Cross posted from Pruning Shears.
I’ve gotten some pushback from Monday’s piece on MMT and plan to address the criticisms in some upcoming posts. Next week I hope to get to inflation and taxes. For now I’d like to cover something I didn’t even mention in the post but that popped up almost immediately in the comments: a job guarantee.
MMT, at least as advertised to liberals, postulates a job guarantee. One of my problems with MMT is the way various proponents’ wish lists get conflated with the theory. Stripped to its barest essence, MMT is the theory that:1
governments with the power to issue their own currency are always solvent, and can afford to buy anything for sale in their domestic unit of account even though they may face inflationary and political constraints
There are no policy prescriptions contained in that, or even implied. One may apply that theory in different ways, but the thing itself requires nothing. The case for the job guarantee is a moral one, not something intrinsic to the theory itself.
Randy Wray makes the moral case with his analogy between disease and unemployment. He spends an entire post describing how MMT can accommodate a job guarantee. Yet he also concedes that “some other advocates of MMT do not accept the human rights angle” (oof), and concludes:
Can you separate the MMT explanation of the cause of unemployment from the policy to cure it? Yes.
Should you? Of course not.
In other words, MMT does not require a job guarantee, but it would be unjust to omit one. Of course, that also means that the prospect for one under MMT would be contingent on the policymakers charged with implementation sharing Wray’s sense of justice. That’s hardly an economic imperative demanded by the theory.
The problem right now is not that we lack the tools or economic model to address unemployment. The Federal Reserve ought to be terribly concerned. The problem is that no one in Washington actually is – not enough to act decisively, anyway.
MMT would (theoretically) transfer currency creation from the Fed to Congress or the president, which I suppose would make monetary policy marginally more responsive to public sentiment. It would hardly be a revolution, though. Who among our current elected leaders do MMTers see treating the problem of unemployment with the urgency of a national disease? What we need is for our representatives to have a different estimation of what equity demands, not a new theory of currency.
MMTers also envision a wildly optimistic outcome for the job guarantee. It certainly sounds wonderful, and MMTers are content to let everyone believe in a full employment worker’s paradise if MMT is implemented. That’s the Utopian version. How about a dystopian one? Instead of hoping for the best why not consider a less cheerful outcome?
Let’s just imagine for a moment that Washington is willing to listen to MMTers and consider adopting MMT. What will you need to do in order to get policymakers to sign on? Lawmakers would need to be sold on, or more crudely bribed to accept, the concept. I think we all know cutting taxes on the rich is a perennial favorite in the capitol. So liberal MMTers concede on tax cuts in order to get a job guarantee. Fair trade off, right? And if aggregate demand becomes an issue down the road we’ll just deal with it then.
So great, slash income taxes and you plebes can have your precious job guarantee. And as part of the job guarantee legislation we’ll just go ahead and zero out the minimum wage since MMT obviates it. But hey, victory! We’ve got a job guarantee! Now, how to implement it. Pavlina R. Tcherneva and L. Randall Wray have some thoughts:
the actual hiring of most of the workers would be highly decentralized, and undertaken by not-for-profit community organizations, and state and local governments.
OK then. How could we expect that to work out based on recent history?
- Federal government block grants job guarantee money to states.
- States cut income taxes.
- States divert portion of money to rainy day funds that require Noah’s Ark levels of rain to tap into.
- States use rest of remaining money to “partner” with contractors who are charged with creating jobs.
- Contractors extract rent.
- Contractors design half assed program that employs entirely inadequate numbers with the kind of punitive, angry, pinch-faced resentment that state social programs are famous for.
- With no minimum wage, those who are (inexplicably!) unable to find a job under the job guarantee will just have to accept whatever best offer they can find elsewhere.
- Where’s my fucking pony?
Oh, and one more thing. Before long it turns out, who could have known, that aggregate demand has become an issue. Guess we’ll have to raise some revenue. Ladies and gentlemen, allow me to introduce you to the Fair Tax. Problem solved!
One would hope MMT’s leading lights would have favored a simpler model that has actually been successful:
- Federal government employs people, pays them.
Why opt instead for a circuitous route that is so ripe for fraud and abuse? It won’t work as promised and only discredit the very idea of a job guarantee. That can’t be any MMTer’s preferred outcome, right?
And as with unemployment, why not make the ethical argument directly instead of routing it through a value-neutral vessel like MMT, then hoping for the best? Hammer away at the moral urgency of the situation and say we’ll work out the details later. The people who oppose policy like a job guarantee do not do so because they haven’t been introduced to a sufficiently persuasive economic model. They do so because they are ideologically opposed to federal social programs, and if you take away their current argument (“because no money”) they will just substitute it with the next handiest one (“because inflation”). But that’s not a legitimate problem, you say? No it isn’t. Neither is insolvency. Has that deterred them so far?
There is nothing, absolutely nothing, in MMT that requires a sense of public purpose. Inculcating that is the work of democracy, not economics. Harnessing that project to a monetary theory will only cede its direction, sooner rather than later, to those who value money first among all things.
1. Yes, Wikipedia. New Economic Perspectives is touted as one of, if not the go-to source for MMT. If you go there wondering “hey what is this MMT thing anyway?” you can buy the brochure, buy the book (MMTers definitely practice their “show me the money” ethos) or start wandering through the maze of hyperlinks in the primer looking for a concise description. And MMTers are confounded that their work is considered inaccessible.
Photo by Cool Hacker under Creative Commons license