Friday, January 13, 2012

Questions about the job guarantee-driven economy

In the last 2 years, I have been discovering this new economic paradigm called MMT. I have come to realize that it is the best system to accurately depict the current realities of the monetary system, and is very comprehensive in explaining and anticipating the economic effects of certain financial, central banking, economic policies. Recently, however, I'm beginning to discover that it seeks to change the current economic order, and proposes an entirely new economic system to what we have now. It looks alien to me, and I'm open about the possibility that I'm not seeing the entirety of what is actually being proposed (Because if I have it right, it looks very statist to me, and I completely veer way from MMT here).

This comment by Mosler at pragcap is where I'm currently getting my view  of what they propose. They propose a society where everybody is guaranteed a job as a base case. It will be a basic job at a basic wage. Because everybody in the base case will have this JG job, its wage level functions as the price anchor for all other prices in the economy (not just a price floor). I.e., if everybody in the economy has a job paying ex. $8/hour, this anchors the level of aggregate demand. Demand cannot go below what this base wage allows, but it also cannot go too high because, in this base case, everybody is just earning $8/hour.

Now, in case 2, wherein a sample of the population would like to have a better job than what is being offered by the JG, and to earn more than the base wage, this sample decides to start private enterprises. To entice workers to their private endeavour, they start offering JG workers a higher wage. If their business is indeed a worthwhile endeavour, it earns these adventurers a profit, while still paying their workers a higher wage than a JG. If it's not profitable, they simply close up shop and everybody goes back to the JG.

Now suppose you now have a case of a booming economy, where more and more private enterprises are being set up, and more JG workers are being enticed into the private sector. This economy will now experience inflation, as higher general wages lead to more demand, thereby bidding up general prices. In this economy being proposed, the government can dampen inflation by simply increasing taxes. The taxes will leave everybody with less  income (or as MMT calls it, net financial assets) with which they can use to bid up prices.  Problem solved. The opposite effect can be achieved when the economy is once again in the doldrums and demand is lagging. If taxes are cut, people will be able to spend once again, leading to a recovering aggregate demand.

Very elegant. I do have some questions though to help me understand the viability of this proposal.

1. In the base case, where everybody has a JG, how are workers allocated to specific jobs? And how are jobs determined in this society. In this base case, there is no market to decide what will be a valuable output, just government administrators. How do these administrators determine what jobs need to be done in this economy, and who will be matched with each job?

2. In case 2, where private initiative is assumed to arise because there are people who want to earn better than what the JG is offering, what takes the place of businesses that cannot be started because they cannot attract workers away from the JG? For example, let's take examples of labour-intensive industries, such as mining, shipping, all sorts of logistics endeavours, where you need lots of couriers, delivery men, packers, encoders, dispatchers, etc. These jobs, as currently in our economy, are viable because a private business can be profitable hiring them while making some profit providing the service. If these labour-intensive businesses were to be started in the JG scenario, the minimum hurdle to hire them would be the JG wage plus a premium to join a risky private endeavour. Because these are labour-intensive endeavours, the wage level would likely be at that price where they can attract the last needed person into the business. For example, a 10-man company can hire 10 people at $10/hour.  But a company that needs 100 people will probably only be able to hire 15 at that level. At $15/hour, it can hire 25 people. At $20/hour, it can probably hire 50 people. If it takes $30/hour to hire the necessary 100 people, companies in the low margin industries will probably find it hard to hire the necessary workforce in sufficient enough numbers to make their endeavours viable. So if these private endeavours are no longer being set up by the private sector, what takes their place? Does government end up doing what private sector will not do anymore? If that is the case, how will government, going forward, know that what it is doing, and HOW it is doing it, is the best way to provide the service? What will motivate it to improve going forward? How does it even know that there is a better way?

3. In the case of a booming economy, where government has to stamp down on aggregate demand to control inflation, which taxes does it increase? Whose? Is it the income tax of all workers? Or income tax of the businesses so more of them just close up shop and return workers to the JG? More importantly, who in government is making these decisions? How does he get to make these decisions? What metric will he use? And what qualifications will this bureaucrat need to have to qualify him to make these decisions? 

