking about here though.

Resp,