Saturday, December 31, 2011

The macro choice — buffer of employed or buffer of unemployed

Bill Mitchell makes it clear that the choice in macro is between a buffer stock of employed or a buffer stock of unemployed in Whatever – its either employment or unemployment buffer stocks. This is the case since there are very few net export economies whose domestic private sectors save very little, therefore providing continuous full employment through the private sector alone. In all other cases the government has to step in and offset the demand leakage to savings, or there will be les than full employment (less frictional).

Why not just use the sectoral balance approach and functional finance to arrange the offset by government expenditure, e.g., through countercyclical infrastructure spending as many Post Keynesians propose? According to MMT economists, its a distributional problem as well as an issue of aggregates. Practically speaking, it is virtually impossible to eliminate unemployment at the bottom because government NFA injections do not make their way down there unless they start there.

So there is choice between an uncompensated buffer stock of employed (Dickensian times), a compensated buffer stock of unemployed (transfer payments like unemployment insurance and the dole), or a compensated buffer stock of employed (JG).

The MMT argument is that a compensated buffer stock of employed is a more efficient and effective way to deal with the unemployment arising from a lack of private sector hiring then either uncompensated unemployment or compensated unemployment. Bill Mitchell has given the accounting to show this in terms of waste that otherwise builds up as human resources degrade. See his posts, The daily losses from unemploymentEmployment guarantees are better than income guarantees, and Income or employment guarantees?


Matt Franko said...

right Tom,

Picked this up in Scott Fullwiler's comments:

"I would be interested in seeing those against the JG address why they believe an unemployed buffer stock is superior–"

Now I see why they give some people PhDs...

Why is it that WE have to always defend our position of advocating Full Employment?

We should start to demand that these morons have to defend their advocacy of forcing millions of their fellow citizens into UN-employment!


Tom Hickey said...

@ Matt

Their answer is simple. IN their paradigm, there is no involuntary unemployment. The people without work are preferring leiure to employment are therefore voluntarily not working, hence not actually unemployed.

Yeah, that's actually what they say.

Anonymous said...

Doesn't this tie into the states ability to be price setter in controling inflation. not only with employment but other payments it makes?

Tom Hickey said...

# Anonymous

Right. Many overlook that a key aspect of the JG lies in establishing a price anchor via the floor wage that the government is willing to pay to buy up all human resources unwanted at the time by the private sector.

Anonymous said...

I think thats what people miss when they dismiss the JG. They veiw it through a political lens whereas the government gives free lunch. They wonder what all those people would do whilst missing the point that it prevents us from getting into the situation next time.