Monday, April 23, 2012

John Carney — Would Guaranteed Jobs Undermine the Brooklyn Business Revolution?

The modern monetary theory movement proposes that the government should act as an employer of last resort,guaranteeing a job to anyone who needs one at some minimum wage. 
There’s a lot to be said for the idea. Working is a necessary component of living a life of dignity for most people. Joblessness breeds all sorts of social pathologies and extended joblessness is a huge source of economic waste—skills go unused and deteriorate, human resources sit idle, and bringing someone back “online” after a long time out of the workforce can be very difficult. 
One of the strongest objections to the idea of the Job Guarantee, however, is that it may distort the economy is unpredictable ways. The loss of a job for someone is often the spark that ignites the flames of entrepreneurialism. High unemployment reduces the opportunity cost of starting your own venture, for example. If you can’t find work, sometimes you make it.
Read the rest at CNBC NetNet
Would Guaranteed Jobs Undermine the Brooklyn Business Revolution?
by John Carney

From what I am hearing anecdotally a lot of people — typically middle class young  people — are becoming very entrepreneurial. However, this very often takes the form of less than savory enterprise, such as growing or dealing drugs, strip dancing, prostitution, and other high risk-high return "enterprises."

It's apparently pretty good training in entrepreneurship, though, again judging anecdotally based many people who made it growing and dealing and then invested in legitimate entreprise with lower risk and less margin as they got older. But then and again, a lot of others are still "in the business." But, hey, one has to make a living some way when the minimal wage of long term unemployment is zero, or the alternative is to be severely underemployed with few prospects on the horizon.

27 comments:

jeg3 said...

The story he links to contradicts his conclusion. The story says most have a second job. Worse most of the customers are wealthy from Manhattan and tourist, something not available to the 99% of America.

A less ideological conclusion supported by the story is that the JG can support someone while they get there feet back on the ground, even entrepreneurs.

Ramanan said...

Btw, slightly unrelated.

Carl Whelan does sectoral balances

http://www.europarl.europa.eu/document/activities/cont/201204/20120418ATT43381/20120418ATT43381EN.pdf

and presenting it here:

http://www.europarl.europa.eu/committees/en/econ/publications.html?id=ECON00005

Ramanan said...

I have issues with JC's observation as above.

It's easier to get a job and be employed in the United States than in a country such as India. Yet the US is a land of opportunities.

The main point being - it is hoped by economists that without JG we will reach full employment in some year - say 2017. (Hopes only)

Now in that year 2017 or which ever, it is easier for anyone in the US to get a job. Will that make the US less entrepreneurial?

The point is that any path to full employment such as JG doesn't change the hierarchy of society. Entrepreneurial spirit comes out of greed, urge to do something, stand out in a crowd, achieve fame etc.

I don't think why this should be an argument against JG.

Tom Hickey said...

Ramanan: "The point is that any path to full employment such as JG doesn't change the hierarchy of society. Entrepreneurial spirit comes out of greed, urge to do something, stand out in a crowd, achieve fame etc."

Agreed. I see this as grasping for straws. I have experience in this area, and even if one is highly motivated and has a sound idea (has written up a business plan and done the numbers), very few who venture succeed. I am not pessimistic about small entrepreneuring, however, just realistic. It takes a rare combination of talent, knowledge and skill, endurance, the ability to sustain high levels of stress, and considerable luck. But it is worth a try, and another and another, for those who are motivated. However, the success rate is low, and one has to go in with eyes opening, knowing that the risk is great and the probablility of success low.

But people can make a buck on eBay or through using social networking as a venue, and many peopled do. But few make it big, and most don't make much for the time they put in. However, a lot of people love doing what they do and have a sense of purpose, and the money beats many of the other options when they learn how to work it. The beauty of this is that it can be done just about anywhere one has a broadband connection — and satellite connection is available even in the boonies.

Jonf said...

Sorry, I can only take so much beach day. This one goes beyond my tolerance. I thinking will start a new business ,so maybe I need a gun. So what, it's work!r

Clonal said...

