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Q&A Japan style – Part 3

Summary:
This is the third part of a four-part series this week, where I provide some guidance on some key questions about Modern Monetary Theory (MMT) that various parties in Japan have raised with me. Today I am in Tokyo and doing a day of press interviews and some TV filming to promote MMT within the Japanese media. I had been very clear in press interviews already (yesterday) that I hope they they represent our ideas correctly to the people of Japan. For example, at yesterday’s press conference, after my lecture in the Japanese Diet (Parliament), I said that I didn’t want any of the many journalists present to leave the room and write that ‘MMT thinks that deficits do not matter’ or that ‘MMT was about governments printing money and spending it’. I hope the message gets through. As I noted in

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This is the third part of a four-part series this week, where I provide some guidance on some key questions about Modern Monetary Theory (MMT) that various parties in Japan have raised with me. Today I am in Tokyo and doing a day of press interviews and some TV filming to promote MMT within the Japanese media. I had been very clear in press interviews already (yesterday) that I hope they they represent our ideas correctly to the people of Japan. For example, at yesterday’s press conference, after my lecture in the Japanese Diet (Parliament), I said that I didn’t want any of the many journalists present to leave the room and write that ‘MMT thinks that deficits do not matter’ or that ‘MMT was about governments printing money and spending it’. I hope the message gets through. As I noted in Parts 1 and 2, many people have asked me to provide answers to a series of questions about MMT, and, rather than address each person individually (given significant overlap) I think that answering them in some depth is the more efficient way to help them to better learn and understand the essentials of MMT and real world nuances that complicate those simple principles. These responses should not be considered definitive and more detail is available via the referenced blog posts that I provide links to. Today, the question is another one about the Green New Deal and the Job Guarantee with a diversion into basic income.

Job Guarantee and Green New Deal (continued)

Question:

On January 19, 2019, there was a joint-statement published by the Wall Street Journal – Economist’ Statement on Carbon Dividends – which was signed by more than 3500 US economists including 4 former FRB chairmen and 27 Nobel Prize laureates. It recommended that carbon tax be implemented “to reduce carbon emissions at the scale and speed that is necessary” and to “maximize the fairness and political viability of a rising carbon tax, all the revenue should be returned directly to U.S. citizens through equal lump-sum rebates.” In other words, they recommended a modest basic income guarantee be provided from the revenue raised by the carbon tax. Japan emits around 11 billion ton of CO2 and a carbon tax of $US100 per ton of emitted CO2 would generate 1,100 billion dollars in revenue, which equates to a monthly dividend per person of slightly less than $US100. Are the MMT economists in favour of this proposal?

There are several considerations to this question.

First, MMT economists, in general, do not consider that essential equity measures that a government might desire to set in place are contingent or dependent on the government first raising revenue from other sources.

If it was desirable to provide a basic income guarantee of $US100 per person in Japan, then the Japanese government has the currency-issuing capacity to make that possible.

The consideration then, which is to really reverse the logic of the question, is that if that desirable intervention strained the relationship between nominal spending growth and the real productive capacity of the economy then to avoid inflationary pressures from demand-pull forces developing the government may have to consider changing the tax structure and implementing new or higher taxes (among other anti-inflationary measures).

But this in no way implies the ‘taxes’ would be ‘funding’ the desired social measures.

Which raises a more general point that is often being debated in social media.

There appears to be a defensiveness among some activist proponents of MMT about the likelihood of governments having to raise taxes as one weapon to curtail a demand-pull inflationary episode.

The core MMT economists have always been clear on this.

At times, governments have to take difficult (and possibly unpopular) decisions to maintain price stability. One powerful policy tool they have at their disposal is the tax system.

MMT economists talk about the rise in the buffer stock of jobs under a Job Guarantee as being an integral component of the proposed price stability framework but what must be understood is that the increase is to be engineered by shifts in government policy – in this case, a contraction in the net spending position of government.

That contraction would in all likelihood involve some tax hikes.

I sense that the need among some activists to address specific political issues within a specific political context (say, the current US Presidential race) leads them to adopt these defensive positions (that tax increase offsets would not be preferred or required) and then attribute that view as being representative of the core MMT view.

It is not the core MMT view.

Second, MMT economists, in general, do not support the introduction of basic income guarantees. Instead, the solution to joblessness and the income insecurity that accompanies that status, is best dealt with by the introduction of a Job Guarantee.

