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Some historical thinking about the Job Guarantee

Summary:
I noted yesterday that I was appearing at a Seminar via Zoom with my MMT colleague, Pavlina Tcherneva, where we will discuss the concept of a social contract and where Modern Monetary Theory (MMT) fits into that, especially in the context of our idea of employment guarantees. The seminar – MMT and the new social contract: Lessons from Covid-19 – will be held on Saturday, February 27, 2021, from 10:00 Australian Eastern Daylight time and you can find details of how you can participate – HERE. I was thinking about what I would contribute to this workshop and rather than just rehearse the standard discussion about the Job Guarantee I have thought going back to square one would be a good place to start. This is especially a good thing to do, given that I increasingly see progressive people

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I noted yesterday that I was appearing at a Seminar via Zoom with my MMT colleague, Pavlina Tcherneva, where we will discuss the concept of a social contract and where Modern Monetary Theory (MMT) fits into that, especially in the context of our idea of employment guarantees. The seminar – MMT and the new social contract: Lessons from Covid-19 – will be held on Saturday, February 27, 2021, from 10:00 Australian Eastern Daylight time and you can find details of how you can participate – HERE. I was thinking about what I would contribute to this workshop and rather than just rehearse the standard discussion about the Job Guarantee I have thought going back to square one would be a good place to start. This is especially a good thing to do, given that I increasingly see progressive people embrace the concept but try to do ‘too much’ with it. That is, place too much emphasis on it, especially in the context of Green Transitions. Pouring all our activist and political energy into getting a Job Guarantee up is not a sensible strategy for reasons I will explain. Second, a lot of critics, especially those who talk big on Twitter about ‘Bill Mitchell wanting people to starve’, clearly haven’t gone back to understand the roots of the concept and where it fits in. So today, I want to further clarify some significant issues that arise when both sides – pro and con – come in contact with the concept of employment buffer stocks for the first time and think they know all about.

As a matter of fact, I always applaud initiatives that propose to introduce a buffer stock of jobs and use it to replace the current unemployment buffer stock approach that devastates the lives of people and wastes human potential.

But I caution against making these initiatives out to be ‘game changers’.

A Job Guarantee is an important part of a new order but it should really be just a very small part of the policy offerings, which I think is a point that is missed by those who think of it as a job creation program rather than the way I conceived of it initially in 1978 as a price stabilisation framework with the added advantage that jobs replaced unemployment.

In this blog post, I am really building on the notions I developed in this post – Setting things straight about the Job Guarantee (July 30, 2020).

Let’s construct our thinking in a logical manner.

Capitalism is a crisis prone monetary production system.

Marx knew it. Kalecki knew it. Keynes got to know it.

The policy interventions that defined the period after World War 2 up until the Monetarist coup were built on that understanding.

We knew that unregulated capitalism would enter crises whenever pessimism increased and spending fell.

We also knew that without government intervention by way of fiscal stimulus, that the capitalist system could get stuck in an equilibrium state which would coincide with very high unemployment.

When people say they are Keynesian, above all else, they are referring to that understanding and that operational sense – for government to intervene into the private system that was stuck in crisis and restore confidence and income and employment growth.

We also formed an understanding from Marx and others that the logic of capitalism was conflictual.

The bosses want to get as much surplus value as they can out of workers while they control their work day and pay them the least they can get away with.

Conversely, the workers that are essential to creating surplus value (which is the source of monetary profits) want to be paid the most they can get and do as little possible work.

That juxtaposition spells conflict.

And that is what the whole history of supervision and control structures in capitalist workplaces is all about – ensuring that the surplus is created and maximised.

With the rise of Communism and the disruption of the Second World War, Western nations had to work out a way to rebuild their wrecked economies while ensuring that Communism did not spread.

Communism was attractive to workers because it held out a liberation from capitalist control. Of more equity and discretion about our workplaces.

That is one of the reasons, social democratic movements formed and were tolerated – because they allowed capitalism to survive by conceding some equity to workers and empowering the state to create public goods such a health and education systems.

Obviously capital still tried to manipulate those developments – for example, by attempting to control educational curricula and the like.

But for a time workers could organise and confront capital as a collective to extract better wage outcomes and working conditions.