4. The JG wage, being the price anchor, is sacred as per the proposed system, so the economy has to be modulated strictly with the tax system. How will this type of system affect private initiative? If everybody is guaranteed a basic wage by the government, controlling inflation will likely focus on those earning highest rather those on the JG. Therefore, everytime there is inflation, private businesses will have to expect that their taxes will be increased as a control mechanism. If many are already cost-strained because of the increased hurdle to entice people to private enterprise, wouldn't having taxes that can suddenly move violently be the final nail in the coffin to discourage businessmen? This would be most especially be painful to the smaller businesses that would likely have razor-thin margins. If they have to close up shop, what happens to the economy if many of these small scale businesses are necessary components of the over-all supply and value chain? For example, if foresters have to close up shop, what happens to paper companies? If paper companies close, what happens to newspaper publishers? To contract-heavy industries? Will they have to make do with shorter contracts? If these businesses borrowed funds from banks, what happens then if the new taxes forces them to close? What happens to their payment obligations to other parties, their various suppliers? Wouldn't this system lead to more financial instability?

5.  What happens if basic services cannot be provided by the private sector anymore? Will they be nationalized? Where do we draw the line? If all major endeavours are already nationalized, why would anyone think that it pays to start a private business? If people know that their endeavour could one day be taken over by government to control inflation, why bother? If this were to become the new base case, how would government increase private hiring by cutting taxes? Sure it could increase aggregate demand, but if people are already dependent on government and on the JG, why would cutting taxes suddenly give them the idea of doing something different?

more discussion over at MNE.
topic continued from this post, and continued to this post

30 comments:

LVG said...

The JG is Marx's reserve army of unemployed/employed rehashed. It doesnt appear statist. IT IS STATISTICS! They embed the JG in MMT to make it appear necessary. Its all politics.

LVG said...

Statist. Stupid Google autocorrect!

geerussell said...

On #3 and #4,

The biggest impact of a JG is as a downturn shock absorber. I think the inflation mechanics are the same in a boom with or without a JG.

Prices are anchored to a buffer stock. When a boom expands to the point that the buffer stock is exhausted and aggregate spending presses on beyond capacity, then the economy has to be modulated by other means. Some combination of increased taxes, spending cuts, interest rates are used to force workers back into buffer stock.

Write in either unemployed workers or JG pool for the buffer stock and what changes?

DanielR said...

That's not really true. Warren Mosler said it's not intended to increase demand at all. It's just a more liquid buffer stock (a claim he can't verify):

"I didn’t design the JG to raise demand. It might even lower it, which would be a good thing, as that would mean lower taxes for the rest of us.

It’s designed to get keep the unemployed shovel ready to go to work in the private sector, and at the same time reduce the real costs of sustaining an army of unemployed."

http://moslereconomics.com/2012/01/09/politics-shifting-towards-jg/

Rogue Economist said...

geerussell, I had originally thought the JG was only being proposed as a shock absorber, but the way I now understand that it's being proposed, is as a price anchor mechanism, absolutely changes everything. Now I understand why MMT considers the JG central and permanent. It's a way to gain control of the price level and aggregate demand. Everything else is secondary. I think it's very statist, fascist even.

DanielR, wow, that puts it in even more diabolical light that I had thought. JG has nothing to do with raising demand at all?

Senexx said...

First of all I confess not to reading the whole thing yet.

Second, you're assuming a federal government creates all the jobs in the JG. Ideally the only thing they will do is provide the funds.

The rest will be administered at a local level.

Senexx said...

With the operational aspects of MMT which I think we all agree on, we learn that the involuntarily unemployed are deliberately kept that way by the coercion of the State & the sociological effects of this leads to mental health issues and suicide and so on, especially amongst the long-term unemployed.

As you can see we have moved from economics to social costs. However these social costs have big economic costs implied to with mental health resources funding, grief counselling, crime, imprisonment, etc. the costs of these can be reduced via employment and so could the cost to the budget (smaller deficits)

Deliberately keeping people unemployed to control the inflation rate is quite statist, fascist even.

So employment in the JG pool can prevent these economic and social costs.

