Bill Mitchell — ‘Sound finance’ prevents available climate solution with massive jobs potential

When the governments in the advanced nations abandoned full employment as an overarching macroeconomic objective, and instead, starting pursuing what I have called full employability, they stopped seeing unemployment as a policy target (to be minimised) and began using it as a policy tool to suppress inflation. As mass unemployment rose, the politics were massaged by the mainstream of my profession who claimed that the level of unemployment that constituted full employment had risen (this was the NAIRU era) and so there was really no problem. Governments adopted the neoliberal line that they ‘didn’t create jobs’ and had to target fiscal surpluses to ensure their position was ‘sustainable’. The costs in lost income and human suffering have been enormous – most people would not have any idea of the massive scale of these losses that accumulate day after day. Now, it seems, the ‘sound finance’ school is going a step further. We are probably facing an environmental emergency in the coming period (years, decades) but the question commentators keep asking is not what we can do about it but ‘how can we pay for it’? So ‘sound finance’ has already destroyed the lives of millions of people around the world as a result of mass unemployment and poverty, now it is turning its focus on the rest of us. Madness. Paradigm change has to come sooner rather than later.

No lack of funds for military, tax cuts for wealthy, corporate bailouts and donor pork.

Bill Mitchell – billy blog
‘Sound finance’ prevents available climate solution with massive jobs potential
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Wray, Dantas, Fullwiler, Tcherneva and Kelton — Public Service Employment-A Path To Full Employment

Now that MMT is going mainstream, the MMT version of a universal permanent job guarantee that pays a living wage is under scrutiny. Here is an April 2018 presentation on the MMT JG proposal by some of the American MMT economists that clarifies the MMT position.

Key government spending for public purpose falls into important categories, including 1) public service employment, 2) public investment and 3) public welfare (different from "welfare" as transfers). The first and second are about production, that is, generating supply, although some of the income involved also goes toward increasing consumption. The third is mostly about increasing consumption, that is, demand.

Public service employment involves increasing both production/supply through work and consumption/demand through incomes paid to workers. The argument is often heard that "government work" is not productive because "it doesn't make anything." That is to say, the output of work does not increase supply of consumer goods. This objection is rather irrelevant in a consumption-led economy where service work is predominant. Overall productivity is sufficient to meet demand. The increased demand would be supplied by increased investment to meet it.

Where the problem of a mismatch between supply and demand is likely to occur is in extending health care and education to all. This would require increased supply, which could be addressed through increased public investment. However, there could be supply bottlenecks in the interim from passage of the programs to scaled-up facilities.

National defense is another key category. Production and consumption resulting from this category are limited to the category itself. It diverts real resources that would otherwise be available to the economy to use for national security. The incomes involved increase consumption, that is, demand, in the economy.

A job guarantee doesn't exist in isolation from public policy as a whole and it needs to be discussed in  terms of the whole. This requires a public policy vision, which thus far seems to be lacking, or at least is inchoate and needs developing. This will require addressing tradeoffs. It is unlikely that the US can continue to the status quo and simply add desirable programs. Changes will be necessary, especially in incorporating a Green New Deal (GND). This has been inadequately addressed thus far. The GND is chiefly an engineering problem rather than an economic one, and it is international in scope since a global solution is required to address the emergent challenges.

Levy Institute
Public Service Employment-A Path To Full Employment (PDF)
L. Randall Wray, Flavia Dantas, Scott Fullwiler, Pavlina R. Tcherneva, and Stephanie A. Kelton

Richard Murphy — The political economy of Labour’s fiscal rule

Good one. Worth reading in full. Richard Murphy gives his summary of the state of the his argument with Jonathan Portes and Simon Wren Lewis.

