Monday, August 31, 2015

Jesse Livermore — Fiscal Inflation Targeting and the Cost of Large Government Debt Accumulation

The insight that fiscal policy can be used to manage inflation, in the way that monetary policy is currently used, is not new, but is attributable to the founders of functional finance, who were the first to realize that inflation, and not the budget, is what constrains the spending of a sovereign government. Advocates of modern monetary theory (MMT), the modern offshoot of functional finance, notably Scott Fulwiller [sic] of Wartburg College, have offered policy ideas for how to implement a fiscally-oriented approach. 
My view, which I elaborated on in a 2013 piece, is that the successful implementation of any such approach will need to involve the transfer of control over a portion of fiscal policy from the legislature and the treasury to the central bank. Otherwise, the implementation will become mired in politics, which will prevent the government’s fiscal stance from appropriately responding to changing macroeconomic conditions. 
There are concerns that such a policy would be unconstitutional in the United States, since only the legislature has the constitutional authority to levy taxes. But there is no reason why the legislature could not delegate some of that authority to the Federal Reserve in law, in the same way that it delegates its constitutional authority to create money. In the cleanest possible version of the proposal, the legislature would pass a law that creates a special broad-based tax, and that identifies a range of acceptable values for it, to include negative values–say, +10% to -10% of earned income below some cutoff. The law would then instruct the Federal Reserve to choose the rate in that range that will best keep inflation on target, given what is happening elsewhere in the economy and elsewhere in the policy arena.
Ultimately, the chief obstacle to the acceptance and implementation of fiscal inflation targeting is the fear that it would lead to the accumulation of large amounts of government debt. And it would, particularly in economies that face structural weakness in aggregate demand and that require recurrent injections of fiscal stimulus to operate at their potentials. But for those economies, having large government debt wouldn’t be a bad thing. To the contrary, it would be a good thing, a condition that would help offset the weakness.
The costs of large government debt accumulation are not well understood–by lay people or by economists. In this piece, I’m going to try to rigorously work out those costs, with a specific emphasis on how and in what circumstances they play out. It turns out that there is currently substantial room, in essentially all developed economies that have sovereign control over credible currencies, to use expansive fiscal policy to combat structural declines in inflation, without significant costs coming into play.

The reader is forewarned that this piece is long. It has to be, in order to make the mechanisms fully clear. For those that want a quick version, here’s a bulleted summary of the key points:
Philosophical Economics
Fiscal Inflation Targeting and the Cost of Large Government Debt AccumulationJesse Livermore
ht Phillipe in the comments

30 comments:

Dan Lynch said...

"pass a law that creates a special broad-based tax, and that identifies a range of acceptable values for it, to include negative values–say, +10% to -10% of earned income below some cutoff. The law would then instruct the Federal Reserve to choose the rate in that range...."

Why not a computer algorithm, rather than the Fed?

"Range that will best keep inflation on target."

Why not "best keep unemployment on target"? Most inflation is caused by international commodity prices that we have no direct control over.

Neil Wilson said...

As I said directly to Jesse, you can get the effect of a CB doing fiscal policy by simply abolishing one of the political parties and creating a one party state.

Think about that.

The whole reason we have democracy is that there is a difference of opinion about how things should work. If your debating system isn't responsive enough, change the debating system.

Ryan Harris said...
This comment has been removed by the author.
Dan Lynch said...

@Neil, agree that delegating to the CB is not very democratic. On the other hand, so-called democracy has never responded adequately to economic crises.

My suggestion was that Congress could set up a mathematical formula to determine tax rates in response to the unemployment rate. Once set up, the program could be administered by the executive branch or even by a computer. Congress could always amend the formula, or override it (in theory Congress could also amend or override the Federal Reserve but in practice never do because the Fed serves the powers that be).

Ignacio said...

Why 'inflation targeting' anyway? Why 2% and not 5% or 10% ? Why is deflation 'inherently' bad? What is behind deflation anyway (surely not some structural and demographic reasons)? There is not enough questioning of the assumptions driving policy.

Target unemployment, as Dan said, and worry about inflation later. If the problem is circulation and recycling of funds, look at that, don't try to fix it through targeting inflation, maybe add some incentives so people actually recycles it, and if they got too much sitting idle, there is nothing wrong with the government taxing most of it and redistributing via spending. it worked fine until a few decades ago you know, nothing revolutionary or radical about it (except for the neolibs in charge).

