Friday, May 11, 2012

hbl on the MMT and the MMT JG

While recognizing that most of this blogosphere discussion has passed me by months ago, I thought I'd share my perspective, redundant though it might be.

"Can you have MMT without a Job Guarantee?" The question phrased this way is a bit too ambiguous for my taste... I view the job guarantee as a description of a policy prescription. I agree with those who consider the job guarantee description to be integral to MMT, but I believe actual policy recommendations (prescriptions) can always differ by individual.

MMT describes the current economic system as it is and the policy space available to national governments. Any attempt at a full description of macroeconomics as viewed through the lens of MMT that lacks a description of employed versus unemployed buffer stocks would in my opinion be incomplete, as shown by the gaping black hole in this [partial] table of policy examples:
Read the rest at Thought Offerings
The Job Guarantee is a Description of a Prescription, like Much of Macroeconomics
by hbl

24 comments:

Ryan Harris said...

The government could use any counter cyclical fiscal policy to reduce the impact of business cycle fluctuations. The JG seemed the most obvious solution because it is perfect automatic and directly cures the unemployment measurement.
After reading this I'm curious if those who reproach a JG also object to any other type of government spending and taxation that attempt to buffer the private sector through business cycles. Do they think that the JG is objectionable because we are trying to manage the wrong economic measurement?
What is another solution to minimize
the heavy hand of government interfering with the invisible spanking hand of markets... tax cuts are always popular and would improve the personal income and consumption measurements.

Anonymous said...

Ryan, it's just my perspective, but I think the chief objection to the job guarantee is from those who believe business benefits from an environment in which a certain number of people are unemployed, and who believe that people don't work hard enough without the threat of unemployment hanging over them.

But it's a little mysterious to me, because I've always found the freak-out level over the JG to be higher than you would think juts due to economic arguments.

Jonf said...

Dan, there is certainly a freak out level. Maybe if we said we will use the JG only to the point there are five million unemployed, that would satisfy them?

Matt Franko said...

Mercantilism is a policy in the first place...

resp,

hbl said...

Ryan, I can't speak to those who "reproach a JG"... but I believe there are legitimate potential problems with a JG to be concerned about.

As I understand it, MMT economists acknowledge this, but they consider these issues minor and/or solvable, and judge that in most situations a JG program's benefits would significantly outweigh the drawbacks.

I think differences of opinion on these sorts of policy choices can stem from either:

1. Flawed (or just differing) understanding of the issue, or

2. Differences in the weighting (value) that different individuals place on the pros and cons.

I haven't followed all this closely enough to guess which of the two is larger in the case of the JG debates... plus my own understanding could be flawed on this :)

Ryan Harris said...

I was reading Dan Kervick's twitter profile and came upon Hume who said,
"perfect equality would destroy the ideas of thrift and industry. Perfect equality would thus lead to impoverishment" and I think this is the crux of the philosophical objections to a JG. Somehow equality in employment is destructive. That is the first set of objections I see.

The second set are practical, real problems with a job guarantee. Implementation and such. Without a healthcare system, how do you deal with the mentally ill, physically disabled and others that would be entitled to work and likely be the majority of the unemployed. Stuff like this.

The third possibility, which I think might be what the MMR position is, is that we should simply try to understand how the system works so we can profit from it. But we should NOT poke, prod, and monkey with the gears of the system to try and change the way it works: Look but don't touch.


The philosophical objection and practical objections are constructive and useful. They call for new or different proposals to satisfy different sets of values.

The look but don't touch objection is intractable. I think this is why few new creative ideas have been proposed when so many exist. The argument is that we should do nothing.

The MMT blog world is hardly lacking for creative policy proposals in most other areas but here we sure have come up with few viable alternatives to the JG to challenge Wray and the other founding fathers.

Ralph Musgrave said...

Ryan, I object to JG as a counter-cyclical tool. Obviously SOME FORM OF counter-cyclical tool is better than none. But in a recession the economy is not at capacity, and in that scenario employment can be raised by a straight rise in demand. That creates more REGULAR jobs as opposed to JG jobs. And the former are more productive than the latter.

As to whether JG is separate from MMT, the WPA that operated in the 1930s was JG writ large. MMT did not exist in the 1930s. Ergo the two are separate.