I am a serial entrepreneur, having done five start ups from scratch in my life. Three of them I could not even have started, if I had not had unemployment to buffer cash flow.

I can assure JC that 90+% of start ups end in failure, plus a net loss in net worth ;) - 70% of the ones that actually incorporate, or take out a business license are in business by the 10th year. Most of the failures taking place in the first five years.

I am a great proponent of PeterC's JIG -- also, I am a firm believer that FDR's WPA had it right for the Great Depression era, and almost right for today's. FDR's solution was no more than 60% work at the prevailing wage, and no more than one person per family.

geerussell said...

So he's basically saying that in order to fuel innovation, we need to liquidate the livelihoods of at least 3-5 million Americans at any given time. As policy. In perpetuity.

Economic soylent greent. It's made from people but it creates a few success stories. Terrible.

Mike Norman said...

Let's just accept the fact that Carney is ideologically opposed the the JG and he'll find any argument he can to try to show its lack of merit.

Tom, you're exactly right. The ranks of strippers, porn stars and drug dealers is exploding these days. That's a known fact.

Leverage said...

Tom, just add to your comments the 'privatization of prison' and you get a scary picture indeed.

If you add the population in prison to the unemployed mass, and you account for real unemployment (long duration, not u-3, and ratios of working force to total population), the picture in USA when it comes to labour could be even worse that the periphery countries in depression in Europe. The number of imprisoned people in USA is way out of control compared to most developed nations, we are talking an order of magnitude here.

Also, imprisoned population has much bigger costs than normal unemployed. A total disaster from which only a few corporations benefit, this is the domestic equivalent of crony military keynesianism developed by american politicians since decades ago.

So there is the way of doing things rationally, and then in the retarded way to go about it: with what I'm saying above a JG program alone would be profitable compared to the current situation. Instead some people will argue from a blind ideological point of view, pushing people into "entrepreneurship" of the most dubious kind, and eventually into private prisons, this will also add jobs in security sector (both public, and, increasing, privately; a merc coming near you soon! watch out for this ongoing development in fascist america) and judicial sector (probably to be privatized some way, well, it already has been privatized in a lot of senses).

But trying to argue with some weird zealots is pointless, so...

P.S: And to some extend, although never as the scary american case, this could be said about almost any economy of the developed nations, with some of this troubling trends going on everywhere.

Neoliberal psychosis and schizophrenia is really getting to far.

Ryan Harris said...

Let's call it The Carney Theory of The Invisible Spanking Hand. No one likes to get spanked by unemployment so we are motivated to look for a job.

Lets look at the data out there and see if his theory holds water at first blush. If Carney is right, we should see that people make MORE money after they are unemployed because they were motived by the experience. People will move up socio-economic ladder after they have been unemployed.

If Carney is wrong, and unemployment actually damages people socio-economically, we will see that people move down after unemployment.

Its easy to check out his theory for accuracy on an individual level and for society as a whole.

So the first study I found was a 2009 study cited by the NYT, it concluded that "Workers who lost jobs during the recession of the early 1980s were making 20 percent less than their peers two decades later." The study focused on mass layoffs to limit the possibility that the results reflected the selective firings of inferior workers.

A rich area for research, hundreds of studies, and few support the Invisible Spanking Hand Theory.

Leverage said...

All this bullshit of poverty making people entrepreneurs and creating wealth ignores the REAL history of economic development, including in USA most 'ruthless' days.

Economic development was always pushed by interventionism of the hardest kind, from state financing of industries and subsidies to merchantilism & protectionism. This trend can be seen nowadays too in devleoping nations which are choosing the right policy options pursuing wealth and capital formation.

Yes, poor people in developing nations tend to be hard working and often imaginative when it comes to survival, but that does not mean they are creating enough wealth for quality growth, they are just finding ways to survive an other day. They are not creating the next 'Silicon Valley'.