You can curve inflation looking at, well, who is actually creating most of that inflation. You think wealth inequality is bad? Inflation share inequality is off the charts! That's a real burden for us now and future generations (some consuming more resources than others, taking a big share of the pie of REAL resources). If you do that (via taxation) you open more fiscal space to fix unemployment AND increase living standards, improve the structure of the economy (from carbon to green), etc.

Is essence, while the description of the mechanics are right, the solutions are not necessarily right.

P.S: BTW I have been a proponent in this blog of letting machines run the system automatically before via algos, ofc they can be changed by law, but it should be built in automatic stabilizers. This way you avoid partisan politics getting in the way to a bigger extend.

Sure academic economists can come with whatever justifying crap if needed, they are good at that.

Neil Wilson said...

"My suggestion was that Congress could set up a mathematical formula to determine tax rates in response to the unemployment rate"

Remember that tax rates are percentages anyway. They already respond dynamically to the changes in flow.

If you need more than that then you counter-cyclical on the spending side - which is one of the things the Job Guarantee does.

What you don't do is try and use third party, uncertain, non-responsive, indirect mechanisms like trying to alter the levels of savings and borrowings.

Dan Lynch said...

"Remember that tax rates are percentages anyway. They already respond dynamically to the changes in flow. If you need more than that then you counter-cyclical on the spending side - which is one of the things the Job Guarantee does."

A JG might be appropriate for young and unskilled workers, like the New Deal CCC program, but about half the long term unemployed are skilled or older workers, contrary to your perception. I.e., a 50-something friend with a PhD in chemistry has been unemployed for several years after being laid off at a government facility thanks to austerity budget cuts. I've yet to see a JG proposal that offers anything worthwhile for skilled and older workers like my friend.

The New Deal recognized the need for skilled jobs and attempted to create some through the WPA and other New Deal programs, but always fell short because it is inherently more difficult and more expensive to create skilled jobs than grunt jobs. MMT's JG simply turns a blind eye to skilled and older workers.

On the spending side, C.H. Douglas' social credit is another option to ensure full employment As Douglas proposed, the annual (or quarterly) social credit could be adjusted to offset demand leakages. Alternatively, it could be indexed to unemployment.

Though one could ask "what is the logic in government collecting taxes with one hand while paying out a social credit with the other hand?" Hence it makes more sense to me to first reduce taxes. Also, any worthwhile public activity needs to be funded on an ongoing basis, not just during recessions. If JG work is really worthwhile, then who will perform those worthwhile tasks during booms?

Tom Hickey said...

As I said directly to Jesse, you can get the effect of a CB doing fiscal policy by simply abolishing one of the political parties and creating a one party state.

Think about that.


Great comment, Neil.

These folks seem to want a command economy run by technocrats rather than a democracy run under popular sovereignty.

Matthew Franko said...

Tom did you see the Q&A video at Bill's where the moron female in the white hair said the same thing! she said she wanted to keep the elected officials out of it!!!! Can you believe it????

She got there via a comparison of the UK to the disgraced POS nation Nigeria! LOL!!!

Neil Wilson said...

" I've yet to see a JG proposal that offers anything worthwhile for skilled and older workers like my friend."

Since JG creates bespoke jobs for the worker, I struggle to see how that can be. All JG designs are Jobs for People including older workers, and those that are retired.

It is after all about helping people find something worthwhile to do with their time.

But if you are angling for 'paid more', then I'm afraid you have a problem. The fact that you have no bid in the private sector means that you are no more valuable than the road sweeper. Your 'skills' are obsolete as far as the private sector is concerned - just like the petticoat manufacturer.

The Job Guarantee will be the biggest equal wage employer in the market - deliberately to avoid disrupting the private sector wage structure.

"the annual (or quarterly) social credit could be adjusted to offset demand leakages"

No it couldn't, because it fails to deal with the matching issue, or the quid pro quo issue. Both of which a JG is designed to address.

People will not permit others to be paid for doing nothing.

"Also, any worthwhile public activity needs to be funded on an ongoing basis, not just during recessions."

Nope. There are 'nice to haves' that can be shelved at any time. They are non-time sensitive projects. Here in the UK those projects included replacing the central reservation on motorways with concrete barriers. During the recession many miles were done. Those projects have now come to an end as the economy has recovered and the construction workers are bidder off elsewhere. The public sector didn't chase the wage, and just delayed the project.

