The Jobs Guarantee has now become a major point of debate on several finance and economic blogs. It’s a conversation that I think I helped kick-off, so it’s nice to see how much interest it has generated.
At the end of this post, I’ll provide a pretty comprehensive list of links to the most recent debate.For now I want to focus on the strengths and weaknesses of the MMT Job Guarantee.Perhaps the greatest strength of the Jobs Guarantee is its directness.Instead of trying to balance the economy through the usual channels of fiscal policy—which typically just means lining the pockets of banks, defense contractors and big corporations with close government ties—the Job Guarantee spends into the economy directly through individuals. This isn’t a program that enriches the crony capitalists clients of the Predator State.It’s direct in another fashion as well: it’s based on fiscal spending rather than interest rate manipulation.Typically, policy makers attempt to address unemployment indirectly.Ever since the Great Depression, policy makers in the United States have attempted to use monetary policy to achieve something called “full employment.” The idea is to loosen monetary policy enough to spur more demand in the economy, which would increase employment.The main problem with this is that there was little reason to think that the additional demand created would be for the skills and services the unemployed possessed. If the cause of unemployment was not just a lack of demand but a lack of demand for what the unemployed could do, job growth would not result. What would happen instead was that there would be more money chasing the goods and services actually in demand. This created the potential for high unemployment and high inflation.Here’s how Friedrich Hayek put it in his 1950 essay “Full Employment, Planning and Inflation”:If expenditure is distributed between industries and occupations in a 'proportion different from that in which labour is distributed; a mere increase in expenditure need not increase employment. Unemployment can evidently be the consequence of the fact that the distribution of labour is different from the distribution of demand. In this case the low aggregate money income would have to be considered as a consequence rather than as a cause of unemployment.Even though, during the process of increasing incomes, enough expenditure may "spill over" into the depressed sectors temporarily there, to cure unemployment, as soon as the expansion comes to an end, the discrepancy between the distribution of demand and the distribution of supply will again show itself. Where the cause of unemployment and of low aggregate incomes is such a discrepancy, only a re-allocation of labour can lastingly solve the problem in a free economy.In other words, the core problem of most unemployment is a distribution problem. The distribution of labor did not match the distribution of demand. Increasing aggregate demand would not necessarily decrease unemployment. What is typically required to actually decrease unemployment is relocation and retraining of workers, something which many of the temporary measures intended to ameliorate the effects of unemployment actually interfere with....MUCH MORE
Thursday, January 5, 2012
Everything You Could Ever Want to Know About the 'Jobs Guarantee'
From CNBC's NetNet: