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Thoughts on a Job Guarantee Program

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June 17, 2011 – Comments (7)

Hopefully I can preempt a lot of flak that will likely come this way. I am just thinking out loud here. I am not trying to advocate anything in this post, but rather I have been thinking off and on about this for the better part of a year and I recently came across a video by Prof. L. Randall Wray that has made me think about this idea a little more seriously.

I have been doing a lot of discussion of some Modern Monetary Theory (MMT) ideas in the blog for the past several months. MMT has easily the most coherent and complete description of how our monetary system actually works, and the role and effects of reserves and federal government debt and taxes. MMT's discussion of sectoral balances and stock/flow consistent macroeconomic models is exceptionally useful.

That has been my primary interest in studying MMT, to better understand how the macroeconomy and banking system work operationally.

But there are some basic ideas that most MMT propenents put forth that I have been very skeptical about.

The first has been massive stimulus to combat this crisis. MMT states that Non-Government savings in a sovereign currency is exactly equal to Government spending in the sovereign currency. I think this is an operational and accounting fact, and is self-evident once you actually understand how government spending is actually carried out in a fiat currency system. So I agree with the operational description that MMT espouses. However, they take this further and identify that since we are in a balance sheet recession, and the private sector desires to save and deleverage that the only way for this to happen is for the government to continue to run deficits. That austerity will withdraw currency from the private sector as they need it the most to net save. Again I don't disagree with this in principle. But they upshot is that a deficit should be maintained so as to close the output gap. This is where I have a major problem. Because if our 'output' was so healthy back in 2000 and 2007, why did we have a crisis to begin with? It is because that economic activity was inherently *unhealthy* to begin with. The massive financialization of our economy is the cause of our macroeconomic problems and increasing the deficit to maintain the previous status quo is not a solution. But by the same token, austerity is also not a solution. Blind deficit spending to "increase aggregate demand" is not a worthwhile goal by itself. Main Street needs help, and Wall Street is now Too Bigger to Fail. We need much smarter fiscal policy that what we have seen so far. Professor Wray discusses exactly these concerns and offers suggestions in the first part of the video.

The second is a Job Guarantee / Employer of Last Resort program. I have been leary about this idea for awhile. How does the Government know which jobs people should peform? Would this contribute to a centrally planned economy and then how would we avoid the spectacular failure of other centrally planned economies? So I am very skeptical when I hear ideas like these. But I found myself really thinking about this based on Professor Wray's plan.

I am not advocating it, but after hearing his points I find myself thinking about it more seriously.

It is the second half of the video, but here are the basic points:

-- The Job Guarantee program is not a Federal Government Job per se, it is Federally *funded*. Communities and Municipalities know where they can effectively employ people. So this plan would not be a central jobs plan but would provide funding to communities where there is unemployment and a need for labor.

-- This is a 'hire off the bottom' scheme. We have a Federal Minimum wage. Which means that any new jobs added at the minimum wage does not put upward pressure on the private sector. And when you think about what this means, we have unemployment (idle resources) that are not being bid on at the minimum wage. Which means there is no competition for these resources at the minimum wage. No upward pressure on wages -> This program would not be inflationary.

-- The government would not compete with the private sector in this jobs program. The Government would provide funding for a job at the minimum wage. If the private sector wishes to higher an employee out of the jobs program at $7.30/hr the government does not 'up the bid'. It provides a floor at the minimum wage.

-- The funding for the wage bill of the jobs program is only about 1-2% of GDP. 13 million unemployed * 2088 hours (full-time) * $7.25/hr = 197 billion$ (GDP is ~14 trillion). This also assumes that there is no savings elsewhere in the budget (same level of unemployment payments, welfare, food stamps, etc.), which most likely there will be.

When you think about how debilitating unemployment is for America, it makes sense that we should try to help solve the problem. A program like this will create a pool of employable labor. It would demonstrate that people are willing and able to work that could not otherwise find a job in the private sector. The private sector would likely be more willing to employ someone out of this jobs programs since they are demonstrating a willingness and ability to work, rather than taking a chance on someone that is unemploymed. People would be working and learning skills.