As I have explained many times, a basic income guarantee surrenders to the neoliberal myth that government can do nothing to create more employment.

It is an individualistic rather than collective approach to the problem of poverty and inequality.

It thus constructs the problem of unemployment as an individual issue (‘blames the victim’) and proposes an individual solution – in this case, to create a number of passive consuming agents – whose only need that is recognised is that of a minimal stipend to avoid starvation.

This is instead of recognising, as economists before the neoliberal era understood full well, that mass unemployment could only be understood in structural terms – a systemic failure to create enough jobs.

And, after the non-government sector has determined its spending and saving decisions, if total spending is short of what it has to be to ensure all productive resources are employed, then there is only one other sector that can make up that shortfall – the government sector.

So the existence of mass unemployment tells us at least one other thing – that the fiscal position of the government is too tight and the government needs to reduce its surplus or increase its deficit (depending on the starting point).

So blaming the victim for this systemic failure is core neoliberalism and all progressives should eschew that tendency.

It is also clear that the introduction of a basic income guarantee would not provide a nominal anchor against inflation and so the nation would still be functioning within an ‘unemployment buffer stock’ world, where the government would have to increase unemployment in times of inflationary pressures that were due to excessive nominal spending (relative to the productive capacity).

Finally, and I address this issue in detail in the blog posts cited below, there is more to work than income. We can social identity and self-esteem from our work. We broaden our social networks and our children do not inherit the disadvantages of growing up in a jobless household.

Basic income advocates overlook those additional advantages of employment.

An additional reason for preferring employment guarantees over basic income guarantees, is that within the context of a societal preference for work and an antagonism towards a ‘handout’ culture, the Job Guarantee can serve as a framework for re-evaluating what we mean by productive work.

At present, we are dominated by the ‘gainful work’ concept which considers an activity to be productive if it contributes to private profit.

This bias means we dismiss a huge number of activities that add social value as being unproductive or ‘make work’ or any of the other negative terms that public sector job creation elicits from conservatives (and many misguided progressives).

The Job Guarantee would allow a host of activities to be included in the Job Guarantee that do not support capitalist profit seeking and would thus provide a framework for expanding the range of functions that we consider to be worthwhile and productive.

The examples I often give are musicians and surfers. These activities are not normally considered to be ‘productive’ in the same way as a steel worker or a teacher is considered to be productive.

But there is tremendous scope for using these workers to expand well-being (for example, surfers could be employed to surf (duh) and also conduct water safety lessons for school children to avoid the drowning deaths that plague Australian summers).

And, as time passed, society would begin to recalibrate its sense of worth and broaden its notion of productive work.

This sort of transition will be essential as we move forward to addressing the massive climate change issues confronting us.

So for these reasons and many others (see cited blog posts below), income guarantees are inferior solutions to mass unemployment.

Further reading:

1. Basic income guarantee progressives cosy up with the worst CEOs in the world (April 4, 2018).

2. A Basic Income Guarantee does not reduce poverty (May 31, 2017).

3. A basic income guarantee is a neo-liberal strategy for serfdom without the work (April 5, 2017).

4. Why are CEOs now supporting basic income guarantees? (March 28, 2017).

5. Is there a case for a basic income guarantee – Part 1 (September 19, 2016).

6. Is there a case for a basic income guarantee – Part 2 (September 21, 2016).

7. Is there a case for a basic income guarantee – Part 3 (September 22, 2016).

8. Is there a case for a basic income guarantee – Part 4 – robot edition (September 26, 2016).

9. Is there a case for a basic income guarantee – Part 5 (September 27, 2016).

10. Employment guarantees are better than income guarantees (January 5, 2011).

11. Mass unemployment – its all about demand (February 13, 2013).

12. The possibility of mass unemployment – Part 1 (December 14, 2012).

13. What causes mass unemployment? (January 11, 2010).

Conclusion

The final part in this four-part series will probably appear next Monday as tomorrow I have to travel a long way and have other commitments to attend to before I do that.

That is enough for today!

(c) Copyright 2019 William Mitchell. All Rights Reserved.

Bill Mitchell
Bill Mitchell is a Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW, Australia. He is also a professional musician and plays guitar with the Melbourne Reggae-Dub band – Pressure Drop. The band was popular around the live music scene in Melbourne in the late 1970s and early 1980s. The band reformed in late 2010.

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