Saturday, December 31, 2011
The macro choice — buffer of employed or buffer of unemployed
Bill Mitchell makes it clear that the choice in macro is between a buffer stock of employed or a buffer stock of unemployed in Whatever – its either employment or unemployment buffer stocks. This is the case since there are very few net export economies whose domestic private sectors save very little, therefore providing continuous full employment through the private sector alone. In all other cases the government has to step in and offset the demand leakage to savings, or there will be les than full employment (less frictional).
Why not just use the sectoral balance approach and functional finance to arrange the offset by government expenditure, e.g., through countercyclical infrastructure spending as many Post Keynesians propose? According to MMT economists, its a distributional problem as well as an issue of aggregates. Practically speaking, it is virtually impossible to eliminate unemployment at the bottom because government NFA injections do not make their way down there unless they start there.
So there is choice between an uncompensated buffer stock of employed (Dickensian times), a compensated buffer stock of unemployed (transfer payments like unemployment insurance and the dole), or a compensated buffer stock of employed (JG).
The MMT argument is that a compensated buffer stock of employed is a more efficient and effective way to deal with the unemployment arising from a lack of private sector hiring then either uncompensated unemployment or compensated unemployment. Bill Mitchell has given the accounting to show this in terms of waste that otherwise builds up as human resources degrade. See his posts, The daily losses from unemployment, Employment guarantees are better than income guarantees, and Income or employment guarantees?