The Job Guarantee and the MMT Core: Part Six, John Carney on Stagnation and Prosperity With Unemployment
In the first five parts of this series, I analyzed views on the Job Guarantee (JG) idea offered by Cullen Roche and Peter Cooper in conjunction with a post by John Carney, which kicked off an explosion of blogosphere posts and commentaries on the JG. In Part Three I began an analysis of John Carney's views by taking exception to his claims that the JG would be inflationary, a bureaucratic nightmare, and would cause economic stagnations. In Part Four, I critiqued his views on the problem of a mismatch between demand and the skills needed to fulfill it, the possible inflationary impact of this mismatch, and also his claims on the JG and stagnation. In Part Five, I focused on his discussions of the problem of a mismatch between demand and the skills needed to fulfill it, the possible inflationary impact of this mismatch, and also stagnation.
In this post, I continue analyzing John's further take on the JG in in his 'The Trouble with a Job Guarantee. His arguments in this post cover incentives to work that might be impacted by a JG program, and the notion that we know that prosperity with unemployment is possible. My interleaved replies from an MMT perspective to his arguments are provided in this and an upcoming post, as well as in Parts Four and Five of this series. All my replies assume that the JG would not be “paid for,” but would occur through deficit spending.
The JG is a Guarantee of a Job Offer, Not a Job
”It would be possible, of course, to diminish or eradicate the inflationary effect by tightening other government expenditures, raising taxes, or making sure the Jobs Guarantee wages were so low that the increased demand generated would be minimal.
The MMTers argue that the Job Guarantee positions will be so low-paying that workers will not be incentivized to stay in them. But I’m not sure this is correct. Do we really understand how workers will react to a job they cannot lose? Will there be some people who prefer to work just enough to get by, showing up at the Job Guarantee office every now and then, working for a few weeks, then going back to their personal hobbies?”
Comment: People will be able to lose their JG job. MMT proposals guarantee an offer to work. They don't guarantee that someone will be able to continue to work if their work isn't satisfactory.
There may be some people who will want to work just enough to get by. So what? Why is this a problem, if people can get by this way. They'll be doing valuable work, while they're doing JG work from time to time. If they don't want to graduate to private sector work, and periodically join and drop out of the JG, instead, then why should that bother us, as long as they're getting paid for the work they do?
”Yes. There will be. And some of these people will be very intelligent, even diligent people. I know people like this in New York City, who go through long periods of voluntary unemployment during which they paint, act, and write. They are enabled in this lifestyle by unemployment insurance and rent-control. Some of these people used to be computer engineers but found that they preferred more leisure and the income from unemployment insurance to less leisure and income from a private sector jobs.
It’s a wonderful life, really. But if it were too popular it would obviously be economically stagnating. I can see the possibility of The Job Guarantee inviting this type of economic stagnation at a whole new level. Work a week per month, earn enough to pay your for your rent-controlled apartment, then spend the next three weeks painting.
Work every other day. Work half days. Whatever. There's always a job waiting for you the next day. Get sick? Go down to the Job Guarantee office, take a job, then use the health insurance to pay for the medicine you need.
We do not know that this is what would happen. But that’s part of the point. Nothing on this scale has ever been tried before. It is bound to produce unexpected and unintended outcomes. Pretending as if we know the economic and social consequences of this kind of revolution in the way Americans work is a dangerous conceit.”
Comment: Oh, those evil New York wastrels, and bohemians! How can the hard working folks out in Iowa possibly agree to support them with guaranteed occasional work, even if they have that same guarantee themselves, even if it provides them with the full-time continuing work they prefer, and even if they're not (remember, John, this is MMT) actually funding them from anyone's tax money?
And, what, exactly, is wrong with the value produced from painting, acting, and writing? Of course, not everything produced from these activities adds value. But the same is true of many private sector activities. Does John really think that economists are more valuable to society than artists, actors, and writers, for example?
And why isn't it the case that many people will use the JG as a means of leveraging getting new businesses started? Why assume that this sort of pattern will be economically stagnating? Maybe it will be the opposite. Maybe it will free up creativity? Why is a certain amount of freedom from other people's judgments about what activities are valuable to undertake “stagnating?” Again, John is showing an ideological bias here, and it is a conservative bias toward reinforcing authority and against increasing personal freedom.
Prosperity with An Unemployed Buffer Stock?
”As Cullen Roche at Pragmatic Capitalism points out, we know that we can have prosperity with unemployment. We don’t know we can have it without unemployment because we’ve never tried it and our economic models will always fall short. The maps aren’t the territory.”
