Thursday, December 29, 2011

John Carney attacks the JG

There are at least three reasons the Jobs Guarantee cannot work.1. It's massively inflationary.2. It's a bureaucratic nightmare.3. It's economically stagnating.
Read it at CNBC Net Net
Can the Government Guarantee Everyone a Job?
by John Carney, Senior Editor

My comment at CNBC Net Net:
John, have you read the extensive writing of people like Mosler, Mitchell, and Wray on the Job Guarantee? They have addressed these objections and many more in their professional writings and boiled this down for popular consumption on MMT blogs.
I am surprised that anyone would surmise that professional economists would not have anticipated such obvious objections and fielded them preemptively in their work. There are numerous papers at Levy (, CFEPS (, and CofFEE ( Bill Mitchell wrote his PHD dissertation in this field, and Bill and Joan Muysken published the definitive work to date, Full Employment Abandoned (Elgar, 2008).
Hey, John said before we were combative over here. :)


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

Just a couple of initial points to make on the inflation and output question:

It is often assumed that a job guarantee or employer of last resort program would only hire people to do useless make-work stuff for which there is no market. But that doesn't have to be the case. The government can hire people to produce valuable goods and services. That means output goes up along with the employment and money injection.

People often fall back on a crude version of the quantity theory from which they infer that prices increase in direct proportion to the money supply. But obviously that is not true. People often seem to forget the Q in the equation of exchange.


Even with constant velocity, an increase in M - the supply of money - doesn't correspond to an increase in prices if there is a commensurate increase in expenditures due to an increase in output available in the market. The job guarantee isn't just supposed to pay people for standing around doing nothing.

In addition, ELR program described by Wray is a voluntary program. The government declares a wage and offers a job at that wage. Not everyone would take it. But more importantly, in our economy now there is a tremendous amount of unused capacity. There are underused warehouses, empty shelves, employees involuntarily working part-time hours and unused capital equipment. As the government hires additional workers, with an injection of new money, that would indeed raise demand. But Carney is mistaken, I believe in thinking that it wouldn't raise private sector output. Many businesses are in fact desperate to increase sales, and will ramp up production to do so as soon as they are convinced there is a more or less permanent surge in demand. They can boost production without a lot of additional capital investment, because they are basically putting underutilized capacity to work rather than creating new capacity, and so can produce more of their products at the same cost per unit of output - or even lower because of increased efficiency in the use of unemployed resources. So there need not be any inflationary pressure from the additional demand. A demand surge only causes inflationary pressure if production is already pushed up to near the ceiling of existing capacity, so that the added demand chases a shortage of goods. But we are in nothing like that condition right now.

Businesses are desperate for increased sales. The key is for the government to start hiring some people, and to hire them on a permanent basis - rather than one-shot unsustainable "stimulus" spending. Mere stimulus doesn't lead to a permanent commitment by businesses to expenditure on full-time hiring and production, because companies know it is only temporary. If the public sector meets the private sector halfway by committing to hiring up some substantial portion of the existing unemployed workforce permanently, then the private sector will do the rest. And the renewed he confidence that a permanent increase in demand is on the way will finally liberate a lot of those hoarded corporate savings, and we'll get investment in new lines of business as well.

mike norman said...

One practical example of the JG would be increased Federal Gov't aid to states earmarked for payment of salaries of teachers, cops and firemen who are currently being laid off or furloughed due to lack of funds at the state and local levels. This is productive and necessary work.

Anonymous said...

Also, John Carney seems very worried about the malinvestment problem. This is a frequent charge we hear from the Austrians and other conservatives. I think it shows an unwarranted background assumption about the tremendous efficiency of the private sector as opposed to what conservatives stereotype as the lazy boobocracy of unemployables that is the public sector. I don't buy it.

The real private sector economy is nothing like the textbooks. It's not run by ideally rational and ideally well-informed people seeking the most efficient solutions to problems of production, transportation and exchange. It's filled with a lot of ignorant, irrational and erratic human animals like you and me. It contains a good deal of wasteful flim-flam and shoddiness, as impulsive, scheming and flighty hustlers pursue their endless get rich quick schemes - sometimes even on Wall Street - and would-be entrepreneurs waste tons of societies resources on goofy failed enterprises that they are incompetent to manage. Most businesses fail. This failure isn't invisible hand, creative destruction, Darwinian brilliance. It's just what it looks like: a bunch of pointless, sloppy waste.

