Saturday, 15 September 2012

UK people wanting work and vacancies - Jul 2012

People wanting work

The ratio of people out of work wanting work to vacancies

The UK participation rate.

This is the ratio of those 'in the labour force' (ie unemployed and employed) to the household population. It differs from the ONS's 'employment rate' in that it doesn't exclude those over 65 (although over 65s who want a job are still classed as 'retired').

Source: Office of National Statistics, tables MGSC (ILO Unemployment Level Ages 16-64 - Quarterly seasonally adjusted), LFM2 (Inactive - wants a job - Quarterly seasonally adjusted), YCCX (Part time workers - reason for working part time, could not find full time job - Quarterly seasonally adjusted), AP2Y (All vacancies - Quarterly seasonally adjusted), MGSL (LFS Household Population - all aged 16 and over - Quarterly seasonally adjusted) and MGRZ (Employment Level - all aged 16 and over - Quarterly seasonally adjusted).

10 comments:

Anders said...

Neil

I hope you don't mind me resuming here an exchange we'd had on Mosler's blog on inflation.

The reflective mainstream response to MMT is surely the following:

(1) if MMT is comfortable with (a) allowing budget deficits which are larger and/or longer than mainstream economics would recommend, and (b) monetising as much govt debt as required to ensure a non-asymtotic debt/GDP trajectory, it appears at least prima facie likely that MMT policies could result in inflation levels (of perhaps 10% or more) which are higher than the West has hitherto considered prudent
(2) However, MMT expressly states that CB base rates should not be regarded or deployed as an inflation-stabilising tool
(3) Therefore MMT needs to explain how it would stabilise inflation using non-monetary means

The responses / counter-arguments to this I've seen maintain that we should fundamentally rethink our assessment of how inflation works, based on the following:
(A)  we ought to tolerate higher inflation in the pursuit of full employment, because 10% or 50% inflation is no more likely per se to turn asymtotic (ie lead to currency breakdown) than 2% inflation
(B) inflation should be seen in terms of competing claims over national income stemming from excessive market power; this means inflation is most effectively managed by keeping buffer stocks of commodities and by fiscal policy based on an NFA or fiscal stance rule

It seems to me that a case needs to be made along the lines of A or B or better, presumably to / via the BoE and OBR, as a prerequisite for MMT to get any traction in the UK. Don't you think?

Anders

Neil Wilson said...

"it appears at least prima facie likely that MMT policies could result in inflation levels (of perhaps 10% or more) which are higher than the West has hitherto considered prudent"

That's a mistake.

MMT does nothing more than sweep the excess savings of the non-government sector back into the circulation because, contrary to popular belief, it doesn't do that automatically. To clear 'naturally' you have to have a depression and capital destruction.

So if government budget deficits are 'dangerous' then so is non-government sector borrowing and spending from saving. But apparently the mainstream are comfortable with that.

You have to see excess saving as voluntary taxation. So the correct calculation for the government injection is

Government Spending - Taxation - Excess non-government savings

which will be zero.

The anchors are the automatic stabilisers which ebb and flow counter-cyclically. Job Guarantee enhances those to provide superior price anchoring capacity - flattening the inflation curve as the economy tightens.

So in terms of circulation, the auto-stabilisers reduce government spending and increase taxation volume automatically as the economy heats up.

And we know they work, because they are doing their job right now.

So the trick of policy is to set main taxation/spend policy relatively tight and let the auto-stabilisers loosen it to the correct level.

The way I would do this in practice is to create a counter-cyclical fiscal authority (CFA) as a separate balance sheet from HM Treasury and reportable to parliament as a whole. HM Treasury remains as a creature of the Executive as it is now.

Once you have a tri-party design then the Executive budget can be required to balance - it must tax to spend on discretionary projects. To borrow it must apply to the central bank with a project plan just like you or I would have to.

CFA 'funds' the automatic stabilisers, via an overdraft with its central bank subsidiary, and possibly it could be given discretionary powers to vary a land value tax by a certain percentage for fine tuning (chargeable to the freeholder, payable by the mortgage chargee if there is one).

So you have the central bank on a ZIRP - which removes the incentive to excess save for income purpose.

You have the CFA fine tuning the gross taxation policy via a land value tax, and letting the auto-stabilisers do the main work.

Then you have the Executive taxing and spending via the Treasury on their political goals.

Anders said...

"MMT does nothing more than sweep the excess savings of the non-government sector back into the circulation"

It's the other part of MMT I'm focussing on - the willingness to cap govy yields to ensure that bond vigilantes don't spring up. From pieces including Fullwiler's "interest rates and sustainability" paper this seems quite integral to MMT. Without this, any MP you try and explain MMT to will exclaim "ah but the bond vigilantes are around the corner". So MMT needs to explicitly call for ex ante fiscal dominance.