Well, the question here is: prosperity for whom? Maybe there's prosperity for Cullen, and for John, but there's no prosperity for the people in the unemployed buffer stock, their families, or their children. There's also no prosperity for working people whose wages are either kept low or further depressed by the rising buffer stock of the unemployed. That's why the median wage in the US has increased very little in the US since the 1970s and that's also why inequality has grown so greatly. If we want to stop trends like this and create a more equal society, more consistent with robust political democracy, then we have to stop depressing wages by fighting inflation with large unemployed buffer stocks.
Also, what is the standard used to say that the unemployed buffer stock “works”? It certainly hasn't worked for working Americans if we compare their state with citizens of other nations. With each passing year we see that cross-national indicators of economic well-being show that US citizens are falling farther and farther behind the citizens of other modern nations. There is no getting around it: something's rotten in the United States, but not in Demark. The US isn't working as it should as an economy producing the kinds of opportunities people value; including the opportunity to start new businesses, to attend college, to receive health care when you need it, or even to have an economic safety net when disaster strikes. And one of the reasons is that we don't (John Carney and Cullen Roche, not withstanding) have widely shared prosperity due to our insistence on having an unemployed buffer stock.
”You’ll notice that in my story of my arty NYC friends above I pointed out that unemployment interacts with rent control in ways that many people have never considered. The Job Guarantee will not come into an economy unencumbered by regulation. It will become part of an extremely complex web of regulations enacted during the last hundred and fifty years. It is impossible for anyone to know how the Job Guarantee will interact with the rest of the regulatory state.”
This is a very common conservative complaint about any attempt to change the way things are done. Yes, we live in a complex adaptive system, and our participation in it is reflexive to boot. Life is about unanticipated consequences and “black swans.” It is impossible to know exactly what will happen if we make major changes to our economic system. But the only way to find out is to make the changes we think will improve things, to evaluate them, and then change things again if what we've done doesn't work. John's attitude toward the JG is the traditional conservative 'can't do” attitude. The attitude that says the sky will fall if you change anything substantially. But, I think that the present system is ruining a lot of lives. We need to change it, and keep changing it, until we get it right -- until those lives are no longer being ruined.
Conclusion: Fallacies of Composition
What we're seeing in the objections to the JG offered by Cullen Roche and John Carney are micro-economic and even anecdotal arguments arguments being used against the JG proposal by people who don't want to risk certain possible, but not likely effects of the program. What's possible can be recognized by thinking through scenarios like those which end in inflation, excessive bureaucracy, skills mismatch, and stagnation. All these things are possible consequences of the JG impact on some individuals.
Implementing a JG may well cause one-time price adjustments in the economy. We will probably be able to point to examples where its introduction causes certain prices to go up. But, because of the impact of other MMT stimulus programs and the aggregate demand introduced by the JG itself, the private sector will move strongly toward providing full employment (though at higher wage levels) within 6 months. So, the JG population will be declining, and along with it Government deficit spending and any inflationary impact it could have. From the micro point of view, it may be reasonable to project that the JG will cause inflation, but from the macro point of view it makes no sense at all if we look at things over time and in terms of the likely interactions between the Government and the private sector.
When we think about the JG, further, and also think about our personal experiences with Government programs, a plausible reaction is: “Oh no, not another Government bureaucracy.” However, if the JG program primarily relies on State and local authorities and non-profits to hire JG people, while the Government restricts itself to funding, then it may not add very much to bureaucracies that already exist. So, if we look at it in the context of other existing bureaucracies, the micro objection that this is going to take another big bureaucracy pales before the reality that the work on the ground can be overseen by bureaucracies and organizations that are already there.
The skills mismatch complaint, next, looks plausible, when we reflect that most of us may have had the experience of seeing an advertisement for a desirable job and then lamenting that we are lacking a few qualifications to take advantage of the opportunity. But that's not looking at things from a macro point of view. Which industries really have skills/job qualifications mismatches that would require more than a short time of company paid for, or JG supported training or both to resolve? What percent of the unemployed pool is affected by that? What percent won't be hired because they want good wages and benefits, and people who need people with their qualifications cost much less in other nations? Without good data on the frequency of the mismatch “problem”, how can we know whether it will impact the JG or not? It may be a possibility; but that doesn't make it likely.
Finally, we all know about “welfare queens.” Reagan's never existed. He just told a story, and people believed it because they could imagine that it might have happened, and because they wanted to believe the worst about people on welfare.
John Carney's story about his “arty friends” in New York, may be true, and maybe he knows them. But the fact, that the JG may produce JG Queens or Kings only becomes a problem, if the people involved are a statistically large proportion of the program, and also if they're people who aren't producing value in their JG and broader social roles.
Anecdotes about individuals John knows, don't show that this possible phenomenon would be an actual problem if the JG program were implemented. They only show, instead, his own judgmental Calvinism, which looked at from a macro societal point of view may be a bigger and much more serious problem than any possible JG Queens or Kings could ever be.