A lot of people have a mental picture of some spic-and-span private business that runs much more efficiently and smartly than, say, your typical DMV or Post Office with its slower-moving government bureaucrats. And this is probably true of most of the businesses you actually patronize. But think of all the places you never go: dirty and poorly run restaurants for example, with incessant employee turnover, operating on the verge of perpetual bankruptcy. The DMV looks like Apple Computers next to these businesses

It's no accident that US national product doubled during WWII, as the focus, organization and intelligence of the war effort replaced the group grope of the private sector free-for-all. The Hayekian price mechanism and the rest ideally rational market participants and produces are a poorly applicable idealization of the inefficient kinetic clusterfu** that comprises much of the real private sector economy.

And the private economy is only locally intelligent at best, not globally intelligent. Individual businesses seeking their own local success produce tremendous externalities in the aggregate, and also don't produce a lot of the most valuable kinds of goods, which can only be delivered by organized public investment on scales only a government can manage.

Anonymous said...

Mike, you're definitely right. Just as Europe could benefit right now from a continent-wide fiscal program to keep national governments out of self-destructive austerity, the same logic says that the national government in the US should be supporting US states, who don't control their own currency and therefore face real budget constraints.

Clonal said...


See my posts at the New Arthurian Economics on this. The quantity theory of money has no historical proof that it is operative - at least in the last 80 years or so

See starting here - Energy

Clonal said...

Also, the history of the WPA and the depression era work programs put a lie to the canard that the JG work is non productive.

Anonymous said...

Clonal, do you know of a book that carefully analyzes the history of the Great Depression, and the impact or lack of impact of government initiatives? Lately the monetarists seem to have been very successful in convincing people that fiscal policy was ineffective, and that monetary policy did the trick.

Clonal said...


Let me put together a list of the ones that I know about. Though the people at the Roosevelt Institute do much of the "Banging of the Drum" on the Great Depression Programs. Also, there was a good refutation of the assertion that the work programs during the Great Depression did nothing for the unemployment at deLong's blog a while ago.

Clonal said...


You might want to start with Bring Back the WPA: Work, Relief, and the Origins of American Social Policy in Welfare Reform

See also - A Brief Overview Of The WPA
- New Deal Art During the Great Depression

I haven't read - American-Made, The Enduring Legacy of the WPA by Nick Taylor - but it seems like a good one

Then there is the Records of the Work Projects Administration [WPA]

Also DeLong Smackdown of the Day for June 12, 2010: Robert Waldmann New Deal Unemployment Edition

beowulf said...

Ralph Musgrave (who often comments here) has discussed using employer tax credits to create a JG of sorts. If I understand him correctly, the idea is to provide a temporary private sector job to anyone who signs up for one. I'm hazy on the operational details but in the US context, I guess it could mean offering a tax credit to temporary employment agencies, giving them a tax credit for wages paid (less what job site employer is willing to pay) and then giving the agency a bigger commission (via tax credit) the more of the target wage the job site employer is willing to pay.

For example, let's say target wage is a $10.25/hr and agency commission is set at 25% of unsubsidized wage. If job site is willing to pay $3/hr hour, govt would pay temp agency $7.25/hr t credit to cover the difference plus a commission credit of 75 cents an hour (25% of $3). If job site is willing to pay $10/hr hour, temp agency gets 25 cents an hour differential tax credit and a $2.50/hr commission tax credit (phasing out commission credit by, say, 50 cents for each dollar job site employer is willing to pay worker above target wage).
This would give the temp agency every incentive to capture the value of the subsidies by ensuring job site paid as close to target wage as market will bear (mitigating the Speenhamland Effect-- wage subsidies' tendency to sink wage scale) and it'd be completely seamless to worker. The target wage would be paid on each pay check instead of making him wait until tax refund check to collect EITC.

Ralph Musgrave said...

Beowulf: thanks for the free publicity! My proposal is that temporary subsidised jobs with EXISTING employers would be better than JG / WPA (which is a sort of “specially set up” employer). One reason is that the unemployed, who tend to be relatively unskilled, would work alongside skilled labour, plus decent amounts of capital equipment. That in turn would lead to better output from the less skilled. In contrast, on JG / WPA schemes, there tends to be a concentration of relatively unskilled people, and relatively little capital equipment, materials, and other inputs.

As to the alleged merit of JG / WPA, namely that it does not exacerbate inflation because the output is not sold, one flaw in that argument is that here has been a HUGE increase in the proportion of GDP allocated to “not sold” stuff (i.e. the public sector) over the last century. But we’ve seen no dramatic reduction in unemployment as a result.

For more details see:

In addition to the links given by Clonal above, there is plenty more literature on this subject to be found by Googling “Malcolm Sawyer” and “employer of last resort”.

Septeus7 said...

The "malinvestment problem" is example of the Austrian School's radical collectivism where only the collective wisdom of "the market" can know something about the correct and efficient use of resources and the individual mind is fundamentally incapable of coming of with a good plan for the improvement of human well being.