But the question then becomes what about in boom times when the JG pool is shrinking and inflation is starting to show. How do you dampen demand? Do you raise taxes, cut spending? Chances are you wont need to do either as the inflation dampening demand will come about by the budget moving into surplus (the only time it should be in surplus - at full employment).

This is the role of an automatic stabiliser and it differs little from the tax/welfare stabiliser.

On a previous post Rogue asked me, what will the JG pool do in an upswing which suggested to me Rogue is only interested in a JG concept in a downturn and doesn't care about other unemployed when things are good. That is like saying we should get rid of all welfare benefits and payments when things are going good.

Automatic stabilizers are a permanent part of the system.

The GFC/Great Recession may have led you all to study MMT but it is not just for the GFC.

We could just go another round of Keynesian Prime Pumping if all your interested in is NOW and stuff the future.

Rogue Economist said...

Sennex: "Second, you're assuming a federal government creates all the jobs in the JG. Ideally the only thing they will do is provide the funds. The rest will be administered at a local level."

Which of my question did this address?

"As you can see we have moved from economics to social costs. However these social costs have big economic costs implied to with mental health resources funding, grief counselling, crime, imprisonment, etc. the costs of these can be reduced via employment and so could the cost to the budget"

I'm not questioning the social benefits of a JG. I'm questioning its mechanism the way it's being proposed.

"Chances are you wont need to do either as the inflation dampening demand will come about by the budget moving into surplus"

This is an assumption, in the same way that other people assume that when there is deflation, firms start hiring again. Reality is very different from what some economic models say. People have different motivations, depending on their circumstances. If inflation is good at dampening demand, then there would be no inflation at all.

"Rogue is only interested in a JG concept in a downturn and doesn't care about other unemployed when things are good."

Don't make this about morality. Otherwise, I could say that you don't care about the giving people a better life because you don't care about the private sector jobs that the permanent JG would kill.

"Automatic stabilizers are a permanent part of the system."

If you read the comment I linked to, it basically says having a permanent JG is not about having an automatic stabilizer, it's about having a demand and price anchor.

"The GFC/Great Recession may have led you all to study MMT but it is not just for the GFC."

It is the accurate concepts of MMT that led me to study it, not the GFC. It will be its erroneous assumptions that I will refuse, not because we have no more GFC. What is you reason for embracing their absolute demand control mechanism?

DanielR said...

Senexx, you say:

"Deliberately keeping people unemployed to control the inflation rate is quite statist, fascist even."

Why should the 93% who have jobs sacrifice higher inflation and lower living standards just so 7% can live a better life? That's statism if I ever heard it. You want to spread the wealth based on a pure morality play.

Ralph Musgrave said...

Rogue economist, You shouldn’t take Warren Mosler’s ideas on MMT and JG as being the only model proposed by MMTers.

Also, many MMTers (including me and WM) see JG as being essentially separate from the strictly MONETARY ideas behind MMT. I.e. you could perfectly well have JG of a sort combined with more conventional monetary policies: which is pretty much what they had in the 1930s. The WPA implemented in the thirties was JG of a sort.

I agree with you that the whole idea of the JG wage being a “price anchor” is nonsense. I did a blog post on this:

http://ralphanomics.blogspot.com/2012/01/employer-of-last-resort-buffer-stocks.html

I think the reason Mosler has gone astray here is that he has done some good work in the past on debunking the text book ideas on the origins of money. E.g. see his web page “What is money?”:

http://moslereconomics.com/mandatory-readings/what-is-money/

The latter paper looks at how money arose in various economies centuries ago – economies that were much cruder than ours. The “price anchor” idea does have some validity there. But twenty first century advanced economies are a different kettle of fish.

Rogue Economist said...

Ralph, I did see that post of yours, and others that Tom Hickey has linked to. I do know that several MMT followers have other ideas regarding the JG. It's just that, as some of the other followers have said, if the 'thought leaders' have all agreed about the centrality of the JG as an anchoring mechanism, that means it IS MMT. I feel that there should be some coming together of ideas, but the JG issue seems to be creating a dividing line. So can you still call yourself MMTer if you do not accept JG?

Ralph Musgrave said...