I think this way of thinking is a by-product of 'supply side // trickle down' economics, which is mostly wrong when it comes to the day by day operations of the economy, which is mostly driven by demand, not supply and innovation (which has an important role on long term wealth and capital formation, but is by no mean what drives usually the business cycles).

An other pervasive myth that has to be finished if we are to move on ever.

Clonal said...

I meant to say "70% of the ones that actually incorporate, or take out a business license are NOT in business by the 10th year." This is because of a failure, and not a "successful" exit.

Also little known is the fact that founders in start ups that get VC money, typically at the time of the "successful" exit have very little of that success - most of the success having transferred to the "financial sector!"

DustinM said...

I could turn this argument around to make a counter-argument. If people in the area had a little more money via a job guarantee, those who got the entrepreneurial "animal spirits" could've had a larger local market to sell their quirky local products. There's no evidence suggest that it couldn't have happened.

Government action and inaction always has the potential to produce unpredictable reverberations. Just look at Las Vegas. If it wasn't for the military(GOVERNMENT) choosing that location as a stop between the East and West coast, there would be no gambling capital in the Nevada desert.

Trixie said...

BREAKING: Woman Makes Jam In Her Parents' Basement, Thanks 25 Million Unemployed.

(Tilts head)

Dan Kervick said...

Tom, just add to your comments the 'privatization of prison' and you get a scary picture indeed.

I'm surprised some economist hasn't come up with a theory of the natural rate of incarceration, and suggested that the whole problem would be fixed if Ben Bernanke would just make a credible commitment to increasing the quantity of smokes in the slammer.

Ryan Harris said...

Picking berries on public forest property to make Jam? Sounds like a JG in disguise. =)

Dan Kervick said...

BREAKING: Woman Makes Jam In Her Parents' Basement, Thanks 25 Million Unemployed.

Maybe Morgan Warstler will now buy her on eBay for a buck.

Trixie said...

Dan, she'd need training first as a Wi-Fi hot spot:

http://blogs.wsj.com/speakeasy/2012/03/15/the-daily-show-takes-on-homeless-hot-spots/

Neil Wilson said...

For every one person that succeeds how many have to be sacrificed?

The objections to JG become more and more ridiculous.

The one thing anybody with 'entrepreneurial spirit' needs is interaction with people. Ideas come to you while you are doing other things.

I can guarantee that if you end up in a JG job after a failure, that JG job will spark a thousand ideas and dozens of new contacts that will spark the next round of business.

JG jobs are likely to be effective stop gaps, but will not be the most efficient economically. In that is the opportunity to profit.

Plus JG reduces the risk of having a go - you know you can flop and not starve.

So I would say the opposite. JG gets people out there interacting, and it is that which sparks new business. Businesses of the right kind.

Adam1 said...

@DustinM,

Just to add on to your thought... what prevents us from having a JG program that includes, bring me your business case and you can get JG income to help sustain you during your initial start-up period. How many MORE entrepreneurs do you think we could create WITH a JG?!

Leverage said...

Randy Wray has a post on JG real experience in Argentina during currency crisis: MMP Blog #47: The JG / ELR and Real World Experience

The only reason JG programs don't exist is because irrationality and retardation. The current situation economic cost is WAY higher, even if you use short-sighted market metrics (you have to count for externalities generated by criminality & poverty and costs carried by them).

JG programs could also help with the 'tragedy of the commons', which systematically ignored by economists and economicist arguments. The 'economic problem' as Keynes said, has been resolved, the only thing holding society back from progress and the eradication of poverty, unemployment, ostracism and other social malaises is 'money' and 'economicist arguments'.

With all the money spent (trillions!) is maintaining the status quo since 2008 the whole population could have been bailed out, thousands of job programs created, investment & research funded, etc. Stop the non sense!

STF said...

It's as if for the JG haters the existence of a perfectly elastic minimum wage bid for workers makes everyone happy working for the minimum wage all of a sudden. As Randy Wray frequently states, it's truly amazing how fragile the market system appears to be to the supposed "true believers" in the market system.