If the public want cyclical work to be more permanent, then taxes go up to free up the resources permanently.

The great beauty of the public sector is that large swathes of it are time insensitive, or at least can be with a bit of imagination.

Neil Wilson said...

"the moron female in the white hair said the same thing! "

That's Ann Pettifor.

I was going to ask her if she approved of the ECB action in Greece then since CB's can do no wrong, but that seemed uncharitable at the time.

Matt Franko said...

Neil were you there?

It was the funniest moment in the video she says something like "can I disagree? " and then Bill says " no you can't.. " LOL I almost spit my coffee out this morning!

Dan Lynch said...

@Neil, chemists are obsolete? Engineers are obsolete? Machinists are obsolete? Teachers are obsolete? Construction workers are obsolete? Is unemployment caused by obsolescence, or is it caused by the government's failure to maintain sufficient aggregate demand?

Your "Jobs for People" spin is another way of saying that you view labor as a fungible commodity. I don't, nor do most employers. Employers desire job applicants who are currently performing a job that is similar to the one they are applying for. Putting a dead end grunt job on your resume is a negative. Better to omit it, or better to do post-graduate work until you can find a job in your field.

What I'm "angling for" is not "something worthwhile to do with my time," since I am quite capable of managing my own time. What I'm angling for is a career that pays a "renumerative" (as FDR put it) prevailing wage (as the WPA advocated) for my skills, and that is relevant to my skills, aptitudes, and career goals. Because if it is not relevant to my skills, aptitudes, and career goals, then it's not "something worthwhile to do with my time."

Your country's court recently ruled against workfare in part because the JobCentre assignment was not relevant to the plaintiff's geology skills and career goals, so I'm not the only one who sees it that way.

Re: disrupting the private sector. Coercing skilled workers to work for substantially less than the prevailing wage "disrupts" the private sector by putting downward pressure on wages. Paying prevailing wage (or slightly less) for a particular type of worker would be the least disruptive. Can you offer one sound economic reason for failing to pay the prevailing wage or close to it?

"People will not permit others to be paid for doing nothing." People have little say in government policy unless they live in a real democracy like Switzerland or Iceland. Switzerland and Iceland have generous safety nets, seemingly contradicting your perception of human values.

"replacing the central reservation on motorways with concrete barriers." Like most infrastructure projects, that would not fit the standard JG criteria. Most of the cost would be equipment and materials, and much of what little labor there is would be skilled or semi-skilled (even the humble road construction flagman requires training and certification in the U.S., you can't just send any random JG person to work as a flagman). Having the JG do the project would compete with private sector contractors who normally do highway projects. And like most infrastructure projects it would increase greenhouse gas emissions.

If the goal is to upgrade motorways and create jobs, couldn't you accomplish the same thing by soliciting bids from the private sector to install the concrete barriers, as is the common practice in the U.S.? Or by making grants available to public road departments? Or by increasing funding to public road maintenance departments?

I fail to envision how my local road maintenance department could use JG workers, other than picking up roadside litter ??? What it could use is more funding for routine maintenance, and more grants for improvement projects. Instead it is experiencing budget cuts at the Federal level because the government claims to be running out of little pieces of paper. :-(

Getting back to the OT, there are multiple ways to execute functional finance budgeting to maintain full employment -- real full employment, not grunt job full employment. I can envision a role for direct government hiring, something similar to the CCC and aimed at the young and the low skilled, but it seems perverse to cram all the unemployed and all the projects into a one-size-fits-all program.

Andrew said...

Dan,

It would be possible to run a Job Guarantee scheme and eliminate unemployment welfare. In which case your option will be to take a JG job or take your career ambitions elsewhere.

There are a lot of people who would be happy with a scheme like that.

How hard is it to assess demand for services and match skills to demand? The unfettered "free market" is not the be all and end all of supply/demand balancing. In fact it's a good opportunity for artificial intelligence to do some social good.

Tom Hickey said...

The Jg is a buffer to mop up residual unemployment after functional finance ideally using mostly automatic stabilization, the ideal being that people get bumped down the ladder with respect to qualification with the brunt of unemployment hitting the unskilled at the bottom. That's why the anchor is an hourly wage for unskilled labor.

Unemployment insurance is supposed to provide space for more qualified people to find work without getting bumped down the ladder. In ordinary recessions this work more or less OK.

But in other situations, other measures need to be instituted to prevent waste of skills and eventual deterioration. It's the economic thing to do.

Dan Lynch said...