Rogue, I don’t agree that the “thought leaders” have agreed that JG is central to MMT. Warren Mosler has certainly said he thinks JG is separate to the monetary elements of MMT (e.g. in an email to me and to Cullen Roche). But he may have contradicted that elsewhere for all I know.

But this all a bit of a semantic “definitional” argument.

Re the desirability of a “coming together of ideas”, obviously that would be nice. But then Austrians, Keynsians, Monetarists, etc etc all have their internal disputes. MMTers are no different.

Hans said...

The big lie about MMT, is that it is free of politics..

Rogue Economist said...

Ralph yes, it's all semantical whether you want to call it MMT or not if you present ideas without the JG. I just don't want in future if I post about the MMT parts I agree with, if I call it MMT, for some people to try to shoot me down for "errors" because I veer away from other 'understandings'. I'd like to know if MMT core wants to exclude those who disagree with the JG as an anchoring mechanism.

Hans, no economic position can be completely free of politics. The surprise for me here is that a proposed mechanism that has a purely political starting point is considered by MMT to be 'indispensable' to accepting the rest of its analytical framework.

JKH said...

# 2

“What takes the place of businesses that cannot be started because they cannot attract workers away from the JG?”

I’m guessing the answer is:

Depending on the severity of any inflation problem, and depending on the size of the JG reserve, impose some combination of non-JG policy tightening (fiscal/monetary) AND reprice JG down. (Repricing JG down is equivalent to tax policy tightening in itself)

The larger the JG reserve, the more important is the repricing down of the JG wage.

The more severe the inflation problem, the more important is non-JG policy tightening.

Rogue Economist said...

JKH, yes, I would think that JG should be repriced down when an upturn is causing scarcity pricing in private hiring. That after all is typical if it were meant to be a countercyclical mechanism. But apparently it's an anchoring mechanism. So the way it's proposed, the JG wage is going to be pretty much fixed. Also, because it is a mechanism for government to ensure "100% employment", cutting JG wage could be seen by MMT as surrendering employment to the "whims" of the market. (This seems to be the consensus I'm understanding from core supporters)

TheQuestioner said...

In the best scenario, I believe the JG would need to be public goods jobs to minimize the effect on the private economy and maximize the benefit to society. For those who qualify, the volunteer military has formed a type of limited JG in our society. Aside from slave labor, there will always be businesses that can't be started because the cost of labor is higher than the marginal product of labor. Paying to repairing old crappy cars would fall into this category. Those jobs will be done by volunteer labor like DIY car repairmen or not done at all the car will be scrapped.

Rogue Economist said...

OK, in response to Matt Franko at MNE, using the word 'diabolical' to Warren's comment might have been over-reaching. I'd say it's 'ingenious' that what seems a demand-enhancing mechanism is actually a tax-cutting mechanism. But kudos to Warren Mosler for admitting it for what it is, and I do actually agree that we need to cut FICA taxes.

I reserve the diabolical to those others who would couch what is actually a demand control mechanism and an economic straitjacket under the guise of helping those who are currently unemployed.

rf said...

1 - "In the base case, where everybody has a JG, how are workers allocated to specific jobs?"

I don't think it's useful to consider the "base case" of a Soviet-style centrally planned economy. In the general case, the question of "how are workers allocated to jobs," the usual response is existing job agencies match workers to local community projects, perhaps proposed and supervised by private charities. This is by no means the only method.

2 - "what takes the place of businesses that cannot be started because they cannot attract workers away from the JG?"

They won't be started. This is more a criticism of the minimum wage, rather than JG per se. In the JG variants where the minimum wage is abolished, there is also the possibility that workers are drawn from the JG by the possibility of advancement, so it may be possible to offer a wage lower than the JG. If a production process requires less than JG wage with no possibility of advancement in order to be profitable - essentially a process requiring slave labour - then it probably shouldn't be undertaken, IMO.

3 - "[...] which taxes does it increase?"

This is unrelated to the JG. The JG reduces inflationary pressure the same way unemployment reduces inflationary pressure - competition in the labour market reduces the power of workers to demand higher wages.

4 - "wouldn't having taxes that can suddenly move violently be the final nail in the coffin to discourage businessmen?"

