Tuesday, May 22, 2018

Randall Wray - The Job Guarantee and Inflation

The job guarantee won't cause inflation, says, Randolph Wray.  The government sets a floor or ceiling price for many commodities, like corn or wool, for instance, which isn't inflationary because all does is set a stabilised price, and a job guarantee just sets a minimum price for wages.

Professor L. Randall Wray discussing the Job Guarantee and inflation. Orthodox economists have enshrined the idea that there's a tradeoff between unemployment and inflation: they believe that if unemployment gets too low, it will cause inflation (because workers gain bargaining power, and fight for higher wages). Therefore, the mainstream approach is to try to keep unemployment at or above some minimum level (essentially prevent people from getting jobs, to weaken worker bargaining power) in order to fight inflation. The Job Guarantee takes a different approach. It uses something called a "buffer stock." A buffer stock scheme is a price stabilization mechanism, which works like this. Suppose that some entity (it can be public or private) would like to stabilize the price of corn. It can do so by announcing a price for corn, then buying and selling any quantity of corn at that price. So if the market price for corn is $390 per bushel (you don't even want to know how much corn that is) but I announce a target price of $400, then I will have to buy corn continuously until the price rises to $400. Or, if the market price for corn were $410, then I would have to sell corn continuously, flood the market, until the price falls to $400. So, in a buffer stock, price stays fixed while the quantity in the buffer stock (how much corn I am holding) adjusts to clear the market. This stabilizes prices. The Job Guarantee does the same thing with labor, by fixing a wage at which the government will hire workers. If the government stands ready to hire anybody who wants to work, at a wage of, say, $12 per hour, then if the market wage for comparable work is $7 per hour, everybody doing those jobs can quit their jobs and join the JG pool, until market wages rise to $12. Or, if the market wage was $15 but everybody in the JG pool was working for $12, the private sector would be able hire JG workers (essentially like buying corn out of the buffer stock) until the market wage for unskilled labor falls back to the JG wage of $12. The buffer stock stabilizes prices. (This was exactly how the gold standard worked, except instead of a buffer stock for labor or corn, it was a buffer stock of gold, whereby the government would announce a price for gold, then buy and sell in unlimited quantities to maintain that price). This is in contrast with the usual "Keynesian" or "pump-priming" method of government fiscal stimulus to create jobs, whereby the government builds infrastructure or war machines or just buys stuff, in the hopes that increased aggregate demand in the economy will create more jobs. The problem with that approach is that it leads to bottlenecks. For instance, if we try to create jobs by building bridges, then we'll need a lot of structural engineers. We might get into a situation where there are few or no more available engineers, which gives them substantial bargaining power to bid up their wages. This tends to happen before jobs are created for the lowest skilled workers, meaning the "Keynesian" "pump-priming" method does tend to be inflationary, as its critics have claimed. But the Job Guarantee by contrast takes a bottom-up approach, providing jobs directly where they're needed, in the exact quantity they're needed, and so cannot be inflationary. Watch the whole video here: https://www.youtube.com/watch?v=yFSKa... Follow Deficit Owls on Facebook and Twitter: https://www.facebook.com/DeficitOwls/ https://twitter.com/DeficitOwls



In neoclassical economics inflation is controlled by creating a pool of unemployed to reduce the bargaining power of workers. But many conservatives believe that people remain unemployed due to laziness even though it is a deliberate of the ruling establishment to keep a section on the working population out of work.

There are good-for-nothing people at the bottom end, for sure, but there are also many good-for-nothing people at the top end too, who know how to work the system to steal hundreds of $billions of tax payers money, and yet many conservatives see this people as successful entrepreneurs instead. But it is these people at the top end that can cause real harm to the economy, not the poor.

Most people want to work, but they would like reasonable wages and conditions too. Some very right wing conservatives believe that the only way out of the underclass is for people to work very hard and climb the ladder which means they can also exploit those at the bottom as well, but this doesn't solve the problem of the underclass.

Think about it, if most people really worked hard and got good degrees, then those that went to the best universities would get the best jobs, and the rest would still fall to the bottom getting the worst jobs, and so you can see that for many people it would not be worth all the effort. So are they lazy, or they just being rational?

Much of who we are is because of social conditioning, so if we can bring people out of the underclass everyone benefits. We will then get a more pleasant society with more people ready for work.


Andrew Anderson said...

The Job Guarantee does the same thing with labor, by fixing a wage at which the government will hire workers. L R Wray

Which will hasten the pace of automation and eliminate even more private sector jobs.

OTOH, a Citizen's Dividend will:
1) If a job were such that it can easily be automated away, a CD would allow wages to drop without worker incomes dropping since the CD would compensate for lost wages.
2) If a job were such that it is not easily automated away, a CD would give potential employees even more bargaining power wrt wages by reducing their need to work for wages in the first place.

So a CD would save easily automated jobs by allowing wages to fall in that case and tend to RAISE wages where automation is not feasible.

Ralph Musgrave said...

The idea that JG stops the price of labor rising given excess demand is complete BS. If there is excess demand and private employers are crying out for more labor and offering pay well above the JG wage, why on Earth would JG stop that “wage inflation” – i.e. stop rising wages contributing to inflation? It wouldn’t – any more than a “buffer stock” of unemployed people stops wage inflation, given excess demand.

Matt Franko said...

I agree with Ralph and AA it will hasten automation and the remaining jobs will pay a lot more to the resultant high qualified people who will still do them... but otoh this will get rid of a lot of useless jobs and reduce the risk of promoting unqualified people to supervisory levels...

Also folks, the time to have done all of this was 8 years ago we are now at less than 4% official UE and there are over 6 million jobs available... you should see all the uncut grass in my area it over a foot tall at many prime properties as the Trump crackdown on the illegals continues apace....

the political timing is lost...

Andrew Anderson said...

as the Trump crackdown on the illegals continues apace.... Franko

Which is another symptom of an economic system which is not consistent with the Bible which commands that aliens are to be well-treated.

Instead of being property and asset owners who should welcome less expensive foreign goods and labor, far too many Americans are wage-slaves whose jobs are threatened by less expensive foreign goods and labor.

Andrew Anderson said...
This comment has been removed by the author.
Andrew Anderson said...

We will then get a more pleasant society with more people ready for work. kv

Work isn't what people typically hate; it's wage-slavery, i.e. jobs, they very often hate.

So let's please quit conflating work (which is good) with wage-slavery (which often isn't good).