Tax Research UK
The political economy of Labour’s fiscal rule

Richard Murphy

Peter Cooper — One of the Fundamental Differences Between Modern Monetary Theory and New Keynesian Economics

Independent economist Peter Cooper addresses the "we-knew-it-all-along" claim and shows, not really.

heteconomist
One of the Fundamental Differences Between Modern Monetary Theory and New Keynesian Economics
Peter Cooper

James K. Galbraith — We Work

Jamie Galbraith recounts his transition from JG sceptic to JG advocate and the reasons for his change of mind.

The Baffler
We Work
James K. Galbraith | Lloyd M. Bentsen Jr. Chair in Government/Business Relations and Professor of Government at the Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin

Bruce Lesnick — The Unemployment Conspiracy

JG v. UBI

Counterpunch
The Unemployment Conspiracy
Bruce Lesnick

Brian Romanchuk — The Theoretical Incoherence Of Full Employment Arguments

One quite often runs into arguments that rely on assuming full employment, and then relating that policy decisions. In my view, such arguments are fundamentally weak; we need to refer to actual model results to discuss policy. In this article, I explain why an attempt to apply a NAIRU argument to a Job Guarantee is misguided. The analysis is unusual: instead of discussing a single model, the behaviour of an entire class of reasonable economic models is analysed. This reflects the attitude towards model uncertainty that animates robust control theory.

Since my thesis is that full employment arguments are mathematically incoherent, I had little choice but to lapse into a stilted mathematical writing style. My apologies....

Wonkish.

Bond Economics
The Theoretical Incoherence Of Full Employment Arguments
Brian Romanchuk

Update.

I have little doubt that my previous article on J* -- a definition that I invented -- was confusing to most of my readers. As I wrote, I reverted to a mathematical style of writing. It is likely that inventing a concept and proving it does not exist is a pastime that would mainly be of interest to mathematicians (and philosophers). However, I have a real-world target in mind: NAIRU. All we need to do generalise the theorem procedure, and we can prove that a similar concept -- U* -- does not exist in the current institutional structure. We can then use that information to annihilate any definition of NAIRU that ends up being equivalent to U*.

Why not take on NAIRU directly, a reader might ask? This is because economists are not mathematicians. They use any number of different concepts, and assume that they are the same thing. It is a waste of time trying to prove the incoherence of each of these concepts; we just prove that U* cannot exist, and we can then just prove the equivalence of any particular definition of NAIRU to U* as needed.

Obviously,. that seems to be a rather grandiose assertion. I could easily be wrong. The most obvious hurdle is that there could be a flaw in my J* non-existence proof. I have thrown it out there, and I am waiting for it to be shot down. A more intelligent approach would have been to approach people privately and get their opinion, but hey, I decided to roll the dice.

From J* To U*: What My Conjecture Is About 

Bill Mitchell — Automation and full employment – back to the 1960s

On August 19, 1964, the then US President Lyndon B. Johnson established the – National Commission on Technology, Automation, and Economic Progress. He established the Commission in response to growing concern during the deep 1960-61 recession that the unemployment had been created by the pace of technological change. Ring a bell! He wanted to an inquiry to explore this issue and come up with recommendations on how to deal with the possibility that automation was wiping out jobs and the future would be bleak. Before the Commission had reported, the Federal government had reversed its fiscal austerity and the resulting stimulus had driven the unemployment back down to relatively low levels. The Commission noted that unemployment was largely the result of inadequate total spending and that the Government had the tools at its disposal to eliminate it. They considered that there would be workers (low-skill etc) who would suffer more displacement from technology than those with more skill etc, but that ultimately even those workers would be able to get jobs if the public deficit was large enough. In this regard, they eschewed pointless training programs that did not provide immediate access to jobs. Instead, they recommended (among other things) the introduction of a Job Guarantee (Public Service Employment) financed by the Federal government but administered at all levels of government. It would pay the Federal minimum wage and be available on demand. This is the preferred Modern Monetary Theory (MMT) approach and rejects solutions that rely on the provision of a basic income guarantee to resolve the problems created by unemployment.

Technological innovation has often been disruptive historically, but the disruption has always proved temporary, and progress ensued. The problem is not technological innovation. Evolution always brings new challenges along with new opportunities. The primary challenge is to adapt to change. Standing in the way of change is seldom successful.

