Modern Monetary Theory is logically inconsistent with a Job Guarantee

There is an interesting piece (which I was alerted to by Graham) from the Gower Initiative for Modern Money Studies about Universal Basic Income (UBI). The Gower Initiative, being ‘Modern Monetary Theory’ (MMT) advocates, believe of course, in the advantages of the Job Guarantee (JG), but whilst, whichever your preference, there is much to agree with, the Job Guarantee v. Univeral Basic Income argument starts to go off the rails about half way through:

…. it is disappointing to see the newly vitalised progressive left in the UK, albeit in seeming good faith, supporting the UBI as a mechanism to deal with growing poverty and inequality and even up the wealth stakes. Whilst offering a bold and radical vision for a fairer and more equitable future for all along with policies to address the most serious threat the human species has ever faced, it is proposing through offering UBI, to mitigate for a rotten capitalist system and maintain the status quo….

Unconditional payments enable people to become consumers without challenging the domain of the market over production.

Of course Job Guarantee payments equally enable exactly the same thing if by ‘the domain of market over production’ is meant consuming too much stuff. I fail to see how a Job Guarantee would reduce this, either in absolute terms or by comparison with UBI.

Yes, UBI is not without problems, (which will be the subject of a subsequent blog) but then nor is the JG. The JG requires, for example, basic unemployment benefit unless it is to become compulsory workfare. So it is likely to be much more accurately termed a Job Offer.

Unless the intention is to stand by the JG’s interesting history, of which no mention is made; for the JG certainly appears to have started life as giving people a job instead of unemployment benefit and training the frequently idle in the art of employment. Indeed, Warren Mosler, usually considered a founder of Modern Monetary Theory (MMT) has always referred to the JG as a ‘transition job’ where there would be no pay increase so it would act as encouragement to the person in receipt of the JG to transfer as soon as possible to the private sector. Things have presumably changed, and another MMT advocate, Prof. Bill Mitchell says he got the idea from the fact that in his youth, he passed various warehouses where Australian wool was stored so it could be eventually sold when the price had improved. Thus unemployed labour could, like wool, be temporarily purchased and hired by the state to await a better job at a better wage sometime in the future.

This has now been developed – and Pavlina Tcherneva, the leading MMT economist well versed in the JG, seems to have contributed to the idea that the JG was a ‘price anchor to subdue inflation’, with the concept being presumably that a ‘buffer stock’ of workers would prevent wages going up too much, with any inflation occuring only when the buffer stock had been used up (which as an aside, is hardly the ultra left wing agenda of which, in America at least, MMT is often accused).

Whilst I agree when the piece continues that “….governments have allowed their economies to operate below full employment” I don’t that this “has purposefully served capital“. It may have served the financial sector but I think real capitalists could do with more government spending so that they had more confidence in consumer demand.

Though this is not suggested in the piece, there is a case that the JG could be seen as less suscepitble to government tinkering (compare Universal Credit) as it would need to have a more serious organisation attached and that of course represents additional resources which will somehow have to swing into action when job losses appear. Indeed, the practicalities are decidedly problematic.

To demonstrate, let’s just take British Ceramic Tile, Britain’s largest ceramic tile manufacturer (as was) which recently went into administation and was shut down. Because their equipment was new, there are lots of rumours it will soon be started up again. But at the moment they have made more than 300 people redundant in the town of Newton Abbot, a small ex railway town on the edge of Dartmoor where the unemployed are currently numbered in the high double figures. So let us presume these people are already in the JG. All of a sudden whoever organises the JG has to arrange for meaningful employment for a straight overnight increase of more than 300%.

Organising that with any degree of coherence is going to take lots of time and effort and a set of newly acquired skills by the organisers, who are usually thought to be local councils. I very much doubt there are enough opportunities to employ that number of people in Newton Abbot, so they would presumably have to be bussed somewhere else and so we have to hope, councils somewhere not too far away have the opportunities and resources to cope with an ‘influx’. Not an insurmountable problem but one that is much more resource intensive than just paying them unemployment benefit. It also suffers from the difficulty of having to produce real employment practically overnight. Then when, potentially, British Ceramic Tile is restarted and say, 250 people are taken on again, then many of those ‘Job Organisers’ are themselves going to have to have other skills and get back to the day job, which they actually won’t have been undertaking for a month or two.

