Matt Yglesias proves he is too lazy to read the literature or to stupid to understand what he has read. What doesn't he get about the difference between a buffer stock of employed instead of a buffer stock of unemployed, and the necessity for some price anchor for a non-convertible currency? He mentions neither, so one would assume that he is unaware of even the blog posts on the MMT JG, let alone the publications. Apparently, he is flying by the seat of his pants in an area of which he is ignorant. Buffoonery.
A "Job Guarantee" Sounds Like Bad News
Matthew Yglesias
Matthew Yglesias
39 comments:
JK
Strange how much emphasis he puts on monetary policy for jobs and labor issues:
"What's more, by "solving" the problem of unemployment it will further empower the central bank to ignore labor market outcomes and focus exclusively on threading the needle between avoiding inflation and avoiding stock market crashes."
Exactly what is the central bank to be doing in order to not "ignore labor market outcomes" …? Lower interest rates? QE?
"ANY FUNDS AVAILABLE for the jobs guarantee would be better spent on 1, 2, or 4 and broad labor market conditions are better addressed with 3 [3.Balanced monetary policy that generates strong demand for labor.]"
What's he smoking?
I'm no fan of Yglesias but I have yet to see any proof for the "price anchor" claim.
"Price anchor" is perhaps not the most descriptively accurate term since it implies that the "anchor" prevents inflation. That would be an overstatement of the function of a price anchor. A price anchor gives value to a currency in real terms, e.g, based on a set exchange value as in a fixed system based on gold convertibility at the rate the monetary authority sets. Another way to set a price anchor is through using monetary policy based on interest rate set iaw some rule. Without some benchmark, the value of a currency is free floating, so modern governments use some price anchor to control inflation. We are now using interest rates and a Taylor rule. The MMT proposal is to set the overnight rate to zero and use the price the government establishes for an hour of unskilled labor as the price anchor instead.
Matt represents the perspective of affluent liberals throughout history, with their endless variations on "poor laws". They see the problem of social inequality as extending no further than the purely economic problem of elevating the most miserable class of people up above a tolerable baseline, but are frightened of any measures that would promote democratic equality and solidarity.
Plutocrats have done a marvelous job driving a gigantic political wedge between the non-wealthy classes, by dividing them into those who work hard for peanuts and those without work who are provided with social support. Matt's preferred approach to poverty will perpetuate and even intensify those divisions - which is great for affluent elites.
Bill Mitchell got the idea of JG as "price anchor" by adapting legislated price minimums for wool in Australia. It was considered important to protect the price structure for that commodity so that sheep farmers wouldn't be destroyed and have to start from scratch every time there was a "market fluctuation." It makes perfect sense to have such a thing for an important "commodity" like labor even if the government has to carry a "buffer" stock. The "proof" is that people seem to like the buffer stock system and wouldn't want to go back to the old hazardous and, yes, inefficient system of boom and bust in the commodity in question. I can see how meddlesome moralizers could screw up a JG so that it wouldn't work up to its potential, but that's different from proving it's not a good idea.
There is actually little reason to think that a minimum wage JG program would provide a more effective price anchor than a living wage basic income program.
What is the price anchor with a BIG?
BTW, I think that the concept of a price anchor is actually extremely important in a very practical sense of defending MMT and so-called Keynesianism against the charge of proponents of "sound finance" that the policy is recommends is inherently inflationary and that a convertible system based on a commodity like gold is superior to a system in which the currency floats wrt to commodity prices. The MMT answer is that an hour of unskilled labor is just as solid a price anchor as gold, and it also provides the benefit of a buffer stock of employed, simultaneously addressing the issues of employment and price stability. Full employment and price stability create a bedrock of confidence for investment leading to growth and innovation.
The JG is not seen correctly in isolation from the role it plays in the macro analysis and the policy recommendations that follow from it.
DanKervick: "Plutocrats have done a marvelous job driving a gigantic political wedge between the non-wealthy classes…"
Have you seen this piece by Rodger Malcolm Mitchell. I think it's insightful.
http://mythfighter.com/2013/11/06/the-gap-the-whole-gap-and-nothing-but-the-gap-so-help-me/
On the JG vs. BIG price anchor…
I've never understood how the JG is a price anchor any more than a BIG would be. What's the difference between the two? In one people work, in another people don't. That's about it right? The same wage rate+benefits could operate the same for both.