The currency-issuing government has the responsibility of maintaining aggregate spending at a level sufficient to generate sufficient jobs overall.

This level changes as the pace of labour force growth and productivity changes. But the fact remains – the government can always purchase anything that is for sale in the currency it issues, including all idle labour.

There is never a reason for persistent mass unemployment. Mass unemployment is a political choice not a financial necessity.

This doesn't imply that technological innovation is not disruptive. It may be disruptive to those that lose their jobs, or are otherwise affected, such as new industries being born (tires) and old ones shuttered (blacksmiths, horseshoes, and horseshoe nails). There was huge disruption in customary employment as a result of the transition from the agricultural age that centered on farming to the industrial age that centered on manufacturing. We can anticipate something similar in the transition from the industrial (analog) age to the information (digital) age. For example, if leisure increases as a result of disruptive technology, so will work in areas that serve it. People won't just sit around — as long as they can afford to do something of interest.

A currency issuing government has the ability to address change in a timely way so as to minimize the effects of disruptive innovation by maintaining full employment and keeping the economy on track. It's a matter of maintaining demand so resources that technological innovation and increased productivity make available are not idled owing to lack of demand.

A currency issuer is capable of addressing this by maintaining the flow of money at the level of effective demand commensurate with supply at full employment to the degree that the private sector does not. In this sense, government uses its "power of the purse" to act as a buffer against unemployment.

Technological innovation increases the potential for prosperity and also leisure. Managing the transition involves political decisions along with a correct understanding of economics and government finance. Then it is a distribution issue

Distribution is a political issue with respect to who wins and who loses, rather than just an economic one. Currently, this is where the problem can be traced. Its' a matter of ignorance about economics and government finance, but also involves ideology heavily.

Bill Mitchell – billy blog
Automation and full employment – back to the 1960s
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

John Quiggin — Socialism with a spine: the only 21st century alternative

This is a longish article that puts forward analysis diagnosing the challenge and proposes a plan in outline for addressing it, based on full employment, a job guarantee and a basic income. The latter part of the article is about the opportunities present by our entering the Information Age. Those opportunities can be seized rather than left to the whims of the market and its penchant for rent-seeking in a neoliberal environment.

A lot in crammed into this one piece. Hopefully, people will be inspired to familiarize themselves within and engage with the ideas put forward.

Soft neoliberalism has exhausted its appeal. The best progressive alternative is an explicit embrace of socialism

As it is used today, the term socialism does not reflect a well-worked ideology. Rather it conveys an attitude that could be described as “unapologetic social democracy” or, in the US context, “liberalism with a spine”. It’s expressed in support for proposals that break with the cautious incrementalism of the past, and are in some cases frankly utopian: universal basic income, free post-school education, large increases in minimum wages, and so on.

That’s important, but a real alternative needs more than attitude and a grab-bag of policy ideas. After decades in which the focus has been on critiquing neoliberalism, the task of thinking about positive alternatives is urgent, but efforts in this direction are only just beginning....

To develop a serious socialist alternative, we need both to look backwards to the social democratic moment of the 50s and 60s, and forwards to the prospects for a genuine sharing economy based on the internet and other technological advances.…

The success of Keynesian stimulus in the immediate aftermath of the GFC and the disastrous outcomes from the shift to austerity after 2010 show that Keynesian economic management is as vital as ever. Going beyond crisis management, socialist governments would reinstate the commitment to full employment, and solidify it through policies such as a jobs guarantee, ensuring the availability of a full-time job for anyone who has been unemployed for some minimum period....

The success of Keynesian stimulus in the immediate aftermath of the GFC and the disastrous outcomes from the shift to austerity after 2010 show that Keynesian economic management is as vital as ever. Going beyond crisis management, socialist governments would reinstate the commitment to full employment, and solidify it through policies such as a jobs guarantee, ensuring the availability of a full-time job for anyone who has been unemployed for some minimum period.