Yes, that's kind of the point. Replace "taxes" with "interest rates", "JG employment" with "unemployment" and you would have the current system. It does introduce a pertinent question: to what extent is the reduction in inflationary pressure caused by higher taxes and unemployment countered by increased spending on the JG? This is more a quantitative issue of the specific policies, rather than a qualitative issue of the JG. You can say the same thing about other automatic stabilizers.

5 - "What happens if basic services cannot be provided by the private sector anymore?"

I don't see how the JG, as it is usually proposed, would cause this to happen.

I feel as if there is something of a "red scare" in your concerns about the JG. Inflation management with market prices requires unemployment. Since it would be unethical to force people into unemployment and then let them starve to death, our current system essentially pays people not to work. The JG operates on the same principle, but creates productive output and reduces a ton of social costs in the process. It's not as big of a game-changer as you might think it is.

Also, I think the importance of the "price anchor" aspect is overemphasized. Though interesting from a theoretical perspective, I don't see how it would have a major effect in practice.

Rogue Economist said...

Rf, thanks for your comments. Here are my responses:

1. "I don't think it's useful to consider the "base case" of a Soviet-style centrally planned economy."

I've been trying to find out why MMT proposes a permanent 100% job guarantee rather than just a jobs program that functions as a demand stabilizer during downturns. This base case is how they explain why 100% JG is necessary at all times.

"existing job agencies match workers to local community projects, perhaps proposed and supervised by private charities"

But this community jobs matching is going to be difficult once JG employment reaches nearer to the 100% limit.

2. "This is more a criticism of the minimum wage, rather than JG per se."

Yes, but then you realize that the minimum wage law doesn't entail a 100% government job guarantee, even during a private sector hiring boom. During a private sector hiring boom, the JG acts as the negotiating buffer so that everybody who accepts a private sector job only does so above the minimum wage. See my posts here and here to understand where I'm coming from.

" the possibility that workers are drawn from the JG by the possibility of advancement, so it may be possible to offer a wage lower than the JG."

This is a big assumption on yours and MMT's part. Even if a minority of workers are willing to accept a lower wage, how about those others who will rationally require a higher wage?

3. "This is unrelated to the JG."

Yes it is. Taxes is how MMT proposes demand will be managed when everybody is assured of a job at all times.

"The JG reduces inflationary pressure the same way unemployment reduces inflationary pressure - competition in the labour market reduces the power of workers to demand higher wages."

How does competition in the labour market reduce the power of workers? The correct response is that competition for labour increases labour power.

4. "Yes, that's kind of the point. Replace "taxes" with "interest rates","

I thought you just said discussion of taxes is unrelated to the JG.

"It does introduce a pertinent question: to what extent is the reduction in inflationary pressure caused by higher taxes and unemployment countered by increased spending on the JG?"

So when higher taxes reduces private spending, it's countered by higher spending in the JG. In other words, everytime inflation starts creeping up, we get nearer to the 100% JG-employed society, to manage inflation. We go back to concerns and questions.

5. "I don't see how the JG, as it is usually proposed, would cause this to happen."

Please reread the post.

"The JG operates on the same principle, but creates productive output and reduces a ton of social costs in the process."

Yes, and I actually support it as an employment buffer during economic downturns. The problem is with keeping it when the economy is already in an upturn.

"Also, I think the importance of the "price anchor" aspect is overemphasized."

That's the reason why MMT requires it to be permanently in force, even during economic booms. Please reread three post, and the Warren Mosler comment I linked to.

Rogue Economist said...

These are further points on this post, as arose from comments MNE.

Is having a permanent price anchor the best way to bring back those mom and pops that were eaten up by big companies such as walmart? I would think it would entrench the current big boys even more. If small businesses were to start up with a JG, they're probably going to be less inclined to hire if to be able to attract people away from the JG would mean an escalating wage, the more people they need, the higher the labour clearing price. Either less of them do start, or if they do, they don't hire labour as much as they would have without the scarcity induced by a permanent JG. The Walmarts, in the meantime, would probably start trying to justify that they are a JG supporting company that creates a lot of jobs for the JG, so the government better start paying their line workers.