With that said, there are some other advantages to the JG; e.g. making the unemployed more employable by maintaining intangibles like 'responsibility', etc. But setting aside the other benefits of the JG, exactly how is a JG any more of a price anchor than a BIG (assuming the EXACT same wage+benefit package).
The only thing I can think of is maybe if the JG'ers are producing purchasable commodties or services. Otherwise, in both cases the money-injection is chasing the same purchasable goods and services.
Am I missing something important?
The same as with JG Tom. It establishes a wage floor. To establish such a floor, it doesn't matter whether you send people a weekly check and say "Congratulations, you are now employed," or if you send them a weekly check of the same size and say, "Sorry you are unemployed, but please enjoy this money." Either way, no private sector employer can pay a wage below the level of that weekly check.
The whole "buffer stock" concept in connection with the JG labor force is incomplete if there is no mechanism for controlling the flow of workers into and out of the buffer stock in response to price conditions - and there really isn't with the JG proposals.
Also, one could hardly come up with a worse term than "buffer stock" if one's goal is to attract support for the JG program. That might be the kind of dehumanizing language that appeals to murdering autocrats like Donald Rumsfeld - but most people will distrust a person who considers them to be part of a "stock" of something.
The reasons to support public employment are (i) full employment is good for society, (ii) having a job is important for the self-esteem of most people who have a social conscience, (iii) the private sector will never succeed in organizing the work of the citizenry in the most effective way to produce a harmonious, just and prosperous society, and (iv) equal sharing of the work burden needed to sustain society is necessary to preserve a sense of justice and solidarity.
Dan, I think that the MMT explanation of prince anchor in terms of an hour of unskilled labor in comparison with an ounce of gold is pretty obvious and easy to argue against the "sound finance" folks.
I don't get that feeling with what you said about a wage floor. Imagine yourself arguing with a gold bug about gold as a price anchor versus a BIG and why the BIG is just as effective.
Tom,
You're just talking semantics now. Are you only making the case that the JG is a better sell?
The question is: exactly what about a price floor of working people is more of an anchor than a price floor of non-working people? (JG vs. BIG).
JK, the sell if important. Without it, it's not going to happen.
I am open to the BIG sell. I understand the JG sell and I think it is solid. I could sell it to any gold bug pretty convincingly, I think.
I haven't been convinced that a BIG argument is very strong, and I doubt that it would convince the sound money folks.
Any sound money folks lurking? What about it?
Sorry Tom, it is a rather weak explanation, and if all there is to be said for it is that it is somewhat stronger than the gold bug theory of prices, that's not an interesting point.
BTW, the JG is not only the hourly wage but the compensation package including benefits like health care.
So if we compare the JG in this sense with a BIG, what's the comparison. Does the BIG come with benefits?
If we are going to sell this, we need to know what the premises of the argument are.
Tom,
I have no problem with the idea that a JG is a better sell than a BIG. I agree with that. But we've got to distinguish between whats a better sell and what the actual theoretical economic underpinning is for the price anchor.
I'll say it again: unless the JG'ers are producing purchasable commodties or services, then the fiscal inject from a JG is no different than a fiscal injection from a BIG (assuming both have the EXACT same wage+benefit package). Assuming they do, then isn't that fiscal inject chasing after no new goods or services for both the JG and BIG?
How is the ANCHORness any different?
I think that the JG or BIG is salable politically but it is a tough sell and there will be lot of powerful opposition. The YouGov poll shows a balance for and against but much more strong opposition than strong support and quantity (intensity) is as important in politics as quantity (raw numbers), if not more so.
But so far we are talking pretty generically and there are different versions of the JG and BIG. Hard to get specific at this stage.
But the conversation is warming up and we may see some detailed proposals put on the table for debate. Not there yet. It's only at the concept stage.
imo the poll doesn't tell us much. i imagine many of the respondents think something like 'Great, higher taxes to pay for bigger government.' hard to get a good read on people's opinion of the ideas without them understanding the rest of MMT.
then again, so much opposition to the idea of jobs as a fundamental human right is not good. might have to do with the Rodger Malcolm Mitchell piece I linked to above.
http://mythfighter.com/2013/11/06/the-gap-the-whole-gap-and-nothing-but-the-gap-so-help-me/
"How is the ANCHORness any different?"
