John Carney: My point about the lack of demand for the products of the JG is related to inflation. The JG will increase aggregate demand without increasing aggregate supply of market demanded goods. This isn’t a judgment about the inherent worth of the the JG goods. It is a judgment about the inflationary tendency of the JG.
Tom Hickey: I may be dense but I don't get this. The US economy is a primarily service rather than a production economy. All the funds that flow through the service sector do not result in inflation even though no real goods are produced in the service sector. As far as I can see, the JG would slightly increase the service sector. I say "slightly, since if it were implemented as part of MMT macro policy based on sectoral balances and functional finance, then the residual of people involuntarily employed in the private sector would be contained even in downturns in the business cycle. Moreover, the financial cycle would be blunted by reforms such as Warren Mosler has proposed. What am I missing here?The position of MMT on full employment and price stability is that for full employment to exist in the face of a non-government surplus, that is, more saving by non-government, summing the domestic private sector and foreigner sector, then government must offset that with a corresponding deficit, or the market for all goods and services capable of being produced with available resources will not clear, and an output gap will open, resulting in less than full employment. Conversely, if effective demand exceeds the ability of the economy to expand to meet it, then inflation will develop.
As long as there is involuntary unemployment, then the economy has real resources available and can expand to meet effective demand if stimulated. Government hiring those who are able and willing to work but have no job offer at a floor wage will automatically result in an expansion of employment in the direction of full employment (less frictional) and the workers will produce services demanded.
There is only a problem is one excludes government from the economy. However, government is one of the major participants, as Y = C + I + G + (X-M) states.
For the sake of the argument, let's suppose that instead of a domestic JG, those unemployed were required to report for the military until they got a domestic job offer. Would that be inflationary?
What about the vast military-industrial complex that is funded by government and produces no goods and services for the domestic economy? Is that inflationary?