The proponents of the JG will say this is evidence of a counter cyclical approach in action, but what they don’t say is that unemployment benefit is evidence of the same counter cyclical approach, and would of course be all the more effective if unemployment benefit (or jobseeker’s allowance) were administered with cooperative compassion rather than (as now) oppressive compulsion.

We are told that the JG “maintains economic activity in the real economy” but that economic activity will not be the same, so is ‘maintained’ in only a rudimentary sense.

[The JG] restores the balance of power towards labour acting not only as a redistributive mechanism but also reducing the social and economic stress that unemployment brings and thus contributes to improved health and well-being. The empirical evidence of the advantages of having a job are well researched and charted and not just related to having an income.

Looking at the history of the JG idea I’m not sure that no pay increases is restoring the balance towards labour… but if pay increases are now to be granted then that is more in prospect, though no more so than properly administered unemployment benefit, because while there is evidence that people gain satisfaction and improved well-being whilst in employment that they like, there is empirical evidence that doing a job that you do not like does not contribute to health and well-being and contributes to that scourge of our age, stress.

Job quality matters. I don’t think Guaranteed Jobs as a buffer stock are ever going to have job satisfaction at the top of their list. The best we will be able to hope for is that they are not too pointless or indeed stressful.

In proposing a JG, MMTers have a problem. The only logical place for a JG temporary job is in the public sector, as a requirement to subsidise them in the private sector would be administratively even more difficult and is likely to provoke other problems on competition grounds.

As we know that MMT suggests (rightly in my view) that the state can spend money as it wishes until it runs out of resources to spend it on, there is thus, logically. no reason for there to be any unfilled jobs in the public sector. A nursing assistant may be nice to have in austerity Britain, but once you realise you can afford one, then, if they are available, by definition there are in turn no vacancies at JG rates because they are already working at full rates – thus such staff don’t exist. Roads may be full of potholes now, but once we realise we can actually afford not to have potholes there will be none left to fill in and no requirement for extra staff to do it. So a government that has embraced both MMT and the Job Guarantee would end up unilaterally having to keep certain occupations short of staff (just as the UK government currently does) in order to allow scope for a buffer stock, not of labour, but of jobs.

That seems unlikely for a regime that admits and realises and embraces the concept that it has the power of issuing money!

That I’m afraid, means that far from the idea that “Modern Monetary Theory and the Job Guarantee are integral to one another” they are in fact logically inconsistent.

I suggest a Job Guarantee could be nice to have in particular for guaranteed training or first jobs, where we know it can work, but it is administratively, distinctly difficult and any idea of inflation anchors or buffer stocks of labour are not at all at one with MMT’s main thinking of where money comes from and why and how it is created.

Comments

  1. Graham -

    I feel that some MMT’ers conflate economics and social policy. If MMT is an accurate description of how government spending works then that is economics. The next part, what does government spend its money on is politics and social policy. It could choose to spend on the GND or on nuclear warheads and armaments. Both would create employment. I don’t see how a JG/Offer or UBI are intrinsic to a description of how government creates money and spends. Or, as at present, it could choose to spend as little as possible so that certain businesses and individuals can make a killing off the backs of the poor.

    1. Peter May -

      I agree – but in suggesting that the JG is integral MMTers give themselves something over and above Chartalism. It works for where we are now – in deep austerity – so maybe its just a wheeze to try to slant social policy permanently?!

  2. Bill Hughes -

    Maybe if a Green New Deal were implemented, this would reduce the immediate need for either a Universal Basic Income scheme or a Job Guarantee project, especially as both are at a rather speculative stage at the moment. Neither have been tried for any length of time or on a large scale.(this is not to say that either do not have some merit for consideration in the future) The GND would have the merit of addressing the climate emergency (12 years to get on top of this left) providing plenty of work from professional to relatively unskilled workers, giving a boost to the economy in a non-inflationary way though the multiplier effect, as long as the scale of the GND was within the productive capacity of the economy.

    1. Peter May -

      Quite agree.

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