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.


peterc said...

Good post.

Your recent comment on another blog concerning the difficulties people face in adjusting to more free time (due to job loss) has had me pondering the policy alternatives. It seems clear that either a JG or a basic income guarantee or a combination is needed.

In the longer term, with the likely waves of automation in production, I am starting to think that a basic income guarantee in conjunction with the provision of opportunities to participate in organized volunteer work may be a good way to cater for both those who are already happy to make use of their own time and those who are still struggling to cope with the gap in their lives left by job loss. This would seem to offer more freedom of choice but also the necessary support for those who need help to maintain social connections or stay busy.

strowger said...

Very interesting read, as usual.

I'd love to see your comments on various implementation details such as:

1 - Given the practical political impossibility of actually removing benefit from large numbers of people [the establishment media will squeal blue murder and there will be widespread rioting], what do you do with the ones who fail to turn up to their "guaranteed" jobs, or turn up and act disruptively or criminally?

1a - Can you imagine the risk assessment for a "workplace" unwillingly attended by a cohort of typical UK council estate dwellers? What would you have them actually do in this employment without hurting themselves or others?

2 - Further to your answer to the above - how do we then make these jobs credible such that they are any more use on a CV than "on dole"?

3 - How do you deal with the immobility of labour? £6/hr is good money in Burnley or Rochdale where a house is £30k but miserable in London; the council house system already effectively glues people in place away from all the jobs, you'd need to reform this around the same time.

4 - Separate issue, the assertion that "buffer stocks have been used extensively in the past to stop wild fluctuations in commodity prices" - do you have any data for this? My perception is that this is probably the exact opposite of the truth, with public-sector buffer stocks being mis-managed such that they intensify swings in prices.

Neil Wilson said...

Did you click through to Bill's blog and read his report on the Job Guarantee (When his server comes back).

He's done a three year research programme on the issues raised which answer these sort of questions.

And of course there is still the question: what else do you propose they do?

LVG said...

The state theory of money is very old. I don't know who the hell B Mitchell thinks he is, but he did not invent it. Neochartalism is just the state theory applied to a modern fiat monetary system. The JG is not central to that. In fact, if B Mitchell thinks it is then he's not referring to neochartalism at all. He's referring to some other theory that he's created in his own mind.

STF said...


"neo" by definition invokes a revival of some previous theory or framework. Chartalism is not new, for sure. But every academic economist that is familiar with the term "neo-Chartalism" does in fact equate it to Bill (and others) and the JG (and other things).

LVG said...


It does not matter that people's memories are too short to know that Knapp created the theory. Neokeynesians don't pretend to have created their entirely unique "theory" do they? No. Keynes created their theory. They just reworked it. Bill Mitchell did not create chartalism. A job guarantee is also not uique to anything in modern economics. There is a long history of government or socially sponsored employment programs. Mitchell talks as if he created some unique economic theory. BS. He's just regurgitating something that should have become obvious a long time ago. He might have been quicker on the uptake, but unique his theoryis not.

STF said...

I was referring to this:

"Neochartalism is just the state theory applied to a modern fiat monetary system. The JG is not central to that. In fact, if B Mitchell thinks it is then he's not referring to neochartalism at all. "

This is incorrect. Bill did at least partly "invent" Neochartalism. He did not invent Chartalism or the state theory of money, and would not claim to have. But what Neochartalism is or at least has been to this point is in significant part as a result of his work, whether you want to accept that or not. In fact, your own example of Keynes proves my point, as there's not much in the Keynesian school that actually resembles Keynes.

Let's be clear, though, as there are two different points to make and I'm only disagreeing with you regarding one of them (and agreeing with regard to the second). First, again, Bill DID invent Neochartalism, partly. Second, having said that, where MMT or Neochartalism go is not up to Bill or any other specific person, as the Keynesians proved.

By putting MMT out into the blog world and getting our wish of having a following, the consequence is that we don't have control over the path it takes. We can do research and hope it influences that path, but it's no longer ours exclusively. We could have kept tighter control if we had chosen to continue to work on the fringes and remain almost completely unknown.

So, going forward, and perhaps even now, whether the JG is required part of MMT is not for us to decide, even as it certainly is central to previous academic MMT literature. Such are the costs of gaining popularity and having others jump on board. I personally prefer this reality to the alternative path of remaining obscure.