Anonymous said...

My view of the MMR position is that it is a predominantly pragmatic stance. It's defenders see both MMT and MMR not so much as bodies of theory to be developed, but as product brands for sale. The MMR target customer base is a generally conservative crowd of people in the world of finance, and the promoters of MMR think MMT is just too scary for that crowd, whatever its merits.

I'm not all that interested in the finance sector personally. I really don't know much about it, and don't like much of what I do know. I'm more interested in ordinary citizens, especially the next generation, and in academics. So MMR can go ahead and try to sell its wares, which are mostly fine, to their target customer base. I usually only engage with it when they are saying something about MMT in public that I think either directly misrepresents it or is incomplete, and so needs to be corrected.

I feel confident that the emerging generation is fertile ground for ideas about moving to a full employment economy, about significant financial system overhaul, about the need for massive public investment in the future, about restructuring monetary policy operations and about the need to restore the power of labor, equalize wealth differentials and revitalize democracy and social commitment. But it will be a long uphill battle, because our civilization is currently falling apart as people on the left and right retreat into various versions of radical individualism, localism, laissez faire and apolitical, anti-government politics that are all serving to undermine the power of organized democratic government to accomplish anything ambitions. MMT provides a theoretical framework that explains how our current system actually works, and also present some ideas about how it could work differently. I'm just not interested in worrying about watered down versions that are more palatable to the CNBC crowd.

PaulJK said...

The main difference between MMR and MMT seems to be focus. MMR is focused on explaining how the current system works. And MMT is focused on creating a different world. I don't think either side has negative intentions.

dave said...

ralph, isnt mmt a description of how the system works, so it actually did exist in the 30's? also, wouldnt it be easier to create demand if the bottom 80% had extra money to spend?

Ralph Musgrave said...

Dave, Certainly MMT to some extent describes how the system works (particularly in the area of banking). But it also has proposals as to how it SHOULD work: e.g. Abba Lerner suggested that in a recession government / central bank should just create new money and spend it into the economy. I.e. we should ignore the difference between monetary and fiscal policy. As an MMTer I agree with the latter idea.

Re giving the bottom 80% money to spend I quite agree (indeed that is pretty well implicit in the above Abba Lerner point). Put another way, trickle down (i.e. giving money to bankers) is hogwash. We should have just trickle up.

Anonymous said...

PaulJK

The economic system is not just the banking and financial system. It includes other sub-systems. The job guarantee is a policy recommendation, but it is a recommendation that naturally grows out of the MMT description of the causes of employment and unemployment in the economy.

According to the account offered by Warren Mosler in "Full Employment and Price Stability", unemployment will occur when the private sector, in aggregate, desires to work and earn money, but doesn’t desire to spend all it would earn if fully employed. The amount of additional monetary income it seeks exceeds the full employment level of additional spending it wishes to undertake.

Employment requires spending. It occurs when someone is willing to offer work to increase his holdings of net financial assets, and someone else is willing to decrease his holdings of net financial assets in order to receive the product or value generated by the work. If no agent is willing to reduce his net financial assets, the desired sale of labor does not occur, and we get involuntary unemployment.

MMT also holds the private sector desire to increase its holdings of net financial assets can be satisfied only by an increase in government deficit spending.

Involuntary unemployment is thus, according to MMT, evidence that the desired holdings of net financial assets in the private sector exceeds the actual holdings of net financial assets allowed by government fiscal policy. In other words, its exists because the federal budget deficit is too small.

Since the government is the monopoly supplier of net financial assets to the non-government sector, it can either choose to set the quantity of those assets and let price float, or set the price and let quantity float.

The JG is then put forward as a policy suggestion that flows from this analysis of how the employment system works and is connected to the financial system.

Tom Hickey said...

Is the MMT JG a policy prescription or a piece in a macroeconomy theory.

I will argue the latter.

The notion that what government does in an economy is exclusively policy, hence, grafted onto macro theory is based on a New Classical (and Austrian) assumption that purely descriptive economic models should not include government, which does not participate in the economy but rather intervenes in it and the optimal economic solution is to exclude this intervention as much as possible. This is the basis of the neoliberal maxim, "free markets, free trade and free capital flow." The idea is that markets will always clear at equilibrium because the participants are "rational." This is the old 'invisible hand" superstition, and it assumes that whatever government does upsets that miraculous balance that is presumed to occur due to perfect knowledge, rational agents, and perfect competition, which, of course, so not exist in the actual world.