Everything that's proposed is portrayed as an extra cost to business that will sink "small business" or make the US "uncompetitive." Hasn't happened yet even as many of these proposals have been enacted.

And then when someone suggests actually substantially reducing a significant burden on businesses like healthcare costs via single payer, again somehow it's the end of capitalism as we know it.

Sigh.

Clonal said...

STF,

You have a good point. It is almost as if people like JC think that when you start a small business, you have to automatically employ people -- and that too at a minimum wage. It is almost as if - you start a business, and you become "the lord of the manor" with serfs surrounding you.

But that is not how small businesses operate. They are typically either small single owners with no employees, and/or small partnerships, with all partners working for little or no remuneration - at least in the initial stages of the business. This initial stage will often last as long as a few years - and this is much before you incorporate, or even take out a city/county business license. In the start ups that I have been involved with, that is how it was.

Once you got to the stage where you could have employees, there was never any reason to look for minimum wage workers. The philosophy at least here was that if your business had to rely upon minimum wages to be profitable, you did not have a business plan or a business. A business that ends up paying its employees minimum wages, is not a business at all! Minimum wages can sometimes be utilized where you are taking an entry level worker with no skills and education -- and you MAY pay them a minimum wages while they are being trained.

DustinM said...

@Adam1,
To answer your question. Nothing, I suppose. I think there are many ways to have a JG or a De facto JG. I think it's a worthy debate in a democracy. I personally, wouldn't be for that, I think it would make corruption and favoritism possible. But maybe another state\town would want to try something like that and I wouldn't necessarily want to discourage that.

I think the controlled infusion of demand provided by the JG is the best gift we can give to potential entrepreneurs who find their "animal spirits".

Ralph Musgrave said...

John Carney’s point, namely that JC might stifle entrepreneurship is a particular example of a more general point. This is that if JG is too attractive, it dissuades people from getting regular jobs (as employers or employees).

Put another way, and taking the opposite extreme, JG could be structured in a draconian “workfare” fashion: that is, those concerned could be offered the choice of very low paid JG work or having their benefits cut. That would induce them to get out of JG work as soon as possible, and into regular work as employers or employees.

STF said...

Hi Ralph,

"This is that if JG is too attractive, it dissuades people from getting regular jobs (as employers or employees)."

That just means the wage was set too high for JG workers. Highly unlikely, but theoretically possible. There wage would have to be pretty darn high before I would consider the JG as an alternative to working, for instance, and I'm nowhere near the "1%." Further, as Clonal suggests, it might in fact be the JG income that provides an aspiring entrepreneur the side cash flow to plan and start a business. Further, in Argentina's Jefes program, one of the things people were paid to do in some areas was start micro-businesses, so far from stifling entrepreneurship it was actively promoting startups.

"Put another way, and taking the opposite extreme, JG could be structured in a draconian “workfare” fashion: that is, those concerned could be offered the choice of very low paid JG work or having their benefits cut. That would induce them to get out of JG work as soon as possible, and into regular work as employers or employees."

Yes, that could happen, too, and it would not be desirable, though it's an extreme that's not likely in that particular form (though slightly less extreme versions would be less unlikely, for sure).

So, basically your criticism boils down to politics--the wage might be set too high, or it might be set too low by policy makers implementing the actual program. Yes, we know that. Screwing up good proposals is always a danger once policy makers get their hands on them.

That has nothing to do with the legitimacy of the idea. Every policy idea is subject to being poorly executed, poorly planned, corruption, bastardized by politicians too far to the right or too far to the left, etc.

Thankfully there are people studying policy and formulating proposals that don't worry about that all the time (or instead try to think about ways around) or there wouldn't be any good ideas to even worry about implementing incorrectly in the first place.

Tom Hickey said...

DustinM: " I think it would make corruption and favoritism possible."

With all the crony capitalism and corruption at the top, a JG is the last thing to be concerned with being gamed. Right now,the whole system is being gamed by the elite aka ruling class.