Hope that makes more sense.

LVG said...

Hi Scott. I didn't realize you were Scott Fullwiler. Your comment makes much more sense now. Thanks for clarifying. That's a very noble and practical perspective. But it doesn't sound like Bill Mitchell is in total agreement. It does sound like Bill is saying "this is MMT and if you don't believe this then you aren't MMT". Anyhow, it's a stupid fight. We are all on the same neochartalist team I guess. Thanks for your perspective.

Neil Wilson said...

All theories and designs are amalgams of what has come before. We all stand on the shoulders of giants.

It is often said that for every idea you have there are at least 20 people in the world thinking the same thing and probably five executing a plan based on that idea.

MMT is a pragmatic design based on a whole series of previous ideas. It is the combination of them proposed as a programme that is new.

And JG represents the nominal price stability anchor for that design.

To have MMT without an appropriate nominal price stability anchor is like having a Bretton Woods agreement without a Bancor, or a Euro without a central fiscal authority. It is a design waiting to fail.

CiG said...

Wouldn't a universal basic income (for every legally resident adult in a currency area) work as a nominal price stability anchor?

I have trouble understanding why you also need to reintroduce the workhouse in the process.

The state as an employer of last resort may have a place, but it's hard work to get right. Various attempts have been made in Europe since at least the eighties, with mixed results. It won't get any easier if it's made universal.

Neil Wilson said...

Work ready people provide a better anchor to the labour market than non-work ready people.

Similarly having alternative work gives workers a choice and also a purpose.

Our school system has trained an army of mass production workers for a work system that is replacing them with robots. Changing external motivation to internal motivation is not something that can be done overnight and possibly not at all for the current generations.

And again the state is just paying for the Job Guarantee and ensuring that work is available. That does not mean that the state does the employing. An individual with their wage paid is a volunteer and can be engaged by the voluntary sector.

Bill comments on BIG here:

' the intrinsic social and capacity building role of participating in paid work is ignored and hence undervalued. It is sometimes said that beyond all the benefits in terms of self-esteem, social inclusion, confidence-building, skill augmentation and the like, a priceless benefit of creating full employment is that the “children see at least one parent going to work each morning”.'

Neil Wilson said...

Warren's comment is probably pertinent as well:

"price stability is always via some form of buffer stock or another, and how the most stable and the deepest, most liquid ‘commodity’ gives the best results, with unskilled labor being the most stable, deepest and most liquid, etc. concluding that price stability is maximized with a jg policy. And (jesting) that you just have to accept full employment as a side effect."

CiG said...

I think you're hitting the problem spot on with this idea:

"An individual with their wage paid is a volunteer and can be engaged by the voluntary sector."

So, you think the voluntary sector will find enough jobs for anyone unemployed who wants a job? This is, unfortunately, hopelessly naive. The voluntary sector needs their staff, even if they're free, to be usefully productive towards whatever the organisation aim is. Finding a voluntary sector job is not that different from find a real one, you still need to match people with problems with people who have an ability to solve these problems.

If you setup a scheme where the state pays volunteers on demand from NGOs, you will find it doesn't exhaust your stock of unemployed people by a wide margin. So, what do you do with the millions of "ready to work" people nobody wants even for free?

It's not that such a scheme would be a bad idea, it would probably be a good one both socially and economically, but it cannot be called a "job guarantee" scheme when it cannot operationally give jobs to everyone. Putting people in work is a hard problem with no easy solution. It is not (only) a monetary problem!

Neil Wilson said...

'So, what do you do with the millions of "ready to work" people nobody wants even for free?'

How about scaling up the voluntary sector.

"Putting people in work is a hard problem with no easy solution."

In that case the private sector has no chance of doing it does it, since it also needs to make a profit.

People only think it is hard because they don't have the systems understanding to know how this thing will be scaled.

It will be scaled by generating thousands of local activity groups - something that is already envisaged by the current UK government's 'Big Society' idea.

Have you read the design in Bill's document?

CiG said...

I've just skimmed Bill's text and it's as I expected, just too disconnected from reality. It can be summarised in one sentence, from Bill: "JG staff will need considerable skill". Indeed, and they will fail to find any, or enough, people with anything like that level of skill.