Not everyone starts a business, and prospective entrepreneurs can't save up capital without a job. That's why a government jobs program is necessary when we have a laggard private sector demand. So what happens now when demand comes back, and he accumulates some capital and wants to open a new business, but when he tries to hire people, he can't hire them unless he promises to pay them more than he himself used to earn from the JG? Would he still start the business, or just go back to the JG and hope someone else hires him away at a higher pay?
My concern in this post is not who specifically starts a business, or how many are able to save up in current environment to start a store, or even what the failure rate will be under JG. My concern is = How much less business will be started because of the increased costs to hire. Less businesses started means more people stay indefinitely with the JG. Less businesses started means either government ends up being the main employer in the economy (for how long a time, who knows), the current entrenched private businesses become more entrenched due to lack of competition from businesses with new ideas, and higher hurdle rates for existing businesses that need to hire a lot people who may now use the JG to ask for higher wages. These concerns are not theoretical, it's more theoretical to think that a JG can give workers employable skills yet expect these same workers to still willingly leave that skill-enhancing JG job for a job in the private sector. My guess is that either JG jobs will not be all skill enhancing, or the JG will eventually take over and become the majority employer in the economy. Maybe both.

I repeat, I have no objections to the JG as a job program for when there is a recession and private sector is not hiring. What I have objections to is having a permanent JG as a means to permanently control demand and prices in the economy. The JG as proposed is not just really just meant to hire people who cannot get work now, but also tells people - work for JG now, but tomorrow you work for private business, but maybe next month, we'll make you go back to the JG.

Senexx said...

Daniel R,

You misunderstand the mechanics of wealth, product, productivity and inflation.

You assume there is a finite limit to all these.

If productivity is in proportion to inflation, there is no wealth redistribution, there is wealth creation.

Senexx said...

Rogue,

Don't make this about morality. Otherwise, I could say that you don't care about the giving people a better life because you don't care about the private sector jobs that the permanent JG would kill.

As soon as we begin to talk about social benefits, it is a morality case. I have not seen a case made that private sector jobs that a permanent JG would kill. I do see a case where long-term unemployment kills though. Do you?

It is the accurate concepts of MMT that led me to study it, not the GFC. It will be its erroneous assumptions that I will refuse, not because we have no more GFC. What is you reason for embracing their absolute demand control mechanism?

You'll note I said "you all" as in aggregate (not as in everyone did this - as it is subject to the fallacy of composition, so it does not necessarily imply you; some will have done it for that reason, some wont have)

As for your question I could ask the same question, why do you deliberately want to keep people unemployed? Why don't you want to help people? It seems you only want to help the recently unemployed and stuff the rest. I am not saying that is the case, I'm saying that is the appearance.

And if that is the case, it is little more than the fallacy of composition.

Nothing absolute about it, depends on the business cycle.

What you don't seem to consider is with a big enough expansion, the JG will be eliminated.

"the JG would be a buffer stock that the private sector would have total control over. If they didn’t like it they could simply eliminate it. How? Increase spending and expand private employment." - http://bilbo.economicoutlook.net/blog/?p=17564

Senexx said...

And so I'm not misunderstood by Daniel R, there is a finite use of resources to consider - Labour is not one of those. At least not in the last 40 years.

Rogue Economist said...

"I have not seen a case made that private sector jobs that a permanent JG would kill."

As I said, it will likely kill the small private -owned businesses with slim profit margins, small farms, retail shops, barber shops, logistical companies, shipping companies, etc. The positions they hire will be the jobs killed.

"As for your question I could ask the same question, why do you deliberately want to keep people unemployed? Why don't you want to help people? It seems you only want to help the recently unemployed and stuff the rest."

Why would ramping down JG during an upturn keep people unemployed? What keeping it would do is stunt private sector growth during an upturn. What about my position is not about helping people? Just because I don't want complete state control over aggregate demand doesn't mean I don't want to help people. It's actually because I want to help people that I keep sounding out the dangers of JG as presented.

"And if that is the case, it is little more than the fallacy of composition."

How is wanting to prevent stunted private sector growth a fallacy of composition?

"What you don't seem to consider is with a big enough expansion, the JG will be eliminated."

What a big enough expansion under a JG will lead to is the government will increase taxes and interest rates, kill private businesses and get people back to the JG. That is how they plan to control inflation with a permanent JG. the JG is a means to control prices and aggregate demand, not really to increase demand. Go back to the Mosler explanation and see.

geerussell said...