One of the chief complaints from the opposition to "Keynesian" spending is inflation. A price anchor isn't the only way to deal with that, but it's something that conservatives understand.
There is a pretty much a one to one correlation between gold price and the price of an hour unskilled labor fixing the value of the currency.
I think that there would need to be a similar correspondence wrt to a BIG, maybe a month's allotment to an ounce of gold.
"The only thing I can think of is maybe if the JG'ers are producing purchasable commodties or services. Otherwise, in both cases the money-injection is chasing the same purchasable goods and services."
That's another aspect that the MMT economists bring up, which is in addition to the price anchor.
Am I focusing in on price anchor here. But value added has to be dealt with, too.
"How is the ANCHORness any different?"
Mosler's argument is that the JG pool could get smaller before it starts to fail:
http://mikenormaneconomics.blogspot.com/2012/01/warren-mosler-unemployment-adds-to.html
I think that the difference between the JG and BIG is the concept of government as currency monopolist setting the value of the currency by the price it willing to pay to transfer goods and services to public use. Most goods and services are purchased in markets at the going rate, although government negotiates its price.
However, the MMT JG is a fixed price for an hour of unskilled labor paid by government, similar to the price that the government fixed for gold convertibility.
With a BIG where is the price. As far as I can see, nothing is being exchanged that would create a transaction. A BIG is a transfer.
"I've never understood how the JG is a price anchor any more than a BIG would be."
JG hires people and shows that they are working - improving their skills in that area. It maintains a layer of people that are working, turning up and doing something useful.
That derisks them from the private sector's point of view and means that they are a substitution possibility with the existing wage labour at the living wage.
That means that the JG anchors inflation a lot longer than any other approach as the economy continues to expand.
And that means that under a JG you can allow the private sector to expand longer than you can under competing schemes, before you have to bring that expansion to a halt to prevent demand inflation.
Essentially you can have a bigger private sector and get more real output with a JG than you can with any competing idea - because of that risk reduction element.
Additionally the JG helps to prevent resentment, by generating tangible output for the money paid. That means that the JG 'anchors' the scheme politically, reducing the possibility that people will agitate for its removal because of 'slackers'.
Neil, I agree with much of what you said. There are many corollary benefits to the JG that do not come with a BIG. But I don't think you've answered the question about the ANCHORness of the JG.
Assuming 1) that a JG and a BIG offer the same wage + benefits, and 2) that the JG workers are not producing purchasable goods or services (to soak up increased Demand)… how is a BIG more inflationary than a JG? For both, some X amount of dollars are being injected into the economy with no increase in (purchasable) output.
Isn't the difference between JG and BIG that everyone gets the BIG and only the want-to-work but not employed by the private sector are eligible for JG? It seems that the BIG would not have "anchorness" and would tend to "accrue to rent" if everyone was getting it in addition to whatever other sources of income they might have. It could work similarly to JG if BIG recipients forgo their work option. That way the BIG could serve as a price floor. The politics on it would be tough. Tougher than JG, I think.
Dan Lynch said...
"I'm no fan of Yglesias but I have yet to see any proof for the "price anchor" claim."
What kind of proof are you looking for? That there is a price anchor in a fiat system at all? Or that JG is superior to unemployed?
Dan, all money but commodity money issued at full value as a commodity, e.g., bullion, is fiat money. Trade used to be conducted in bullion, but most "commodity money" used in domestic exchange was fiat in that the market value of the base was diluted by seigniorage. Historically, seigniorage often led to valuation problems. Anchoring is a big thing.
There is always some anchor that gives the money value as a medium of exchange, i.e. the purchasing power of the unit of account. That is either left to float in the market or it is tied to some "anchor," like a fixed rate of convertibility. Under gold, it is some many grains of gold per unit of account. Under the MMT JG with a fixed wage including benefits (total cost) it is the amount of unskilled labor.
"What kind of proof are you looking for? That there is a price anchor in a fiat system at all? Or that JG is superior to unemployed?"
I think that most of us agree about the latter. The former is in contention and we are trying to clarify it conceptually.
Well, since we have had fiat money for a long time, and no JG, despite the fact that we have sometimes had very low levels of inflation, then clearly inflation and inflation expectations are capable of being anchored by something other than a JG.
Neil said it best -- The job guarantee works better (than the BIG) with our capitalist economy, providing a wage/benefit floor but not a free ride compared to work in the private sector.