However, the technological and social changes that have taken place over the past 60 years mean that the traditional notion of full employment, focused on full-time jobs for male breadwinners, is no longer adequate. We need a more flexible approach, accommodating the more diverse patterns of life and work of the 21st century.

In this context, the idea of a universal basic income set at a level comparable to the age pension has considerable appeal. The ultimate goal would be to provide an unconditional payment lower than the return from working but sufficient to sustain decent living standards. An interim step, proposed by the late Tony Atkinson in his final book, Inequality: What Can Be Done?, would be a participation income available to people who undertook voluntary work to benefit the community.

The combination of a job guarantee and a universal basic income would free workers from dependence on employers. But this would only be feasible if society could ensure adequate production of crucial goods and services, without dependence on the wishes of big business....

The idea of a socialist economy with unconditional access to basic incomes and greatly expanded provision of free services might seem utopian. But in the aftermath of neoliberal failure, utopian vision is what is needed. To re-engage people with democratic politics, we need to move beyond culture wars and arguments over marginal adjustments to tax rates and budget allocations, necessary as these may be in the short term...

The Guardian
Socialism with a spine: the only 21st century alternative
John Quiggin | Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a member of the Board of the Climate Change Authority of the Australian Government

Neil Wilson — It’s not a matter of believing. It is a matter of fact and requirement in society.

Neil has been using the term "social value" lately in contrast to market value. In a market state, value is exclusively market value and if market value cannot be turned into sufficient profit to justify investment, then the project doesn't get done.

The three rolls of the modern state are provision of security, order and welfare. These have high social value but little market value in that the goods they involves are neither rivalrous nor excludable.

These are chiefly public goods that fall under public purpose. A state is chiefly concerned with social value rather than market value, so these matters fall under the purview of the state rather than the private sector.

Maintaining full employment is a social value rather than a market value where the private sector is either unwilling or unable to step up. A currency sovereign is always able to purchase idle resources including labor in excess of job offers.

Modern Money Matters
It’s not a matter of believing. It is a matter of fact and requirement in society.
Neil Wilson

Ellis Winningham — New Series on Income Inequality

Those interested laypersons and members of the general public who are unfamiliar with econometrics will undoubtably find the following passage hard to swallow given the language. Bear with it until the end, and I will translate for you.…

In layperson’s terms, what all of this says is that Milton Friedman and his co-conspirator, Anna Schwartz’s attempt to claim that the velocity of money was constant, was total bullshit.

So, what then does this all mean to you?

Quite frankly, a lot and it is very important information that the public needs to understand. 

Therefore, I’m writing a somewhat comprehensive series on income inequality which will begin with a look at post-World War II policies of full employment up to the 1970’s. Next, I will discuss the OPEC cost shock, the Great Inflation, and the rise of Monetarism. From there, I will discuss the end of full employment, union busting, wage suppression to 1992 and the coming of “New Democrats”. I will then finish with a look at private debt expansion.

So, there’s lots to discuss in the coming weeks. 

Ellis Winningham — MMT and Modern Macroeconomics
New Series on Income Inequality
Ellis Winningham

Bill Mitchell — Globalisation and currency arrangements

In today’s blog, I continue the discussion that I started last Thursday, and, specifically, focus on the critique that commentators have made about the loss of state control of their economies as a result of globalisation. The thesis advanced by many analysts is that globalisation has reduced the capacity of the nation-state and forced governments to adopt free market policies at the microeconomic level and austerity at the macroeconomic level, for fear that capital flight will destroy their economies. It is a neatly packaged thesis that the political Left has imbibed, and, in doing so, has undermined the progressive basis of these institutions and left voters with little choice between right-wing parties and the social democratic parties who formally represented the interests of workers and acted as mediators in the class conflict between labour and capital. The major distinguishing feature these days between these two types of parties, who were previously poles apart in approach and mandate sought, is that the so-called progressive side of politics now claims it will implement austerity in a fairer way. These austerity-lite parties, buying into the myth that globalisation has undermined the capacity of the state to pursue full employment policies with equitable income distribution, do not challenge the basis of austerity, but just quibble over who should pay for it. The aim of this research which will appear in my next book (with co-author Thomas Fazi) is to outline a manifesto by which progressive activists and political movements can claim back the space the current generation of sham progressives have ceded to the neo-liberals.…