Andrew, is the goal to eliminate "welfare" or is the goal to help people? If the field of economics is not about helping people then what is it about?

To the extent that offering minimum wage make-work jobs would help some people, I support it. To the extent that coercing the unemployed to participate in a JG would waste their talent and make them unhappy, then I do not support it. The only people I want to make unhappy are the rich and powerful. :-)

The original promise of the JG was “take workers as they are, providing jobs tailored to the characteristics of workers, rather than trying to tailor workers to the jobs available." How quickly that is forgotten when the JG meets reality!

@Tom, JG proponents ASSUME that the long term unemployed will be the least qualified, but that has always been a false assumption. More so since free trade and H1-B visas have displaced millions of skilled and semi-skilled jobs. And older, more experienced workers are more likely to experience long term unemployment than younger, less experienced workers.

As for unemployment insurance, only 25% of the OFFICIALLY unemployed receive unemployment insurance and never mind the unofficially unemployed. Hence for JG proponents to claim "a JG would not be coercive because there's always unemployment insurance" is 75% untrue.

Tom Hickey said...

Dan, I think that JG should be used as a buffer to mop up residual UE at the hourly wage of unskilled labor, and other programs implemented to deal with the permanently displaced that have more skills which takes advantage of their qualifications. This is only going to become more necessary with proliferation of automated technology that increases productivity and displaces existing workers by making them redundant.

Another program is needed for the unemployable to get those capable of functioning up to speed. The US has a large underclass that is dysfunction to the degree of being unemployable. This involves a lot more than throwing money at the problem.

Calgacus said...

Dan: I've yet to see a JG proposal that offers anything worthwhile for skilled and older workers like my friend.

I've answered this many times. Just because one can answer something in two words, doesn't mean the answer is wrong. Two times two is four. There isn't much point to writing an epic poem about it.

Many / Most of the people employed by the JG will not be on the JG, and many will make more than the JG wage, and be more skilled than most on the JG.

2 words: Trickle Up. Or 1 word: Multiplier. Or another two: Multiplier / Accelerator - another one: Supermultiplier.

Poor people understand economics- they want a JG, not some sadistic BS UBI /BIG / welfare.
Rich people understand economics- they hates the JG, they want a BS UBI /BIG to dole out scraps to their inferiors, treating them like animals.

If your friend is unemployed long enough, he might gain a gut understanding of economics and then understand how confused pro-BIGgism/anti-JGism is.
The "original promise" and design of the JG - take people as they come etc is only forgotten by those who don't understand the JG. It is alive and well and far more realistic than the confusions of people who don't grasp the JG. No matter what one's wonderful, brilliant top-down design is - if it doesn't have a JG - the only bottom-up design that can work - it is tyrannical, sadistic and insane. JG's are uncoercive because they are intrinsically uncoercive - unlike a UBI or BIG which is intrinsically coercive. Yeah, I got that backwards at first too, like most people who aren't very rich or very poor. But think about it.......

Sure, some brilliant great mind might design something a wee bit better for some society, put some icing on the cake - but who cares? 99% of the heavy lifting is done by the JG, the existence & knowledge of the permanent JG, remembering that jobs are a human right.

Andrew said...

Dan,

The purpose of employment is not that complex. We all have a desire for personal fulfillment, we also need to survive, be fed, housed, cared for when sick and contribute to the well being of others in society. We can't ignore the desire to have fairness and equity in work.

There are some essential activities like sewage treatment, policing, nursing, teaching, farming and house building that we "almost" universally agree need to get done whether or not we personally want to perform those roles. These are often Government services. Even if performed by robots, someone will have to manage the robots.

Then there are the products and services, not essential but most of us want. Hairdressing, restaurants, basic car, furniture, vacation, Ipads etc.

Then there are those things that almost nobody needs but we get suckered into by psychological or regulatory mechanisms. Like insurance, multi level marketing, expensive cars, IP premiums on products, high rents, bungee jumping, fine art, recreational drugs etc.

A highly individualistic society coupled with "free markets" for jobs, goods and services doesn't provide effectively for essential needs and basic wants. The pay check is too often spent on the latest advertised product or crack cocaine.

The crux of the matter is that a lot of people who provide basic wants and needs are not fulfilled. They will resent providing essentials for others who are only interested in shoving a crack pipe up their butt or skipping around the meadows whistling Dixie.