Full employment gave tremendous advantages to the working class and allowed for upward intergenerational socio-economic mobility – where children born into poorer families could aspire to transcend that social class and enter the more secure middle class.

And as capital became more concentrated – through takeovers etc, and, trade unions became more powerful, the two conflicting forces obviously gained increasing price setting power.

Firms set prices according to markups which reflected their expected profit return on capital and unions, representing their workforces, could exert power to gain wage increases.

As a result real wages mostly grew in proportion with productivity growth which reduced the likelihood of a realisation crisis (expenditure lagging behind production) but also reduced income inequalities and allowed workers to fast track into middle class life (and mass consumption).

But that increase in ‘price setting’ power brought a new propensity to crisis relating not to unemployment but rather to inflationary biases.

The – 1973 OPEC Oil Crises – triggered an inflationary spiral driven by the ‘battle of the markups’ (the conflictual struggle between capital and labour for real income shares).

The existing Keynesian policy consensus had really only constructed inflation threats in terms of demand pull events – where nominal spending outstrips the capacity of the economy to respond by producing more real goods and services.

There was some delay among policy elites in grasping what a raw material price hike (particularly one that is imported – such as the oil shock) meant when it interacted with the distributional conflict between labour and capital.

The point was that nations as a whole had to take a real income loss because an essential raw material they imported now took a larger share of nominal income.

So who would take that loss?

Capital didn’t want to take it, and, rather tried to pass it onto workers by increasing their markups and pushing up prices, thereby reducing real wages and the purchasing power of workers.

But strong trade unions were not keen to accept that profit push and ‘real wage resistance’ became a force, which was expressed in increased wage demands – thereby restoring the real wage cuts resulting from the price rises.

As both sides had price setting power, a price-wage spiral was easy to trigger and that is what happened.

Before long, inflation was accelerating away and governments, under the influence of the emerging Monetarist paradigm in macroeconomics, sought to cut net spending.

This resulted in rising unemployment coinciding with accelerating inflation, which we called ‘stagflation’ – the twin evils.

The rising unemployment was devastating but airbrushed by the Monetarists as being an essential ‘natural’ adjustment that we just had to tolerate to stabilise inflation.

And so the ‘natural rate of unemployment’ or NAIRU (non-accelerating-inflation-rate-of-unemployment) entered the picture and governments were told that there was no longer a choice to use discretionary fiscal expansion to reduce unemployment.

The only thing that would result from this strategy, we were told, was that inflation would continue to accelerate and only stabilise when the natural rate of unemployment was reached.

I was a young student as all this was going on and mainstream economists were estimating that the natural rate in the late 1970s had risen (due to microeconomic inefficiencies) and full employment could no longer be considered to be 2 per cent or lower, a level that had been sustained for 3 or more decades following the Second World War.

In 1978, I was doing my fourth year studies at the University of Melbourne and one of the units I took as part of the course work component was Agricultural Economics.

As a child from a working class family, the rise in unemployment in the late 1970s and the response of the federal government to create a ‘razor gang’ under the then Treasurer Phillip Lynch, which sought to cut government deficits, was devastating.

Unemployment continued to rise. It was the beginning of high youth unemployment because one of the things the Razor Gang cut was apprenticeships, which were largely offered within the public sector.

Youth unemployment rose sharply (and never returned to low levels again) because its major employer stopped employing! All sorts of mainstream economists starting raving on about excessive youth wages, excessively generous youth unemployment benefits etc but it was as simple as their major employer bailing out due to the erroneous idea that fiscal deficits were dangerous and had to be cut.

So this was the period I was starting out in.

Inflation was very high.

The economics academy had become infested with Monetarist ideas and governments had shifted from seeing unemployment as a policy target to be minimised through public policy to being a policy tool that could be used to discipline the inflationary spiral.

That discipline would come by pushing workers into unemployment, which increased the fear of those still in work of having to endure the same fate if they persisted with their wage demands.

The unemployment and lost income also meant that ‘product market’ conditions (sales and demand) weakened, which made it harder or acted as a disincentive for firms to push up prices for fear of losing market share to rivals.