Bill Mitchell – billy blog
Globalisation and currency arrangements
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Brian Romanchuk — Output Gaps And MMT

A commenter on my blog drew the article "Thin Air’s money isn’t created out of thin air," (by Michael Pettis) to my attention. It refers to output gaps, which appears related to my recent article on output gaps. In his article, he makes some statements about Modern Monetary Theory (MMT). Although I would put myself in the MMT camp, I would note that I cannot write on behalf of an official MMT line; I disagree on a few points, and it is unclear what the MMT position is on some topics.

Pettis' article is quite long and contains a great deal of content. Although I find myself in agreement with much of what he says, he packs in so many theoretical asides that I cannot hope to summarise them. As a result, I am not attempting to respond to his underlying thesis. Instead, I just want to highlight some hidden assumptions around output gaps.

What Does MMT Say?

My reading is that "MMT says" that involuntary unemployment, that is, unemployment in excess of transitional, estimated to be about 2%, is evidence of an "output gap" defined as idle resources that could be put to use. The assumption is that there is enough potential work and enough other resources to perform the extra work in order to eliminate involuntary unemployment by creating a job offer for all those willing and able to work and supporting those unable to work with transfer payments. The constraint is demand side inflation, which can be addressed by functional finance and a price anchor, that is, the JG wage paid for an hour of unskilled labor.

No need for economic models to determine the output gap, which is an unobservable theoretical construct. Instead "look at the length of the unemployment line."

That leaves measuring inflation. One way to do that is to observe the size of the JP pool. If there is no one in it, then wage pressure has risen.

Admittedly, this is a simplified conceptual model. But it conveys the point that government as currency issuer can always "afford" to employ available resources by purchasing any resources in excess of what the private sector is willing to purchase and which would otherwise be idle. The government can also address the price level using its power as the currency monopolist as well.

Under the concept of popular sovereignty, state sovereignty rests with the people acting through the representatives they choose, who are commissioned to act for public purpose rather than for private gain by interests. Under this framework, the people can expect that the government will be guided by the welfare state as a model that emphasizes the general welfare and common good, rather by a market state model that privileges interests and private gain.

Under a welfare state model in which the government as currency issuer can put all available resources to use continuously, full employment (excluding transitional) becomes a civil right.

Bond Economics
Output Gaps And MMT
Brian Romanchuk

Michael Stephens — Binzagr Institute Inaugural Conference: Sustainable Full Employment and Transformational Technologies

Excellent lineup.

Multiplier Effect
Binzagr Institute Inaugural Conference: Sustainable Full Employment and Transformational Technologies
Michael Stephens

Martin Feldstein — What is Full Employment?

Loony tunes for your amusement.

"What is full employment." It's when wages that have been stagnant or fallen during a recession begin to recover.

Project Syndicate
What is Full Employment?

Martin Feldstein, Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research, chaired President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984. In 2006, he was appointed to President Bush's Foreign Intelligence Advisory Board, and, in 2009, was appointed to President Obama's Economic Recovery Advisory Board. Currently, he is on the board of directors of the Council on Foreign Relations, the Trilateral Commission, and the Group of 30, a non-profit, international body that seeks greater understanding of global economic issues.

Bill Mitchell — Time to expand public service employment

High and persistent unemployment has pervaded almost every OECD country since the mid-1970s. The rising unemployment began with the rapid inflation of the mid- 1970s. The inflation left an indelible impression on policy-makers who became captives of the resurgent new labour economics and its macroeconomic counterpart, Monetarism.