Even the providers of "I win you lose" zero sum services (like casino's and most financial services) feel they are deserving and resent others who don't make a big enough effort to find and dupe victims. More often than not the victims are willing and have a choice.

There's supposed to be a trade off - You get the opportunity to retire early or get nice things if you have a rare useful talent or perform lots of difficult, stressful and unpleasant work.

Being humans of course, a lot of the non essential economic activity is a zero sum quest to cajole, persuade, cheat, gamble or entice others out of their surplus labor and get greater social status for one's own self.

Unless anyone has a better idea to settle the perceived social iniquity. JG jobs should focus on important wants and needs. The things we mostly agree are a net benefit to society. JG jobs would probably be clustered around education, health care, security, essential services and the environment.

Of course we should try to match JG jobs to skills, but if the JG jobs don't float your boat you will need to get your spending money some other way. Some element of coercion will inevitably be necessary. I can't see the pragmatic working segment of the population putting up with whims and fancies of everyone else.

Neil Wilson said...

Matt,

Yes I was there. Got to speak to Bill for a short period afterwards - and meet a few others of the MMT crew.

Neil Wilson said...

" I think that JG should be used as a buffer to mop up residual UE at the hourly wage of unskilled labor, and other programs implemented to deal with the permanently displaced that have more skills which takes advantage of their qualifications."

That's all part of the JG. You'll get different structures within the JG that have to deal with people who are not the usual manual labourers, and they will be emergency structures because the idea of the JG is that it is a 'transition job' with the private sector taking most of the load.

The JG uses people's skills for the betterment of society. The problem you have is with people that think this entitles them to more resources *by right*.

It doesn't.

The only reason anybody gets more than the living wage is because there is a bidding war in the private sector to push up the wage. The only reason the public sector has to pay more than the living wage is because it is bidding back people from the private sector.

There is a philosophical problem with some people thinking they are worth more than others by right. You are only worth what other people think you're worth. If you have failed to convince them of that, then you get the living wage.

The whole thinking you're something special individualism is what has created the unequal society we now live in.

If you want a better wage, get a proper job in the private sector or lobby the public sector to create a position at the wage you want and issue taxes accordingly to pay for it. If you can't get that, then you are not worth any more than the living wage.

That's the deal. Perfectly fair and reasonable once you start seeing your position from other people's point of view.

Dan Lynch said...

No one has explained how a JG would help my friend the unemployed 50-something PhD chemist. Or myself the 50-something mechanical engineer/teacher/machinist. Or any number of other skilled people.

No one has answered my question about the purpose of economics -- is it to help people, or is it merely sophistry to justify greed, selfishness, and paternalistic "we know what is best for the disadvantaged" ?

What I see all too often in economics is people who are in love with their pet theory, who arrogantly believe they know what is best for the disadvantaged, and who don't let facts get in their way.

Any open minded person will recognize that there are multiple paths to implement functional finance. Each path has advantages and disadvantages. MMT correctly points out that delegating functional finance to an unelected, unaccountable central bank would not be very democratic, yet MMT sees no problem with delegating functional finance to an unelected, unaccountable JG bureaucracy. Duh !

If you are naive enough to believe that the US and the UK are democracies that reflect the will of the people then please don't expect me to take your views politics and society seriously.

If you want to pay everyone the same minimum wage, then by the same logic shouldn't all government employees be paid the minimum wage? If wage is just whatever society thinks you are worth, then why should society think a tenured UMKC professor of economics is worth more than a PhD chemist or a mechanical engineer?

In reality our wages are based on power, not "worth." Maybe that is a bad system and maybe we should rethink the system. I'm willing to discuss that. I'm not willing to blindly accept "all JG workers should be paid minimum wage because a dead economist said so."

Even in a totalitarian communist economy work is assigned based in part on merit and aptitude. Honestly I have come to believe that I would be better off economically in a totalitarian communist system than in either the existing capitalist system or capitalism + JG. At least in a communist system I would have free public health care, a pension in my old age, and a good chance of being assigned to a stable job that matches my skills.

Tom Hickey said...

IN my view there are many reasons for government to provide employment when and where the private sector is not doing so.

The JG is an obvious solution for many workers but I don't think all, as Dan points out. You can call such a program part of the JG but it is quite different from most JG in the JG, which are transition.

The category of people that Dan is referring to is comprised of people that have been permanently replaced for various reasons. Often they are too old to be attractive to the private sector. Some are in overcrowded fields.