As I became more aware of economics, causation, class struggle and the rest of it, I realised that this anti-inflation strategy was incredibly damaging to the working class both in personal terms (undermining family stability, rising poverty rates and the rest) but also represented a massive loss in terms of daily GDP that was foregone as a result of the unemployment.

Not having workers who wanted to work working was a massive waste of human potential and income generation capacity.

The rising neoliberalism at the time ignored these losses and started to, instead, worry about whether buses and trains ran on time (the so-called microeconomic inefficiencies).

Micro reform became the policy flavour and led to attacks on conditions of work, attacks on trade union power etc, while the massive daily losses of the macroeconomic failure (the systemic shortage of jobs deliberately created by fiscal austerity) was staring them in the face.

Of course, all of this was a strategy (apropos of the Powell Memorandum and what followed) to undermine the gains made by citizens as a result of the three or so decades of social democracy.

Capital was fighting back and governments were being reconfigured by the neoliberals (supported by my profession) to aid and abet that fight back.

The times were very different to what they are now.

To really understand where the MMT version of the Job Guarantee comes from you have to try to put yourself back into that milieu.

When I was in that Agricultural Economics class, we were studying the wool price stabilisation program and I have already written about that in previous posts – see linked post above.

It was at the time unemployment was rising sharply, which was anathema to me.

So as a young progressive aspiring economist I wanted to devote my project work in that course, but as it turns out, all of my later work through PhD then academic work to countering:

1. The fiscal deficit fetishism that had taken over the profession by the late 1970s

2. The idea that the only way out of inflation was to use unemployment.

3. The idea that markets would deliver optimal outcomes if left unfettered from government spending interventions and regulation.

4. The idea that there was some natural rate of unemployment that we had to accept was a market phenomena that government could do little about.

That was my mission and why the idea of the Job Guarantee was an early expression of that mission was because I got the idea from the Wool Price stabilisation scheme, which was a government run buffer stock mechanism that effectively always ensure there was full employment of wool each year (no excess demand or supply) and stabilised the price of wool at a level agreed to be acceptable to the sheep farmers and government.

I wasn’t so much interested in wool but was very interested in labour and unemployment.

So a moment’s lateral thinking one cold winter’s day in Melbourne as I stared out the window of the lecture theatre onto Royal Parade shifted me from thinking about buffer stocks of wool to thinking about and sketching a plan for a buffer stock of jobs.

That sketch became my final paper in that course.

But you have to be clear it was a scheme to address the inflationary crises endemic to late industrial capitalism where capital and labour are in conflict and both had price setting power.

It was not conceived as a job creation program. It certainly had that additional advantage.

But it was conceived as a way of addressing the distributional struggle and the price-wage spiral without having to create unemployment.

I understood that a solution within capitalism had to be found because I hadn’t identified any revolutionary armies forming in the suburbs that might overthrow that particular (and pernicious) system of ownership and production.

That understanding didn’t suggest I supported capitalism. It just reflected the reality that while these revolutionary armies might have been a figment of ideation in the minds of the urban guerrillas that spent a lot of time talking over coffee in university cafes about overthrowing capitalism, the cold hard facts were that working class people were enduring massive hardships because they were being forced into unemployment as front line soldiers in the government’s fight against inflation.

So in ordering my priorities I decided the daily human suffering that was before my eyes, in the streets, in my own parent’s home, in the homes of my friend’s parents, etc was more pressing than the revolution which would have to come a bit later.

As I became an academic and developed the idea further in the 1990s, I was often confronted with critics – self-styled Marxists etc – who accused me of being an apologist for capitalism because I was proposing what they referred to as ‘palliative care’ for the workers which would lead them to have better lives and reduce their propensity to engage in revolutionary action.

Most of the criticisms came from academics with tenured, well-paid jobs.

They wanted the precariat to have to endure the perils of unemployment and become revolutionaries while they enjoyed relatively secure and high paid jobs.

You can imagine what I thought of their position.

The point of all this is that to understand the Job Guarantee in MMT you have to see it in this historical context.

It was a means of dealing with the inflationary biases at the time in capitalism which led governments deliberately creating unemployment as a vehicle to arrest the distributional struggle between capital and labour.