I see a lot of benefits to a program when it is couched this way.

But take 30 minutes and watch the video and listen open-mindedly to what Professor Wray has to say. Decide for yourself.

7 Comments – Post Your Own

#1) On June 17, 2011 at 12:11 PM, smartmuffin (< 20) wrote:

Something like this would be a legal and breaurcratic nightmare.  Only thinking about it off the top of my head, here are a few questions:

 What about the people who don't WANT to work, or feel the jobs being offered are "beneath them?"  Do they now get zero unemployment insurance because they have the option of a job, and choose not to take it?

What about employees on these jobs who perform poorly?  Can you fire them?  I have to imagine that firing someone from an entitlement program would be even harder than firing a unionized public employee currently (teachers).

You're calculating the costs based on minimum wage alone, what about benefits?  Everyone yells and screams at McDonalds and Wal-Mart for not providing enough health care, day care, vacation days, etc.  What will the government be required to provide in addition to minimum wage (which will surely be rising again here soon)?

Also I don't think your "bidding" concept works that simply.  As with health care, the government has inherent advantages that make it difficult (impossible?) for the private sector to compete.  If a good-benefits, indefininte in length, entitlement natured government job pays $7.25 an hour, for someone to leave that and take a risky private-sector job, the private-sector is probably going to have to do a lot better than $7.30 an hour.  This will represent a de-facto raising of the private sector minimum wage, not by law, but by economic reality.  Despite huge unemployment numbers, the fact of the matter is that qualified and able workers remain a scare resources, and the simplest concepts of supply and demand would indicate that this WILL increase competition and lead to higher labor costs.

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#2) On June 17, 2011 at 12:53 PM, binve (< 20) wrote:

smartmuffin,

Those are very good points / rebuttals.

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#3) On June 17, 2011 at 2:00 PM, dbjella (< 20) wrote:

So this plan would not be a central jobs plan but would provide funding to communities where there is unemployment and a need for labor.

Don't we fund communities today via block grants to States?  Aren't most states running up deficits themselves?  Is this advocation having the Fed gov't run up more deficits to give to States so they could spend/cover their debt?  I have never seen a politician save.   

and a need for labor. 

Isn't this our problem?  We don't need more labor?  People have enough stuff, so they are not buying things like they did when they took out 2nd mortgages in records amounts. 

The funding for the wage bill of the jobs program is only about 1-2% of GDP. 13 million unemployed * 2088 hours (full-time) * $7.25/hr = 197 billion$ (GDP is ~14 trillion). 

Where does this money come from?  More debt?  If we really don't care about more debt, then, honestly, lets stop paying taxes. 

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#4) On June 17, 2011 at 2:25 PM, miteycasey (31.35) wrote:

How would you get people to work for minimum wage when welfare pays better?

 

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#5) On June 17, 2011 at 2:54 PM, binve (< 20) wrote:

dbjella ,

>>Where does this money come from?  More debt?  If we really don't care about more debt, then, honestly, lets stop paying taxes.

Neither taxes nor the sale of government bonds "fund" the US government nor do they augment or inhibit its ability to spend. The money comes from the Treasury crediting private sector bank accounts, they way it performs all spending (such as Social Security Payments, payments to defense contractors, etc.). There is no "affordability" contstraint. It is a non-issue, sovereign currencies issuers can never "not have money".

The constraint will be inflation. Does this spending compete with the private sector for real resources? Smartmuffin has some good thoughts on that above.

miteycasey,

Good question. That would certainly have to be addressed if this plan were to go forward..

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#6) On June 17, 2011 at 3:25 PM, Melaschasm (56.93) wrote:

I would be okay with a $7/hour job that replaces welfare/unemployement. 

Let those physicaly able spend 40 hours a week digging a hole and filling it back in.    This might even help with the obsity problems in the USA.

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#7) On June 20, 2011 at 8:46 AM, lemoneater (79.19) wrote:

The Civilian Conservation Corp gave my grandpa a job and skills, and improved infrastructure. Why not have public works projects that have real utillity?

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