Warren Mosler kindly replied to my Part Two of this series which provided the basis for this dialogue, reproducing Part Two with comments by Warren and myself.
MMT and Public Purpose:The Normative Component
I ended Part One by saying that Warren Mosler’s reply to Cullen Roche is nearly a decisive argument that the Job Guarantee (JG) is a core component of MMT, provided, of course, that one accepts that full employment with price stability is an important component of “public purpose” or “the general welfare,” and that also one thinks that the Government’s fiscal policy ought to fulfill the public purpose. Since all the MMT founders and many later MMT adherents like myself agree with this, it’s not surprising that we think that the JG is a core component of MMT.
Warren Mosler: The understanding of the dynamics of the JG is an MMT contribution to economics.
Joe: Thanks for amplifying my comment. I agree that it is an MMT contribution.
But what if one either doesn’t accept “public purpose” as a normative standard guiding Government monetary and fiscal policies, or thinks that full employment with price stability is either not a means that should be used to accomplish the public purpose, or thinks that another means can better accomplish public purpose and still lead to full employment and price stability? Then one’s verdict on whether the JG is a part of the MMT core will be different.
Warren Mosler: No, one’s decision as to whether to implement a JG will be different.
Joe: Yes, one’s decision about implementing a JG will be different; but also provided one wants to think of themselves as following an MMT approach, then one would have to conclude that the JG isn’t a core component of that approach. That’s certainly what Cullen Roche, and Trader’s Crucible are saying right now, and it’s also what John Carney is contending as he proposes a synthesis of Austrian and MMT thinking.
For example, Cullen objects to the full employment goal because he doesn’t:
“. . . believe the JG is the optimal usage of these monopoly powers and in fact could come at substantial long-term cost. Instead, I think there are better options which can also lead to price stability and full employment.”
Warren Mosler: He’s just wrong as there is no long term cost, only long term benefits, even by his standards of what’s a cost and what’s a benefit. Nor does he have a better option for price stability and full employment.
Joe: I agree. But he will come back with an argument as to what the long-term effects are likely to be and as you know by now, John Carney is claiming they will include inflation.
In the post, or his replies to commenters he doesn’t say anything about “public purpose,” but he reveals that he disagrees with the goal of full employment with price stability and thinks instead, that the Government’s monopoly over the currency should be used to provide
“. . . the gift of time and the ability to live a fuller and more meaningful life via the prosperity that innovation and productivity create?”
And he also goes on to say that he thinks creating “full productivity” will also achieve full employment and price stability as a side effect, and that we have a moral responsibility to become enormously productive and increase living standards for our children and future generations, and he thinks Government spending to accomplish that should have a higher priority than Government spending to create a JG buffer stock.
Warren Mosler: He’s wrong again here too, in that JG promotes ‘full productivity’ and living standards better than unemployment does, and government spending to fund a JG buffer stock does not reduce the ability to spend elsewhere. In fact, it increases that ability.
Joe: I agree. But, Cullen appears to think that the negative incentives provided by the possibility and reality of unemployment, encourage people to be more innovative, inventive, and “productive.” That’s a neo-liberal Calvinist position if there ever was one.
Also, he’s worried about the long-term real costs or risks of the JG as indicated in this comment:
“You guys see no need for unemployment. I do. I think it serves an incredibly important psychological component to any healthy economy. I’ve feared for my job and been unemployed. . . .
Warren Mosler: He would have feared it just as much if there had been a JG. And in any case the real fear comes during times of a lack of aggregate demand that is evidenced by rising unemployment and/or a rising JG pool due to the private sector being starved for consumer dollars to compete for.
Joe: Yes, I think he would have feared it just as much if there had been a JG, since Cullen doesn’t strike me as someone who would be even remotely satisfied with a JG wage. So, the interesting thing here is that even though Cullen is opining about what other people might or might not need, he isn’t basing his conjecture on any scientific findings, only on his own personal experience. It’s anecdotal.
. . . Those moments shaped who I am and what I’ve become. They were invaluable in retrospect. If I’d been able to apply for a JG job I might not be half the man I am today. . . .
Warren Mosler: Wrong. There is no reason a low paying JG job with no possibility of advancement other than a ‘real’ private sector job would have left him half the man he is. However, long term unemployment has been shown to leave people less than half the person they were, with little statistical possibility of recovery.
Joe: I think this is an important point. It’s very likely that Cullen would have been heavily incentivized to get off a JG program, had he ever been in one, given what we know about his background and writings. He would have struggled just as hard to rise above the problems he had. And your statement about the real costs of long-term unemployment is very well-documented by sociological studies showing family breakups, loss of housing, Medical disasters, and all sorts of serious negative effects triggered by loss of employment followed by loss of status in one’s community.
Maybe it’s just personal entrepreneurial experience speaking here, but I know what it means to hunt and kill for ones dinner. Very little, aside from great parenting and education, was handed to me in life. My psychological development through having to earn things has been a building block that no govt program can ever provide. Ever.”
Warren Mosler: First, there has been no claim that a JG would provide ‘that’, ever. What JG does is preserve employability far better than unemployment does, and thereby foster private sector growth far better than unemployment does, by acting as ‘employment agency of last resort.’