Moreover, as Y = C + I + G + (X-M) makes abundantly clear, government is a participant in the economy and a very important one. Presuming to excluded it as an imposition is just silly in light of the facts.

When we look at the picture this way, then a macro theoretical description is complex, since different conditions result in different outcomes. The approach to employment is an example. There are only two alternatives, either a buffer stock of unemployed when an economy is not operating at capacity, or else a buffer stock of employed. Different consequences follows that can be taken into consideration by policy-makers in addition to non-economy factors involved in policy decisions.

To fail to see this important distinction is to buy into the mainstream bias and to fail to understand that the approach that macro necessarily makes to key factors like employment involves complex description of alternatives that can be turned into policy options. But they begin as macro theoretical alternatives yielding different results.

hbl gets this, btw.

Ryan Harris said...

I accept that there are only two conditions for workers, employed and unemployed and MMT gives us the tools to ensure that people are employed. Its absolutely central.

Ralph's point that the most highly productive employees in the economy will have a lower productivity when they are in the JG is undisputable. I don't think that contradicts Wray's point in his '98 ELR paper that productivity will rise for the relatively unproductive employees that go into the ELR where they will obtain new skills and hopefully become more productive.
So for me those two ends of the spectrum illustrate why a JG should be kept as small as possible.
That's why I'm intrigued with Jonf's idea that the JG could be limited to a percentage of the workforce. When the JG begins to grow or approaches a size limit, some other spending or payroll tax cut SHOULD automatically kick in to stabilize demand.

Buffers are supposed to be temporary and volatile, that ensures that the employment buffer doesn't overflow and become politically convenient storage for an underclass. I worked in South Chicago for a time and the politicians there have setup a complex set of programs that enable people to barely survive without working. Its degrading and awful. It is prudent to prepare for political pandering. Limit risk that it would grow into a system like old European social safety nets from the 1970s and 80s that spook Americans.
From the report on the Argentinian Jefes program it didn't seem to grow into a massive uncontrollable beast. But I haven't found too much followup additional written since the 2005 paper.

Ralph Musgrave said...

Dan, You say in your last paragraph that JG “flows from” the “analysis” of PSNFA etc. You don’t explain why, and I totally fail to see why. I favour MMT and I favour some form of JG, but they are entirely separate far as I’m concerned.

Jonf said...

Today there are 25 million seeking some form of employment. It is likely true that some are unsuited to work, probably a minority. So let those not work. The JG need not take those who refuse to actually work. I mean you can still fire them.

Not being an economist I will leave the arguing of whether this is part of MMT or not to the rest of you to figure out. But it does seem we do a lousy job of getting people to work. How long has it been since we had real unemployment under 5%? The JG provides a path to make that happen without running into undue inflation. I think there will definitely be a one time up in inflation, the price we pay to put people to work. We can manage that.

The problem I see with the JG (apart from the need for political support) is finding useful work. CR said something once that stuck with me. I don't want a road crew standing around with shovels on a rainy day along route 95. That is not useful to anyone. But I think that can be overcome with some thinking.

Along those lines I would like to see a federal infrastructure company alongside a JG. Perhaps it pays more than min wage but less than full union wages. I don't know. But it is time we got on with it. You all figure out what the "theory" is as we move along.

Anonymous said...

Ralph, I see the argument this way:

First if the government is the monopoly supplier of net financial assets to the non-governmental sector, and if unemployment is evidence of a government deficit that is too small - an under-supply of NFAs - then if full employment is a government goal, the government has a reason for running a larger deficit.

Also, if the monopoly supplier of NFAs has the choice of setting quantity and letting price float or setting price and letting quantity float, and if price stability is a government goal, then the government has a reason for choosing the second approach of setting the price.

Th JG is a policy proposal that has the virtue of being both a full employment tool and a price stability tool. The full employment aspect is obvious. The price stability aspect comes from the fact that if the government is running a very large employment program of its own, employing a substantial portion of the population, it has the ability to adjust the price of labor up and down. And since the value of a dollar is largely related to the value of the labor that goes into adding value to goods and services, this gives the government a powerful price stability lever. It doesn't give it 100% control, but it does give some control. Other monetary tools probably have to be used as well.