I, on the other hand, believe individual human creativity is the fundamental feature of human economy and all human beings whether they are operating in government or the so called "private sector" retain their individual creativity if they socially free and culturally enabled to do so.

The greatest misallocation of resources is not trying to provide a general level of welfare needed for people to free from deprivation so that they have the freedom needed needed to drive forward the process of social and cultural change toward greater levels of freedom.

A JG is needed to provide that level of freedom. The freedom to have the material and social basis for discovery where the common wisdom of "market" and delusions of the collective mob are wrong and lead the way toward progress.

I want liberty from Wall Street,the "Free Market", absurd prices, and popular consumer tends. I want the real freedom.

I want the liberty to discover true principles and then freedom to act upon those universal truths that can't be priced in a market or put on a balance sheet as some number.

I want the freedom to act for the benefit of all men apart the regardless of the popular delusions of the market prices.

The Austrian school is a slave ideology that says that all men are eternal slaves to self interest and are never free to act in the knowledge that their creativity can be used for the benefit of all and I can't a imagine a more damnable slavish fatalism than one who believes that as an individual is powerless to effect the world for good outside of the "invisible hand" of the "market magically turning his selfish and unprincipled "private vices" into "public virtues".

The Austrian School isn't economics. It is Calvinism or worse something not so unlike the teachings of Anton Lavey.

John Carney said...

A couple of quick points.

I've read everything I can find in the JG. I don't think they adequately have addressed the problems I named. Just asserting that the output from JG employees will compensate for new money doesn't make it so.

Please read my thoughts on malinvestment. It's actually the opposite of what the comments here imply. I'm saying private actors make serious mistakes. The market provides a check on error. A JG risks undermining the market check on misallocated human capital.

paul meli said...

@John Carney…

Can you define "mis-allocated human capital? I don't think you can, although you probably think you can.

How about people being paid to robo-sign mortgage foreclosure documents? Is that a mis-allocation?

paul meli said...

"…One reason is that the unemployed, who tend to be relatively unskilled,…"

I'm not so sure about this. Maybe at 5% unemployment or less but not now.

I'm have pretty good skills, Mechanical Engineer, 13 years working as a real-estate appraiser, 20 years as a General Contractor and 10 years doing structural design for an Architectural office. I'm currently firing at about 25% of output capacity.

What I'm not willing to do is be a greeter at Wal-Mart or a bagger at Publix.

Hugo Heden said...

John Carney:

> Just asserting that the output from JG employees will compensate for new money doesn't make it so.

So you're suggesting that the "new money" spent on the unemployed would be inflationary? Am I understanding you correctly?

This sounds totally weird from an MMT perspective. Not sure where to begin.

In an economy running far below capacity, you could probably even helicopter drop "new money" without seeing inflationary effects.

The reason, MMT'ers say, is that firms tend to increase output if they can, before they start increasing prices. So if the whole economy is running below capacity, there is a demand gap that can be filled (if only partially) by "new money" being helicopter dropped (tax cuts maybe). Firms will respond to increased demand -- initially at least -- with increasing output, not raising prices. Inflation does not immediately ensue.

So, again, in an economy running far below capacity, "new money" can be injected without inflationary effects. It's about demand.

This is not MMT research per se though. See for example Alan Blinder -- Asking About Prices.

However, in the face of increasing aggregate demand, at some point there will be business sectors reaching bottle necks or maximum capacity levels. Prices will start to increase. From that point, more general demand stimulus will just be inflationary.

(The only way to go from there to full employment without inflation is the JG program. But that's another point -- maybe see

Matt Franko said...

Temporary demand and/or supply shocks are NOT inflation.

Please see my previous post below and keep watching the video from the 13:00 mark until it sinks in....


John Carney said...


The concept of misallocated human capital can be explained very simply: it's people with skills and training and career networks for which there is inadequate demand.

Clonal said...

John Carney,

By your logic, the Personal Computer (Xerox), Digital camera (Kodak), telephone (Western Union), the internet (developed and paid for by the US Government), the automobile etc. should never have been developed. or even encouraged to be developed, for there was no demand in the private sector for those items. In fact some of the companies that developed those products killed them internally, because there was no "current" demand for those items.

The logic is similar for the JG. Idle human beings (for no fault of their own, other than the fact that there is no demand for their labor at a wage that person can live on) are an unutilized resource that can be useful to and produce benefits for society (benefits that private citizens individually are unwilling to pay for, but would value and use if provided - public infrastructure being one of those "things"). Not doing so has an immense social, human and community cost.

Please read up on the history of the WPA and Great Depression if you have not already done so. An unbiased look will reveal a lot.