Joe: But it’s also true that Cullen can’t possibly know what a JG program might have provided in the way of psychological development, because he never went through one. Many people got their first work experiences through the WPA and the CCC during the 1930s, and have reported on the immense benefits they got from those experiences. There’s no reason to assume that a JG program wouldn’t provide many good experiences for people whose economic fall was broken by that kind of safety net.
It’s easy to make fun of this statement, or to criticize it rather bluntly, as I did at Cullen’s site. But here I’d rather point to the larger issue. There may be side effects of the JG program we can’t anticipate now; but we know what the effects of an unemployed buffer stock are on society. And Cullen’s conjecture, based on his interpretation of his own experience that there is value in experiencing unemployment, . . .
Warren Mosler: Certainly not long term unemployment, which has been shown statistically to be a dead end.
Joe: I think Cullen’s assumption is that unemployment provides motivation to find work that the JG would not provide, and also that such motivation is very important in finding work. But, clearly, in most recessions the motivation to find work as a factor in producing employment pales before the macro effects of too few jobs matching up with too many people trying to find them. To believe that motivation will produce employment in spite of all external obstacles is to believe in Horatio Alger stories or persistence fairies, or the belief of the French Generals in the First World War that superior will and élan would overcome all advantages the German Military might bring to the battlefield, and it’s also, implicitly, to place blame on a victim finding him or herself caught in a balance sheet recession, and not being able to find work.
. . . which we will lose if we implement a JG (even if that value may not be apparent to others who have had the experience of unemployment and its corrosive effects), even if true, doesn’t on the surface seem to suggest anywhere near the individual and social costs that we know are caused by unemployment.
Warren Mosler: Nor the aspect of preserved employability needed to fuel private sector growth in a recovery.
Joe: Very true. The perceived unemployability of the long-term unemployed is a very significant social cost that Cullen seems determined to discount.
Those of us who feel this way, may be wrong, but I think opponents of the JG have to do better than to just voice vague fears and anxieties about future real costs. They have to produce at least some cogent negative arguments about why we should expect side effects of the JG that are more serious than the costly realities due to unemployed buffer stocks we see right now, and also they have to produce alternative policies that appear less risky than the JG proposal.
Why Not try Both?
So, it seems that the JG, assuming it is the best way to get full employment with price stability is very likely to be a component of the public purpose and therefore a core component of MMT. . . .
Warren Mosler: It’s not about ‘core components of MMT’ but about core MMT understandings.
Joe: I’d prefer to view it as I suggested. “Understandings” are psychological things, and I’m not talking about that kind of subjective knowledge. We can’t really divine what that is anyway. I’m talking about MMT as a body of “objective” cultural knowledge in the sense clarified here and here (See Ch. 1).
However, even assuming that the JG is such a core component, that doesn’t mean that a goal of maximizing productivity should not also be viewed as a core component of MMT. As a number of commenters on Cullen’s post have pointed out, the Government can afford to both pay for the JG and also for efforts to increase productivity. Nor are these components of public purpose competitive. So, why not try to enormously increase productivity and also implement an FJG?
There is a measurement problem, here. The current most common measure of increases in productivity, increases in GDP per labor hour, is laughable as a measure of real productivity gain, and I think it is enormously difficult to arrive at a good way to measure such gains, since doing so would involve measuring the non-monetary value of economic, including Government outcomes. But, if the measurement problem could be solved, then as productivity gains are made, the employment conditions of a JG buffer stock can easily be changed by raising JG wages to pass through productivity gains to whole labor force.
Warren Mosler: With a JG wage being a nominal price anchor, with no JG wage adjustment productivity gains would be expected to be reflected in lower prices.
Joe: They might be if we had a free market. But in too many areas of the economy that doesn’t exist, so competition won’t force prices downward. They’ll be sticky. So, the best thing to do will be to see to it that the Government passes on the productivity gains by paying more for JG labor.
Since 1970, most of the productivity gains have been distributed by neo-liberal economic/political regimes to the wealthy, greatly increasing the inequality gap and clearly threatening democracy itself. But a JG program in concert with an emphasis on increasing productivity could fix that, if we can find better ways to measure productivity gains than we have now, and use those measures to help shape JG programs.
Peter Cooper’s JIG Adds Freedom
Above, I said that I find the MMT argument for JG as a core component nearly a decisive one, provided, of course that one accepts that full employment with price stability is an important component of “public purpose” or “the general welfare,” and that also one thinks that the Government’s fiscal policy ought to fulfill the the public purpose. However, as part of the general debate over the JG, Peter Cooper has proposed a JG, supplemented by a Basic Income Guarantee (BIG), as a better alternative than the JG alone, because net/net it would increase personal freedom since people could choose either JG or BIG based on their needs, while still fulfilling the requirement of having an employed buffer stock as an automatic stabilizer.
Warren Mosler: BIG is an ‘optical illusion’ that’s an unstable equilibrium at best, capable of rapidly degenerating into hyper inflation at any time.
It reminds me of this Monty Python skit in ‘the life of brian.’