Many of them are highly experienced knowledge workers. They need secure permanent employment that suits their qualifications so that society does not waste that resource, which is highly uneconomical. It's not just a matter of providing those people jobs. It's preserving their potential by employing while using the output to contribute to public purpose.

Neil Wilson said...


" It's preserving their potential by employing while using the output to contribute to public purpose."

I expect a well design public works programme to do just that. Preserve people's potential and help them to make the best use of their day in a way that is acceptable to other people.

But that doesn't mean they should get any more money for it.

Ultimately for anybody to be paid more than the living wage (particularly in the public sector) there has to be a case made for it - and taxes paid by those agreeing to it (since the alternative is for the individual to be paid the living wage and taxes to be that much lower).

Make the case. Via your union. That's what they are there for. But if your peers reject that, then at least with a JG backup you are not dumped on six months unemployment benefit, which when it runs out leaves you homeless and destitute.

When I was in London last week I spoke to a homeless man walking the streets outside the station. He thanked me for being the first person in days to acknowledge his existence. He was very well spoken and remarkably prosaic about his situation. Perhaps he used to be a nuclear scientist that had fallen on hard times.

The JG stops that. And only that. It will wrap a job around you if you have nowhere else to go - solving the matching problem, and the demand problem caused by these people being unable to signal to the production system what they need to live.

But the idea is that it is the employer of last resort. If you need a museum for skilled people, then you have to make the case to your peers, because they will have to pay for it via increased taxes. And that is as it should be.

So make the case. But it may be rejected. People may prefer to keep their own money in a competitive mixed economy that leans more to the private sector. Form a union. Make the case.

Neil Wilson said...

"Any open minded person will recognize that there are multiple paths to implement functional finance."

The JG is the only one that fixes the work matching problem in a manner that is acceptable to wider society. It deals with the fundamental issue of 'quid pro quo' that is the essence of any system that has a chance of being in place over the long term. Anything else will be destroyed politically using the 'shirkers' technique that we are seeing deployed currently.

The problem here is that some people don't like the idea of a jury of their peers assessing their worth *to the peers*. They think it should be their own judgement of worth that prevails.

That's not how it works. Others have the stuff they need, and they will need to demonstrate their worth to the others before the others will give them any of it. That is the essence of quid pro quo. It is what makes us humans rather than chimpanzees.

There are of course multiple juries to appeal to (competition is good in that sense), and hopefully out of that they will find a compromise with the others that gives them the daily satisfaction they require and the others the sense that something is being done that is worthwhile to wider society. Then the exchanges can work and everybody wins.

Works is something to do with your day that you find of use and that is considered *by others* to be of use.

If you want to argue against the latter point you need to explain why you should be allowed to do what you want regardless of whether others think it is useful or not and why others should have to accept that. I have yet to see an argument on that point that stacks up.

At the moment all I see is "we want more money 'cos we have skills". Fine, make that the case for a normal public sector job wrapping those skills, and a cost/benefit analysis based upon tax funding for it. Then see if people accept that case and pay the taxes, or whether they prefer the lower taxes.

"MMT correctly points out that delegating functional finance to an unelected, unaccountable central bank would not be very democratic, yet MMT sees no problem with delegating functional finance to an unelected, unaccountable JG bureaucracy. Duh !"

That is of course a straw man argument.

The essence of the central bank issue is whether the central bank can tell parliament 'no' when it decides to do something.

A central bank that just carries out the instructions of parliament would be just fine. You could merge Treasury into the Central Bank for example with no issues.

The Ministry of Employment running a JG is similarly just a functional department applying the instructions of parliament. It is no different from today's Departments that decide whether somebody gets Tax Credits or not, or the State Pension.

Andrew said...

Dan,

The job guarantee as described in MMT circles wouldn't provide the kind of jobs you and your friend are looking for. The private sector isn't providing those jobs. Only government investment in areas that require those skills would help you.

I don't have a problem in Government creating jobs paying market salary where there is a societal need and the fiscal space is there for them to spend the money. IMO they can create the fiscal space by regulating away a load of useless (socially destructive) private sector crappery. Sustainable energy is an obvious area for investment.

Calgacus said...

Dan:No one has explained how a JG would help my friend the unemployed 50-something PhD chemist. Or myself the 50-something mechanical engineer/teacher/machinist. Or any number of other skilled people.