The goal of low inflation led to excessively restrictive fiscal and monetary policy stances by most OECD governments driven by the now-entrenched ‘budget deficit fetishism’.
The combined effects of tight monetary policy and restricted fiscal policy led to GDP growth in most OECD countries being generally below that necessary to absorb the growth in the labor force in combination with rising labor productivity. 

In the fifty years since the end of World War II, most OECD economies have gone from a situation where the respective governments ensured there were enough jobs to maintain full employment to a state where the same governments use unemployment to control inflation.

A major aspect of the abandonment of full employment in these economies has been the changes that have occurred in public sector employment. Many economies have undergone substantial restructuring of their public sectors with significant employment losses being endured.

The adoption of monetarism was in large part due to the political persuasiveness of Milton Friedman, who was also an advocate of economic liberalism. The result was the shift away from the dominance of Keynesianism in economics, political economy and public policy toward neoliberalism.The world is still suffering from Friedman's legacy transmitted through the Chicago School and allies as full employment was abandoned for inflation targeting, using a buffer stock of unemployed as a tool.

Clearly, if we had left the GFC to the Chicago school (or the Harvard school) line – which means government would have sat back and left it to the private market to sort the mess out, then we would have been facing a repeat of the Great Depression such was the damage to the financial system and the plunge in real output in the major economies.

Bill Mitchell – billy blog
Time to expand public service employment
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Ramanan — Disappointing Start, Mr. Bernanke

Keynes v. Wicksell. Ben sides with Knut instead of Maynard.

Brief articulation of Wicksell's natural rate of interest and Keynes's realization that there is a natural rate of interest for every level of employment. There is therefore no necessity for equilibrium at full employment "in the long run" based on a Wicksellian "natural rate." 

Multiple equilibria at less than full employment are both possible theoretically and probable based on history. No liquidity traps required. Chronic unemployment is a bug in the system that can be squashed using fiscal policy.

The Case for Concerted Action
Disappointing Start, Mr. Bernanke

Ramanan

Lars P. Syll — NAIRU — more religion than science

Lars P. Syll’s Blog
NAIRU — more religion than science
Lars P. Syll | Professor, Malmo University

Read along with Michal Kalecki, Political Aspects of Full Employment,

The reasons for the opposition of the 'industrial leaders' to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. We shall examine each of these three categories of objections to the government expansion policy in detail.

Marshall Auerback — Jeff Sachs vs. Paul Krugman

Distinguishing "good deficits" and "bad deficits."

Macrobits by Marshall Auerback
Jeff Sachs vs. Paul Krugman
Marshall Auerback

Dave Johnson — Full Employment: First Principle Of New Populism

We Demand Full Employment 

The New Populism Conference on Thursday will demand full employment as the first principle of the new populism.

We demand full employment! Full employment means there is a job for everyone who wants a job. There is simply no reason whatsoever that we can't have full employment – except for policies that are intentionally keeping us from having full employment.

We demand full employment! Why isn't our government stepping up and just hiring all of the people who need jobs? It's not as if there are not enough things that need to be done. Our infrastructure is in serious need of repair. We need to retrofit millions of buildings and homes in the country to be energy efficient. We need to build a modern energy grid to bring energy from wind farms that we need to build in the plains states (where the wind is) to the cities and industrial centers (where the need is). We need to cut the number of children per classroom in half. We need to do ... so many things.Why isn't our government the employer of last resort, just hiring people to do those things we need done – in the middle of an employment emergency?

We demand full employment! Unemployment is a human and economic catastrophe. There are so many things our government could do besides direct hiring (which they should be doing). Our government could fix our job-sucking trade deals and balance the trade budget. Our government could demand that corporations return the trillions of dollars they are holding outside of the country to avoid paying the taxes due on that money. That's a double whammy; take away the huge incentive to move jobs out of the country because of the tax break – and use the money they already owe to just hire millions of people!

Crooks & Liars
Full Employment: First Principle Of New Populism
Dave Johnson