Basically the "implementation issues" Bill identifies will all happen, as they do and did in current and past JG-analog programs, and the universality will make them happen on a scale that makes the scheme unmanageable.

There's an isomorphism with the financial sector problem of banking regulation: do you prevent banking crisis by having omniscient regulators, or by just making the system robust to failure even in the presence of inept regulators? Any universal JG scheme must be robust to inept implementers, because it will get inept implementers. 100% guaranteed.

Just go and spend a year as a case worker on a state employment program if you're still not convinced (and ponder why people of your intelligence rarely ever consider this as a career option).

Neil Wilson said...

You still haven't answered the question "What are you going to do with them instead?"

These are real people, with real lives and real hopes and aspirations. They are not just some number on a spreadsheet.

I always marvel at how the private sector is supposed to sort all this out magically all by itself, and yet that is impossible when you just suggest that the state pays for that to happen.

Throwing your arms up in the air and saying it can never happen just shows a lack of imagination - and a lack of understand of how systems operate.

We implemented universal health care and universal education. The naysayers said that was impossible at the time too.

We have systems in place to deal with 3 million sign ons - including regular interviews. We have social work systems, young offender systems and probation structures.

And ultimately we have the prisons.

You deal with this issue the way you deal with all system problems. You sort the easy issues out first.

CiG said...

First you start with the core MMT policy of a suitable deficit for a given inflation target, this should get you reduced unemployment already, compared to the status quo, without having to change the existing transmission mechanisms.

For those remaining, I did give my solution above: unconditional basic income for everyone. This can be implemented robustly, the main operational issue is identity fraud, which should be manageable. It eliminates the boundary effect of current conditional unemployment support, as you keep your basic income when you get a paying job, which should make the labour market a bit more flexible and efficient.

It's clearly superior to your workhouses for the subset of people who actually can be happy outside the economic system with the basics sorted. In your system they fall through: they have to be unhappy either in the rat race or unhappy in the workhouse. You should not neglect these people even if it's alien to your own world view. If the Job Guarantee is the only way to get access to subsistence funds, it's an obligation, borderline totalitarian. The right not to starve if you choose not to work should be part of civilised societies' social contract.

They will be some people who will be unhappy to be out of a job, granted, but I don't believe they'd be much happier in the workhouse system. State programs (retraining etc) can help and have their place here, but only so much, and always not mandatory.

An Unpaid Job Guarantee, where people who want to keep busy can but are not paid extra above their basic income, would be more palatable, both morally and operationally as it takes perverse incentives away. I predict a relatively low take-up rate though.

Comparing with universal education and healthcare is a bit disingenuous: I presume most of the argument there was that it would cost too much, otherwise once funded you can always run more schools and hospitals. The workhouses system you advocate can be funded no problem, no argument here in a MMT framework, it's just a question of whether it can achieve positive goals.

Neil Wilson said...

"They will be some people who will be unhappy to be out of a job, granted"

Most people will be unhappy out of a job, because they were trained by the school system to be happy within a job.

I have seen a man recently lose his job and decend rapidly into drink and gambling and abusiveness that came within a cat's whisker of destroying his family. It reversed instantly has soon has he found purpose with a job. That is the reality.

Replacing the extrinsic motivation of a job with the intrinsic motivation to do something else is not something the majority of the population can do. To a greater or lesser extent they need to be told what to do - because that is their training.

We need to restructure the school system away from its current factory model and develop (or more accurately don't destroy) individual's ability to self-determine before that can work.

"It's clearly superior to your workhouses"

Pejorative terms don't really help. Jobs are actually positive things. They give structure and purpose.

Where above is there anything about compulsion, or that the jobs are a punishment for misdeeds? Or that you will be forced to do something you hate?

The assumption that work is distasteful is incorrect - and frankly neoclassical.

Job Guarantee guarantees that you can get a job if you want one with a living wage. That you can top up your wage to a full-time wage if you are part-time.

It guarantees that you can feel useful doing something, rather than lost in a world where what you do is part of your status.

And it guarantees that the private economy cannot provide or compel somebody to take a job worse than the ones guaranteed. So you get a price and quality anchor that you just don't get with anything else.

That nominal anchor provides the price stability system in the economy, with full employment being the positive side-effect.