I did. Neil did. Don't worry - whether you understand the explanation or not has nothing to do with whether it works or not. When there is a JG all these guys will be automagically helped by it, in all likelihood with offers of "a stable job that matches my skills" that pays more than the JG. See, for example Marshall Auerback's or Alain Parguez's work on the effect of the WPA on private employment, which people are brainwashed into thinking is the only kind of employment which is not "make-work". Societies with full employment, where skilled people en masse are unable to get a premium over "unskilled" - are something unknown to history. At least- the burden is on you to point to one.

I'm not willing to blindly accept "all JG workers should be paid minimum wage because a dead economist said so." No, it is because of the definition, the common understanding of the word "Guarantee". All Job Guarantee workers MUST be paid the minimum wage, just the same way that 2 + 2 = 4. You might say you really meant 3 by the second 2, so the answer is 5, but that is just word play that doesn't change things. A JG worker paid more than the minimum wage is a JG worker only through word-play. A money-back guarantee for defective merchandise is not the same thing as a double your money back guarantee. The store might value your business enough to double, but it isn't breaking its promise if it doesn't.

And in both cases, the important thing is that the minimum guarantee is met. There is an enormous macroeconomic & social justice difference in a society with mass unemployment & one with a JG. Between one with a JG, & one that also has a lot of JG+ jobs (administered by the JG?) that gives everybody with scarce skills a higher paying public, not just private job - meh- not much. Really, why care? As I said, your question (how will the chemist be helped) has been answered many times by many people.

What I see all too often in economics is people who are in love with their pet theory, who arrogantly believe they know what is best for the disadvantaged, and who don't let facts get in their way. The fact is that the disadvantaged, poor and unemployed who are able to work, always and everywhere have preferred jobs to welfare. This is because they have had economic understanding bludgeoned into them. BIG, UBI whatever proponents are the ones who want to impose their top-down, paternalistic, bureaucratic vision on everyone else - on the people who understand perfectly well how deluded this vision is. But no matter, what can poor people know?

no problem with delegating functional finance to an unelected, unaccountable JG bureaucracy No problem is right. Because people who are thinking straight - largely the poor - realize that a JG is unelected only because it is direct democracy, not merely representative democracy. With a JG, everyone is a JG bureaucrat! - everyone gets to decide whether they get $. With anything else, a BIG etc - there is always some Wise Master, some unelected unaccountable bureaucrat, deciding. Making "JG administrator" be a JG job is a worthwhile idea.

Neil: When I was in London last week I spoke to a homeless man walking the streets outside the station. He thanked me for being the first person in days to acknowledge his existence. He was very well spoken and remarkably prosaic about his situation. Perhaps he used to be a nuclear scientist that had fallen on hard times.

The JG stops that.
Right. It is horrifying how many have forgotten that there just weren't any homeless people to speak of in the USA & Europe during the postwar full employment / golden age era, and even a bit after. Even the semi-JG of back then was enough.

Dan Lynch said...

@Calgacus, given a choice between an MMT JG and a New Deal boutique of job programs I'll choose the New Deal thank you very much. More meaningful work and fairer wages.

I'm well aware that JG spending would create private sector jobs *if* it were financed with deficit spending. But so would New Deal job programs. So would a BIG. So would tax cuts. So would any form of functional finance. Unlike you and Neil, I'm not in love with the JG so I can look at it objectively and see both its pluses and its minuses.

Re: the jobs to welfare debate. How many old people would prefer a job to Social Security? I know a few and I'm sure you do, too -- I think they have a few screws loose -- but most seniors enjoy retirement and would resent being coerced to work. Why would this old fellow be any different?

How many disabled people would prefer a job to disability insurance? If the disabled want a job so bad then why are the British disabled fighting the austerity measures that are attempting to take away their "welfare?"

If the unemployed in Britain prefer work to welfare, then why did they protest Workfare?

Back to my chemist friend. If you ask him what he wants more than anything, he'll say a "job." But if you offer him a minimum wage dead end grunt job he'll tell you where to stick it, and rightly so. When Americans say they want a job they usually mean they want a job that fits their skills and aptitudes, that pays a fair wage, and that has a future.

Any intellectually honest person will admit that there are multiple paths to implement functional finance and they all have advantages and disadvantages. They're not necessarily mutually exclusive, either. It would surely be possible to have a JG or a New Deal job program and have a BIG and have tax rates indexed to the unemployment rate and so on and so forth. It wouldn't hurt a thing. Yet MMT doesn't want to consider those other options because MMT is in love with the JG.