"if government budget deficits are 'dangerous' then so is non-government sector borrowing and spending from saving"

I think a lot of mainstreamers would actually see both as dangerous. They would see spending resulting from the former as more dangerous than credit-fuelled spending simply because in the former case, one would already have made clear that the Bank Rate's primary purpose was the maintenance of public debt sustainability, rather than managing private sector credit growth. This would - in the eyes of mainstreamers - leave greater risk of inflation in the former case.

I like your CFA. Wouldn't it be nice if the OBR could morph into such a thing.

Neil Wilson said...

ZIRP is just a way of pushing aggregate demand. It gets rid of the uncertain mumbo jumbo of monetary magic and stops rewarding people for holding money.

That should create extra spending - which is good given the level of unemployment.

So I would go introduce ZIRP (get rid of government bonds, excess savings has to go the central bank, and its just storage there, bank borrow reserves on a simple overdraft. National Savings expanded to provide the same deposit storage facility for individuals. Debate then about whether deposit insurance is still required given it all just sorts itself out anyway.).

Banks then price loans off that base which determines the base level of private demand in the system.

Then introduce the Countercyclical Fiscal Authority (CFA), activate the Job Guarantee and then let the whole lot settle down to see what supply side blockages there are.

So I don't see a problem. All I see is people who don't understand how to design cars saying cars with square wheels can't possibly work and therefore we shouldn't have cars.

Anders said...

Thanks - I agree with most of your points. But it sounds as if you would see it as a waste of time trying to engage the mainstream on MMT except as part of a root-and-branch reworking of money and debt.

I don't see ZIRP as "pushing aggregate demand" given it removes net interest income from the non-gov sector, although I suppose you would say that a ZIRP discourages the level of saving (ie demand leakage) in the first place. But ZIRP entails yet another radical rethink of our current setup: unless you ramp up the state pension hugely, low annuity rates leave a huge hole in private pensions.

Neil Wilson said...

ZIRP may increase effective demand to the extent that it reduces savings desires in the non-government sector.

To what extent it would do that is simply unknown.

But, assuming government spends to offset saving desires, it does redistribute income away from risk-averse savers towards people who are likely to buy stuff.

"unless you ramp up the state pension hugely, low annuity rates leave a huge hole in private pensions."

Saving for pensions is madness. Pensions are always a current production distribution issue. Therefore to have a solution that requires offsetting massive paradox of thrift effects over decades is about the worst design you could possibly come up with.

Have a look at the net government debt aggregates this quarter to see what happens when a pension fund is transferred from a capital sum to a 'pay-as-you-go' system. The Post Office pension fund was effectively 'nationalised' skewing the figures.




Anders said...

Neil - this is depressing to read.

I like the idea of lobbying politicians, the BoE/OBR or my trade association against austerity on MMT grounds, but it sounds as if you would see little point in doing so.

Neil Wilson said...

I think the lobbying has to go to the youth. The establishment aren't going the change - they have what they want.

The young, however, are stuffed AFAICS.

So why aren't they angry?

Anders said...

The young seem to be rendered supine by Apple hardware and social media (unlike the effect such things have had in other parts of the world..)

The establishment have what they want in terms of overall income/wealth distribution, but this is at the cost of a lower real GDP trajectory than would otherwise be the case.

There is presumably a trade-off between social stability and GDP growth. I would think many of the establishment might actually embrace some faster GDP growth from a more MMT-enlightened set-up, even at the cost of losing some of their protections against the 99%.

Admittedly rentiers - specifically bond investors and those living off interest income - will never find MMT compelling. But as an equity investor (who happens to be egalitarian by my industry's standards), MMT strikes me as highly appealing from a professional perspective. Whilst there are a plethora of US CEOs (de facto equity investors) queueing up to tell Congress to balance the budget, I would hope that parts of my industry could be enlisted to support the cause. But if no comprehensive argument can be constructed without entailing radical changes such as abolishing govt bonds and private pensions, it looks rather hopeless.

Neil Wilson said...

"The establishment have what they want in terms of overall income/wealth distribution, but this is at the cost of a lower real GDP trajectory than would otherwise be the case."

Correct.

And you are correct that in absolute terms an MMT economy would be wealthier and the rich much wealthier than they are now.

But in relative terms they would definitely be less wealthy.

And it appears that they would prefer to have the finest mud hut on the Savannah than the slightly better Leah jet in an airport full of private planes.

Private pensions should go and government bonds should go because they are just rentier devices. They add nothing macro-economically. What is left then is genuine capitalist investment in productive firms for an income return.

Perhaps it is time to put an argument together as to why MMT presents a compelling case for the genuine capitalist.