A job guarantee also shifts the focus of macroeconomic stabilization from central bank policy to fiscal policy. A government operating a stabilizing employment program has more flexibility in targeting specific sectors of the economy with its policies, and to efficiently combine the goal of full employment with other public purposes related to national investment in long-term infrastructure, educational and community development needs.

Tom Hickey said...

There are lots of ways to structure an ELR as buffer of employed in which the JG as mop up at the bottom and wage floor plays only a limited role.

Criticizing "the MMT JG" on general terms is not really very useful in my view, since the macro analysis lends itself to a lot of variation in designing a BSE as an alternative to the BSUE that otherwise occurs.

Let's be creative here about alternatives instead of presuming that there's going to be a nation of leaf rakers.

Ryan Harris said...

If the government uses the JG to adjust the price of labor upward it would be difficult to contain the size of the JG...

Ryan Harris said...

The Leaf Raker problem is the big concern. It is why people are worried that it won't work here like it did in Argentina. The average Argentinian had an elementary school education. The community college educated cnc machinist working on a public housing project is probable.

Tom Hickey said...

This is why I am less than excited about the $8hr job at the bottom to resolve involuntary UE. It's an improvement over UE but not much in the larger scheme of things.

I don't look at the problem in terms of employment as much as "saving" and "investment." The idea is to get the job market cleared by removing the excess and there are lots of ways to do that through resource "saving" for later "investment."

Lack of investment by firms is resulting in forced saving of real resources (or unplanned national inventory of human resources). You don't let saving deteriorate or inventory rot. You at least maintain them and at best improve them in the direction of full potential.

Here is where lack of firm investment needs to be countered with govt investment in paid education and training, not just finding some work to be done. The saving then becomes an opportunity for future investment of that saving of resources at a higher level. This is a no brainer.

Tom Hickey said...

BTW, following up on my 11:38 above, this implies that if the BSE is a policy prescription, so is the BSUE, which hbl's analysis makes clear in my view. These are each macro theoretical alternatives which implemented as policy have implications predicted by the theory. That's how policy options are assessed in relation to each other, not just by subjective political preferences. There are objective economic criteria involved at the level of theoretical explanation and prediction.

Ralph Musgrave said...

Dan, Strikes me the argument behind JG is very simple: it is that there are an infinite number of jobs that need doing (as it points out in chapter one of most introductory economics text books). Thus the unemployed, instead of being paid to do nothing, could be paid to do some of those jobs.

That basic idea was set out 2,500 years ago by Pericles in Ancient Greece. According to “Unemployment in History” by J.A.Garraty, “Pericles undertook vast projects of building and designs of work it being his desire that the undisciplined multitude should not go without their share of public salaries, and yet should not have them given them for sitting still and doing nothing.” Pericles’s idea was not pure JG: it was more JG plus an element of workfare, but never mine: the extent of coercion in JG can always be varied.

But none of that has anything to do with MMT.

Re the the alleged price stabilising characteristics of JG, I don’t get it. If there is excess demand and inflation looms, I don’t see how thousands of JG people being paid relatively low wages will stop every employer bidding up the price types of labour in short supply, plus bidding up the price of the materials they need, and bidding up the price of everything else.

Re your last paragraph, I don’t accept that “job guarantee shifts the focus of macroeconomic stabilization from central bank policy to fiscal policy.” I’m all in favour of that shift. But government can do that shift any time it wants, and all without any assistance from JG.

That is, any government can stop adjusting demand via interest rates whenever it wants, and instead, adjust demand by adjusting the deficit (which is what Abba Lerner advocated).

Anonymous said...

"Re the the alleged price stabilising characteristics of JG, I don’t get it"

It's the same as the current 'unemployed buffer stock' policy pursued by most governments.

If the economy 'overheats' and you start getting high inflation, either raise taxes, cut spending, raise interest rates (not MMT kosher of course) or do something else like raising bank capital requirements. All are supposed to reduce demand. With NAIRU regime this means more people becoming unemployed. With a NAIBER regime this means more people ending up in the ELR program.