The currency is defined by, at the margin of need, what you must do to obtain it from the issuer.
So if you can get a living wage from the issuer for doing nothing, there is nothing that can stop the currency from being worth nothing once it heads in that direction from an accelerating flight to BIG
Joe: I think your reasoning isn’t compelling here. 1. People choosing the BIG aren’t “doing nothing”. They’re just not doing what anyone in the Government or the private sector has specified as having societal or market value as the case may be, other than consuming (which, btw, is an important function in our economy). However, the individuals choosing BIG, may be doing very valuable things, just as people who get nothing at all may be doing very valuable things for people. 2. Surely, the amount of currency people are getting here is relevant to your claim that there would be hyperinflation.
If private sector people get more currency, than JG people who, in turn, get more currency than BIG people, it seems to me that the value of the currency will still be maintained, because people don’t just want to live. They want to prosper. They want to acquire assets beyond those required for a basic living. So, most people will still work on either private sector or JG jobs.
I think this idea is promising. It has received vigorous discussion over a number of days at Peter’s site. Dan Kervick objected to it on numerous grounds. And in a comment I made on his objections, I summarize my views on Peter’s proposal, which he decided to call “JIG”. Here’s my comment.
The nub of it is that neither the private sector nor the Government is infallible in its judgments about which jobs and roles produce value, and which do not, or about which individuals are producing value and which are not in their individual activity. So, why should we rely completely on either the market or the Government to make these judgments?
Warren Mosler: I see govt. for public infrastructure for public purpose, broadly defined to include the incentives for the private sector embedded in the institutional structure.
Joe: So do I. But, more broadly, I also see the Government as using fiscal policy for all public purposes including those beyond “infrastructure” and private sector “business.” Isn’t there a part of “the private sector” that is composed of individuals doing valuable things that they do not get formally paid for by someone with economic power public or private? Why should we, as a society, insist that these people have to have a by-your-leave from a Government or non-profit civil servant, or from some for-profit businessperson engaged in commercial activities. I know a lot of people like that. Not just “arty friends” like John Carney’s; but other kinds of talented people of all kinds who want to pursue original ideas that they think are valuable, but don’t want to write Federal State, Local Government, or non-profit grant or contract proposals to do that, or go to work for large corporations to earn a living and have to delay or give up development of their ideas.
A BIG could be very useful for helping to do that. It wouldn’t let them live in luxury, but it would give them the space to keep themselves alive while they’re getting their ideas off the ground. Why shouldn’t people have that space? Why is it so threatening to authorities that people who are relatively poor have a bit of economic freedom?
Why shouldn’t we accept instead that individuals who would rather be free from working either for the private sector or for the Government still have the right to a decent living and free health care?
Warren Mosler: Free health care is ok, because you can’t completely live on health care.
Joe: So, your position is that people have to be economically motivated by the need to stay alive or they won’t be productive? Then why not say that people should have to “earn” their health care too?
Are they not human beings? Is there no possibility that people who make such a choice will not use the time they gain to contribute value to society, or that they might do so in the future?
Warren Mosler: They might, but history has shown that when they don’t it’s catastrophic. It’s the ‘damn fool’ race to the bottom effect, such as ‘I’m not going to be a damn fool and work when he gets everything for not working’ etc.
Joe: Has history shown that? Let’s have some empirical data. I just don’t see it. That was the kind of reasoning used to “end welfare as we know it.” Have the effects of that really been good or do we now have greater privation, need, homelessness and economic oppression than we had before? In other words, have we just got a worsening economic and inequality problem, where before we had a “moral hazard” problem?
Also, while that kind of meme may be effective politics still, the truth, at least for the proposal I have in mind, would be that people choosing the BIG would not get “everything for not working.” They’d be getting a basic living, in return for greater personal freedom. JG people would be getting a decent living wage in return for less personal free and the opportunity to transition to the private sector. And those working for businesses would be accepting the leadership of business people implementing their visions of value, which may or may not be valuable, in return for making more than JG workers, and, presumably, acquiring the most marketable skills.
I think there are some people who would use the time provided by choosing a BIG option to innovate and create outcomes of great value to society. Neither private sector nor Government authorities can be trusted with power to make all the decisions about which activities are valuable and deserve decent monetary compensation in return.
People ought to have some of the economic power necessary to decide for themselves what they’d like to do and still be able to remain alive and in good health to do it. That is an increase in individual freedom that our modern economies, including the US, can afford, and it may provide a better core component for MMT than the JG alone.
In Part Three, I’ll review John Carney’s objections to the Job Guarantee.
Final Comment: Thank you Warren, for taking the trouble to reply to my post and for giving Peter Cooper’s JIG idea some valuable discussion. I think it deserves a lot more. Thanks also for always being so open in letting me use your words for purposes of discussion. You’re one of the most open people when it comes to critical exchange I’ve ever met. You truly embody Karl Popper’s paradigm of the kind of discussion that should exist in a democracy. It’s been a great honor to work with you over the past couple of years on spreading the word about MMT. I’m looking forward to keeping on keeping on, until, working with our many other MMT friends, we create the basis for the next round of progressive economics, securing FDR’s economic bill of rights for everyone.