It was obvious to me at the time that the price the government was prepared to pay for labour as it absorbed workers released from the non-government sector as it tightened policy settings to choke off the inflationary pressures would ultimately set the price of the currency.

It could not be any other way.

The only question was how large the buffer stock of labour had to be to complete the task.

Some years later, when I came in contact with Warren Mosler, we discovered that we had come to the same conclusion from quite different starting points, which was both interesting and exciting.

And this idea of the buffer stock which was the terminology I introduced (given the agricultural beginnings of my thinking) then became central to our development of MMT.

We have discussed this a lot over the years.

Neither of us saw the Job Guarantee as being purely a vehicle for creating work.

It was always a price anchor.

Neither of us consider the Job Guarantee should be the first response to a downturn in spending by the non-government sector.

Neither of us want the Job Guarantee to be very large in size.

In the late 1970s, as I worked on the idea for my final paper in the Ag Ec course, I came to realise that in the Post World War 2 period, the only way that Australia had maintained low unemployment (below 2 per cent) for all that time was because it was actually running an implicit job guarantee scheme.

Jobs could always be gained in public utilities, infrastructure departments (housing, roads), railways, post and telecommunications, local governments etc.

There was an effective buffer stock operating all that time implicitly that allowed the most disadvantaged workers to always be able to work.

These jobs were accessible to those who the private market would never employ – people who had mental disabilities but could function episodically, people who were in and out of the prison system, young musicians that were often broke, and other cohorts.

So while I saw the Job Guarantee as principally my answer to dealing with the inherent inflationary propensities within capitalism, I also understood that for some, the jobs would be permanent and so it could not be a stop-start sort of program.

Which meant that I saw it as being the most basic part of a progressive economic policy structure that could help in the inflation struggle without creating unemployment but also provide accessible and stable employment at socially inclusive wage rates to those who the private market wouldn’t touch.

That latter cohort though important was typically relatively small.

And that is why I don’t use Warren’s terminology of a ‘transitional job’. For those who would occupy the Job Guarantee pool almost permanently it would be their careers.

But both Warren Mosler and myself were always clear that the first thing a government should do if it wants to create work is spend to create well-paid, high productivity jobs in the regular public sector.

And that is especially the case if there is no stagflation problem.

In a normal economic downturn, which arises because the non-government sector becomes pessimistic, relying purely on a Job Guarantee to solve the unemployment problem that arises, is likely to be a poor policy choice.

It would be there for sure to absorb some workers.

But overall governments should be about creating high-paid jobs not minimum wage jobs.

That is another misconception out there – that MMT just wants to create lots of minimum wage jobs.

Well Warren and I, who were there at the beginning of this MMT sojourn, have never seen it that way.

We want to create as few of those type of jobs as possible and only rely on the Job Guarantee in any significant way if inflation is rising fast.

Otherwise, our attention is not on disciplining the distributional struggle but on spending up to full employment.

Finally, this sort of thinking also allows one to see my criticism of Basic Income strategies in a historical setting.

Essentially, an income guarantee means the government is spending – via the agent receiving the basic income – at market prices.

So this increases the inflation risk of that spending, especially when capital and labour are engaging in distributional conflict.

The question then arises is how does the government then deal with those inflationary biases in capitalism, which are endemic?

Well without a buffer stock of jobs, the only other functional (effective) option is to create unemployment.

So we are back to that.

The so-called ‘freedom’ that basic income recipients enjoy (allegedly) comes at the expense of those who want to work being forced to be front line soldiers in the fight against inflation.

Essentially, basic income advocates have no answer to that question and problem. They are essentially in denial of the realities of capitalism.

And when they Tweet their heads off about MMT just wanting workers to be enslaved in shocking capitalist jobs, they miss the point that the Job Guarantee jobs would be in the public sector serving the communities, but they also fail to recognise that the basic income recipients are being reduced to the most elemental and crude unit that capitalism can offer – a consumption unit without any of the social advantages that work brings.

Conclusion

There is more I can write about these matters.

But it is crucial when considering the Job Guarantee in MMT to understand the historical context.

Otherwise, you will just waste your time Tweeting inane things about our work that might make you feel good but misses the point entirely.

That is enough for today!

(c) Copyright 2021 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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