Pavlina Tchernova has written some good stuff about the Jefes program in Argentina which emphasizes the benefits of jobs as opposed to welfare...
"Well, since we have had fiat money for a long time, and no JG, despite the fact that we have sometimes had very low levels of inflation, then clearly inflation and inflation expectations are capable of being anchored by something other than a JG."
The anchor now is monetary policy based on interest rate setting, NAIRU and a buffer stock of unemployed.
MMT would change that by setting the rate to zero, providing a buffer stock of employed at a fixed compensation rate for unskilled labor, and functional finance the basis of fiscal policy.
I like Neil's comment about the politics. I also suspect that producing purchasable items nbacktv tends to control inflation better than welfare through a BIG.
Tom, MMT says the NAIRU framework is simply a false model of the economy. So that can't be part of what is anchoring inflation.
Also, the JG as usually presented can only provide a floor under wages and prices. It can't establish a ceiling.
Dan, that's the conventional belief. MMT holds that it is cumbersome at best. Moreover, MMT says that contemporary inflation is mostly due to supply side issues rather than demand side.
I believe that Pavlina is working on a response to Yglesias.
Detroit Dan, I think that is the right way to go. There are numerous personal and societal benefits flowing from full employment. Trying to turn some mass of low-skilled workers into a human "buffer stock" - as though they were just so much corn in a a silo - is not one of them. It also won't work in the way it is usually presented, because the whole idea behind a buffer stock is that the planners are able to control the quantity of flows into and out of the buffer stock. But unless people are proposing an involuntary job guarantee program in which the government decides who gets to enter and leave the JG work force, it can't function as a labor price stabilization mechanism.
Maybe someone else can answer this better. It seems to me that if the twenty million or so underemployed were producing goods and services and investments for the future that would be a net plus to GDP beyond what a BIG would provide. To me this implies a better anchor than welfare.
There is no inherent reason a BIG cannot be used simultaneously with a JG for things like schooling and illnesses.
Again, I reference Neil's idea about the politics of work versus an easy target welfare like system. It seems no contest to me.
Re: price anchor
MMT's position on the "price anchor" seems contradictory to me.
On the one hand, MMT says it was BAD to anchor the dollar to gold, and I can go along with that. The gold standard was actually a fairly unstable system.
On the other hand, MMT says that the dollar is a tax credit and it is the power to tax that gives the dollar its value.
So if the dollar's value is anchored by the power to tax, why do we need a price anchor?
How does a JG prevent hyperinflation due to the usual reasons (war, government collapse, pegged currency, etc.)?
How does a JG prevent a powerful union from demanding higher wages and causing cost-push inflation?
How does a JG prevent inflation due to a monopolist jacking up the price of some commodity that is essential to the economy (i.e., the 70's oil inflation)?
There's never been a problem in my lifetime of politicians spending too much money, but in the unlikely event that they did go on a wild spending spree, how would a JG prevent demand-pull inflation caused by excessive deficit spending?
Re: "proof." Well, a chart showing a correlation between the minimum wage and CPI would be a good start.
Rather than debating the subject in comments (which many of us don't bother to read) I suggest that someone who believes in the JG "price anchor" hypothesis should write up a blog on the subject (with "proof") and post it on MNE.
Re: the BIG vs. JG debate. I say have your cake and eat it too with a JIG. But that, too deserves it's own blog. :-)
Dan, MMT economists admit that there is no fiscal fix for supply side inflation, since the issue is supply shortage rather than demand outpacing the capacity of the economy to expand to meet it.
Inflation could also result from price indexing, imported inflation due to a floating exchange rate, etc.
The true purpose of the JG is not for inflation control or to provide increase demand counter-cyclically. It is to achieve permanent full employment.
Inflation is an issue at full employment and the MMT solution to it is functional finance. Functional finance is also the chief means of addressing employment.
The JG is for mopping up the residual unemployment that results owing to fiscal policy not capable of being that tightly targeted. Similarly. the JG fixed compensation is a supplementary measure that backs up fiscal policy in controlling for inflation.
Randy discusses the MMT JG as prince anchor and buffer stock of employed in BOP A MOLE #1: DOES MODERN MONEY THEORY NEED A JOB GUARANTEE?. It's a lengthy explanation so I won't excerpt from it. Best just to read what Randy says about in terms of its development by MMT economists.
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