Responding to a Post at Naked Capitalism by Michael Hudson with some additions by Yves Smith, a commenter, objecting to the criticism of the President’s Knox College speech, issued the challenge ”What would u have him do?” in connection with his promised effort to restore prosperity to the middle class and the poor. In this series I’m giving my answer to that question. In Part I, “Necessary First Moves,” I offered and described two of these. Ending the filibuster, and using High Value Platinum Coin Seigniorage (HVPCS) to fill the Treasury General Account (TGA) with $60 Trillion in reserves.
The purpose of the first was to prepare the way for substantive policies by removing the Republican minority’s power to tie up legislation. The purpose of the second, was to neutralize austerian fiscal responsibility justifications for subjecting every policy proposal to a deficit neutrality test, and for opposing deficit spending on grounds that it adds to the national debt and imposes heavy risks that the bond markets will demand very high interest rates on US debt. Of course, HVPCS gets rid of both the debt and bond market concerns for good.
Neither of these two policies, however, addresses substantive needs such as creating and maintaining full employment. This post is about the policies for getting to full employment I want the President to propose and try to implement. All of these policies have been previously proposed by MMT economists including Warren Mosler, Randy Wray, Bill Mitchell, Stephanie Kelton, and others.
Full payroll tax holiday
The full payroll tax holiday for both employers and employees would give a couple, each earning $50,000 in wages, about $650.00 per month in increased consumption power. It would last until full employment in the private sector is reached, when the tax would be fully or partly re-imposed, provided that demand leakages to domestic savings and the trade deficit were small enough to warrant such a re-imposition.
This measure would be an enormous immediate augmentation to consumption power, would be felt immediately, and would have a fiscal multiplier of at least 1.3 for every Federal Dollar expended. It would be implemented through the Government crediting SS trust fund accounts with the amount of the forgiven FICA taxes, and would directly add about $650 B of GDP to the private sector, provided it took a year to reach full employment. If it took less time than that, then, of course, the addition to the private sector would be less than that amount.
The President should get legislation introduced to do this. With HVPCS, there is no reason not to, since it would be clear that the Government can always generate the reserves to pay for SS regardless of the balance in the so-called “trust fund.”
We can’t look at SS and our other entitlements in isolation. I want the President to get Congress to pass legislation implementing FDR’s economic bill of rights, and expanding all the ENTITLEMENTS in the American social safety net; now the stingiest, most inadequate safety net among modern industrial nations!
FDR’s strategy for justifying SS was great for the 1930s, when we were still on the gold standard. But nearly 80 years later it’s time to move on to his economic bill of rights as our justification for entitlements, and stop reinforcing the idea that it’s only an entitlement if one pays for it.
It’s time to stand on the over-riding moral argument! It’s time to say that when a nation like the United States can afford to implement these rights, as the United States has been able to do at least since 1971, they then are human rights that must be implemented as part of the public purpose. Let us have a Green New Deal with a stronger social safety net including greatly increased payments for SS, and Medicare for All, and a Job Guarantee (see below) emphasizing Green Jobs!
State revenue sharing
The Government would provide a one-time grant of $1,600 per person to the States for re-hiring laid off State Government employees. The fiscal multiplier from this isn’t clear; but since most State employees are middle class; it will probably be in the range of 1.2, provided it is funded through deficit spending using HVPCS. This program, after filtering through the State Governments, would add about $500 Billion to the private sector before the effect of the multiplier is felt.
Pass a Job Guarantee (JG) program
The JG Program should guarantee a job offer at a living wage, with standard high quality fringe benefits including access to Medicare for those in the program, to those who want to work full time, but haven’t found such work available in the private sector. It should NOT replace Unemployment Insurance, or other programs currently in place. It should NOT offer jobs in Federal programs already legislated. It SHOULD employ people at jobs of great public and social value.
The jobs should be defined by local governments, community non-profits, and the participants themselves. To the extent possible, they should be “Green Jobs” aimed at healing the environment, or jobs enriching the cultural life of local communities, or jobs enhancing the commons of local communities. But the more general rule is that they should be jobs that produce socially valuable outcomes to the local communities creating the jobs with Federal funds.
MMT economists are not agreed on the size of the living wage which would be offered. I’ve seen JG wage rate proposals varying from $8.00 to $15.00 per hour. Differences seem to be based in relative degrees of caution about administering too big a shock to retail businesses dependent on relatively low wage workers. All MMT economists, however, are agreed on the need for JG jobs to offer vacations, holidays, Medicare-based health insurance, and other quality fringe benefits, other than unemployment insurance.
My own view on the JG wage is that it should begin at $10 per hour in the lowest CPI indexed SMSA area in the United and then be adjusted upward based on the ratio of the CPI in an area to the lowest CPI area. That would mean that the living wage in the New York SMSA and other comparable high cost areas might be as much as $24.00 per hour.
I know this would have a heavy impact on retail businesses; but I think that businesses who need to pay less than a living wage to their employees to stay in business aren’t viable private sector organizations, and should not survive. If some businesses in this category have great social value; then they can survive by using that social value to seek help from non-profit, community organizations, who can assign employees in the JG program to help those businesses.
The JG would be implemented as a “mop-up” and full employment maintenance operation most probably at about $45,000 annually per job including fringe benefits and Administrative costs. It would probably apply initially to 10 million people still not fully employed as a result of the impact of the first two measures. It would be a deficit spending program.
Since the private sector would be hiring off the JG rolls and shrinking the size of the JG as the economy heated up, I estimate that it would inject about $225 Billion into the private sector over a year’s time. The program would produce and maintain full employment, defined as everyone who wants a full time job at a living wage can get such a job offer and accept it or not as they wish.
In Part III, I’ll offer my proposals for the President doing some economic and social justice.
(Cross-posted from New Economic Perspectives.)