"Why would ramping down JG during an upturn keep people unemployed? What keeping it would do is stunt private sector growth during an upturn."

The introduction of a JG will certainly cause an inflationary transition period as everything reprices upwards relative to the new floor.

Once that period is over, businesses hiring at the low end will have pricing power to lure workers away from a JG.

In an upturn, the JG will automatically ramp down the same way welfare, food stamps, UE and other automatic stabilizers do. If the upturn is such a boom that you're talking about having to fight serious inflation, who's left on the JG? I would expect they've mostly been drawn off at that point.

"What a big enough expansion under a JG will lead to is the government will increase taxes and interest rates, kill private businesses and get people back to the JG. That is how they plan to control inflation with a permanent JG."

The part I don't get is how this scenario is any different under the status quo.

A strong enough expansion can break free of the moorings under current arrangements and require other measures to counter inflation regardless of whether there's a JG or not.

If the only argument being made is the JG isn't a panacea, that much has always been stipulated.

Rogue Economist said...

geerussell: "Once that period is over, businesses hiring at the low end will have pricing power to lure workers away from a JG."

That could well be true, but I have an inkling it won't be as simple as that. There would be new salary scales all over the economy, all the way up to the highest earners. It's hard to know exactly which wages will be pushed highest until we're there. My guess is that the salary jump will be highest among those whose skills end up matching the JG the most, maybe drivers, couriers, dispatchers, seamen… like I said, I'm speculating we'll see less shipping and logistics companies, and much higher prices charged by those fewer companies left standing.

"In an upturn, the JG will automatically ramp down the same way welfare, food stamps, UE and other automatic stabilizers do."

Likely not as simple as that. Welfare and UE do not compete with private job offers since those taking them have to prove they're looking for jobs, but the JG will compete with private job offers

"The part I don't get is how this scenario is any different under the status quo."

In the JG scenario, we'll have less startups, less small businesses, and more people working in permanent JG jobs than would in temporary make work programs in the current setup. With the knowledge that sever inflation will be countered with higher tax and interest, and knowing that, while the JG increases their hiring costs, it is always there for the taking, more smallscale entrepreneurs would probably just depend on getting jobs from the JG than would under the current status quo.

"If the only argument being made is the JG isn't a panacea, that much has always been stipulated."

Then why propose it with a permanent fixed wage? This panacea changes everything in the next upturn. We'll have higher inflation, or more people sticking with the JG, or both.

geerussell said...

"Then why propose it with a permanent fixed wage? This panacea changes everything in the next upturn. We'll have higher inflation, or more people sticking with the JG, or both."

It's permanent because even in good times (by conventional nairu standards) unemployment is still baked into the system. It's fixed wage because people on a fixed income don't fuel inflation. Especially if more people are sticking to JG what is driving the aggregate spending to have steadily rising prices?

The larger the number of people the private sector fails to lure away, the less inflationary it is.

Rogue Economist said...

"It's permanent because even in good times (by conventional nairu standards) unemployment is still baked into the system."

Yes, as I understand, MMT doesn't want to surrender 100% employment to the 'whims' of the market. To be honest, more than it causing high inflation, what I don't like about it is how it will keep more people stuck in the JG (because less businesses will start). Yes, you'll get the very last unemployable person gainfully employed. But you'll have a less progressive economy as a tradeoff. On this note, we can agree to disagree. I know I won't convert you, you know I'm set with my position. What goes won't depend on what you or I want, but what most others will want, but I needed to make the point, that it's not all roses with the JG as proposed by MMT.

Rogue Economist said...

And if we agree, as I think we do, that the market in the pursuit of ever larger profits causes more unemployment than is necessary, then it would be better to regulate business in those areas where its profit motives go in the way of larger societal goals. Regulate banks and private equity, restrict mass layoffs caused by excessive debt due to corporate consolidations. Restrict offshoring and disincentivize mass automation. But don't make hiring more expensive for everyone in the economy, especially for those small business who would already be hiring actual people, but have fewer resources than the big companies that are more guilty of the mass unemployment.