" I presume most of the argument there was that it would cost too much, otherwise once funded you can always run more schools and hospitals"

No it was worse than just funding. The arguments was that working class children were simply not capable of learning. (ie the same argument presented above that council estate residents are not capable of working).

For the arguments against health see the long running farce in the US.

This RSA Animate video is quite instructive on education and the issues with it.

As is this one on drive and motivation

The debate on Job Guarantee (where JG pays the living wage and the alternative is a lower level of support - or nothing if the Daily Mail readers implement it) and an enhance Job and Income Guarantee (where the income is the same) is taking place over at heteconomist.

It's a high quality debate that is producing some good thinking and advancing the argument. Please join in.

Talvez... said...

It appears Hungary has something similar now. They created jobs, which involve a series of unskilled and scalable activities and pay them more than the benefits but less than minimum wage.

One of the things the Hungarian Prime-minister emphasized was there were children growing without never having seen their parents work and creating a vicious cycle.
Being a long time without any occupation is very hazardous - we are creating a class of people which is alien to the idea of working and having a job. Even when the upturn comes or those people are offered jobs by the private sector they will refuse (such cases are widely known here).

Anonymous said...

Thanks for this Neil. Great work. Love seeing you on the boards, etc.

Please keep at it.



Rogue Economist said...

Neil, first off, I want to stress that I agree that we need some sort of jobs program to get people working when the private sector is not hiring.

But given that MMTers have indicated the JG is meant to provide 'transition jobs' only, I don't get the insistence to continue it when the economy has jump-started and the private sector is already willing to hire.

Continuing it will make it more costly to hire the people back into the private sector. If the JG is still there, with its catch-all aim of providing a job to anyone willing and able to work, then it's providing an additional demand for labour that raises the overall cost of labour for those who want to hire them away from the JG.

Neil Wilson said...

"Continuing it will make it more costly to hire the people back into the private sector. If the JG is still there, with its catch-all aim of providing a job to anyone willing and able to work, then it's providing an additional demand for labour that raises the overall cost of labour for those who want to hire them away from the JG"

Correct. That is its purpose - an anchor.

It is right that it should be more expensive than the JG job for the private sector to hire - that's how we control the minimum standard of job that will exist in the economy.

That's how we stop the chase to the bottom.

The JG disciplines the private sector away from insisting on slave labour jobs for no money 100 miles away from home. Because the prospective employee always has the alternative of saying 'no'.

Which makes the labour market a proper market, where 'no deal' is an option. The failure of the labour market is empirically written in the decline of the wage share and the increase in private debt.

'no deal' doesn't reduce aggregate demand, so there is no need for the government to panic about it.

JG provides an alternative job, so government doesn't have to panic when a big employer goes bang - so no need for bailouts or old style Keynesian muddle along payments. No propping up failed profit making enterprises via half nationalised banks. You just let the malinvestment collapse and resolve itself. JG picks up the pieces.

If you are for the private sector, why are you against competition in the labour market? Doesn't competition always make things better in your world view?

Hugo Heden said...

You explain things very well, Neil.

senexx said...

I think this comment with a few minor tweaks could be a blog post itself

Neil Wilson said...

Which one senexx. That link goes to my profile

Andy CFC said...

my twopenth worth for what its worth

I can see where Cullen is coming from in that its never going to get past a lot of the american voters (rightly or wrongly)
I happen to have a geeky hobby and frequent an american based forum, maybe its not representative or at least in some of the mid west states where a lot of these come from and they are never going to accept the JG. Reasoning and logic just do not work with some of these people and they are believe it or not rational and intellegent people (from their point of view)

so should it be watered down maybe for the US alone as I have absolutely no problem with it being English

payguy said...

Would not a citizens allowance work just as well. eg pay all citizens a minimum level of money need to live off (at subsistence levels) and then adjust tax system to compensate. this removes any disincentive effects from the employment market.

Neil Wilson said...

That's called an income guarantee, which is essentially a higher level of unemployment benefit.

The key difference is that unemployed buffer stocks are less of an inflation anchor at macro level than employed buffer stocks for the reason that there is an increased hiring risk in an unemployed pool of labour than in an employed pool.

And increased risk = increased cost in aggregate.

The debate over how much Job Guarantee to Income Guarantee is required continues.