Wednesday, 28 December 2011

Job Guarantee is a required part of MMT - official

Bill Mitchell's blog today states that the Job Guarantee (JG) is an essential part of MMT.
The reality is that the JG is a central aspect of MMT because it is much more than a job creation program. It is an essential aspect of the MMT framework for full employment and price stability.
The JG is an enhancement to the existing automatic stabiliser arrangement that uses the concepts of buffer stocks to dampen the gyrations of an economy. Buffer stocks have been used extensively in the past to stop wild fluctuations in commodity prices. As Randy Wray pointed out:
I had never thought of it that way, but Bill’s analogy to commodities price stabilization schemes added an important component that was missing from Minsky: use full employment to stabilize prices. With that we turned the Phillips Curve on its head: unemployment and inflation do not represent a trade-off, rather, full employment and price stability go hand in hand.
Bill then states why:
I noted that this means that the government can thus choose – of all the “steady state” unemployment-stable inflation equilibria available – one that provides a job for all when the private market fails. For those well-versed in the history of macroeconomic thought rather than the day-to-day financial market trends, this MMT insight is crucial and relates to the need for an economy to maintain a nominal anchor (that is, maintain price stability).
The Job Guarantee is MMT's nominal price stability anchor. It is fundamental to how it is able to maintain stable prices and full employment.

Warren Mosler calls the jobs in the JG 'transition jobs':
My third proposal is for a federally funded $8/hr transition job for anyone willing and able to work, to help the transition from unemployment to private sector employment.
The problem is employers don’t like to hire the unemployed, and especially the long term unemployed. While at the same time, with the payroll tax holiday and the revenue distribution to the states, business is going to need to hire all the people it can get. The federally funded transition job allows the unemployed to get a transition job, and show that they are willing and able to go to work every day, which makes them good candidates for graduation to private sector employment.
This shows that MMT expects people to come out of JG just as soon as the private sector gets its act together. In fact the number of people in JG jobs is entirely in the hands of the private sector.

Since I come from a country with public education and public health care, it seems fairly obvious to me that the next step is to guarantee a job and an income. It is a straightforward argument and MMT shows the economic objections to it are groundless. So countries with a developed social welfare system - such as the UK, Japan and Sweden -  and that haven't hog-tied themselves to a currency peg should be able to implement it.

For those in the US you have to realise that many of us outside your country are gob-smacked by how backward your social safety nets are. Ignoring JG because its a bit hard politically is to ignore the key stabilising structure within MMT.

Discussing MMT without the Job Guarantee is to discuss some other economic theory, and one without any stability anchor to nominal prices.