Calgacus said...

@Calgacus, given a choice between an MMT JG and a New Deal boutique of job programs I'll choose the New Deal thank you very much. More meaningful work and fairer wages.

Basically, this is a choice between tomahtoes and tomaytoes. New Deal Job Program = JG. The differences are basically nonexistent - and are pretty clearly in favor of the MMT JG. For the main problem with the New Deal Job Programs was simply that they should have been a bit bigger, more extensive - employed more people, guaranteed employment as a JG formally would. Gotten rid of all the Depression unemployment, rather than 60+% of it. That they had differential wages was not important. More "unskilled" employment would have automatically led to more skilled employment. But NOT vice versa. Basically, you are very worried about a trivial problem that NO society has ever seen - legions of unemployed chemists when there is 100% bottom-level unskilled employment. The JG would benefit your chemist friend more than the (inflationary, and hence self-defeating) ideas you prefer to it.

Unlike you and Neil, I'm not in love with the JG so I can look at it objectively and see both its pluses and its minuses. A better understanding of MMT & the JG is needed to claim "objectivity". Seeing coercion where it isn't - in a job offer, and missing it where it is - in the taxation, and in the BIG -indicates a need for deeper understanding. MMT is deceptively simple & trivial. I daresay Neil & I understand MMT & that better than most.

On second thought, this "objectively" is a major problem. To make the right distinctions, some vocabulary needs to be taken from (classical) philosophy. (Against my usual point that practically everyone nowadays makes essentially meaningless distinctions - not conflating enough, rather than too much.) All the other ideas, BIG, etc are "objective" - they are ideas of the Wise Masters of Mankind, those who Know Better. You put yourself in this "objective", "ruler", "guardian" stance. But only the JG can accommodate the "subjective" - the desire of the individual - the JG is a necessary minimum for it. UBIs, BIGs do not & cannot accommodate individual desires- one of their several anti-freedom aspects. BIG proponents think that they are so wise, that they KNOW that the lesser people cannot be allowed to decide when they can get money - when they want it, not when the Wise Masters dole it out. So the JG is "absolute" - uniting the subjective & objective. The JG has NO disadvantages in a reasonable person's eyes - thinking that is like thinking there is a "disadvantage" to having laws against physical assault.

Calgacus said...

How many old people would prefer a job to Social Security? Social Security is deferred compensation. So basically you are saying how many people would prefer a (paid) job to a (paid) job. Not a meaningful question. It is like asking how many people would prefer a JG that really paid a wage to one that said it would but didn't.

Basically everyone, everywhere and always has preferred some kind of work to dependency and parasitism. Disabled, elderly, etc want and deserve support that rich societies can easily give that makes them equal with everyone else. Then they want the choice to get more when they want it.

The JG is the position that there is never any reason to deny people such choices. The real question is for JG-opponents - why do you think some people should be prevented from contributing to society and getting something in return? Ever? There is no rational answer. So there is NO morally acceptable path to implement functional finance that does not include a JG. And a major MMT economic point is that the JG does a much better job at many things that Bright Ideas claim to do but have empirically failed to do.

When Americans say they want a job they usually mean they want a job that fits their skills and aptitudes, that pays a fair wage, and that has a future. Yes, and the JG would do that. The other ideas would not, not as well. And I think it is a truism that Americans tend to be on the flexible and pragmatic about jobs than many other peoples- the important thing is to have one at good pay.

Yet MMT doesn't want to consider those other options because MMT is in love with the JG.

No, MMT CONSIDERS & SUPPORTS THESE OTHER OPTIONS. Making false claims it doesn't doesn't help an argument. The problem is that MMT understands them, understands economics better than critics (e.g. supporters of the moronic UBI idea). Because MMT economists & students understand the abstract economics & its relation to universal moral ideas better - they support the necessary and therefore superior alternative - the JG. MMTers, based on pure logic, support the JG - but don't hate any other ideas.

Supporting a JG is like saying you should worry about having no holes in the bottom of your boat above the paint job, the decor, etc. Sure, the other things might be nice to have. Might do a lot of good in some cases. Maybe there should be a JG plus an extra special wage for chemists, so they don't have to wait the extra 10 minutes for JG & investor $ to be spent that will employ them in the prima donna positions they deserve. (Hey, it happens that I've taught chemistry occasionally, in my time - :-) ). But be serious. It's just icing on a cake at best. Not a matter of going hungry or not.