Employment for All Debate: My Response to Darwin

Great response from DarwinCatholic. I’ll outline my response similar to his. [You can find my proposal and the first of this series here.]

Unemployment/Job searching

I agree that job searching is a good thing in the short term. My proposal is not meant to replace unemployment insurance or job searching. I think unemployment insurance should be made available to those who choose to remain unemployed and search for a job vs. being hired into the job guarantee program so that the worker can search for a higher paying job or one that more closely suits their interests or skill set.

So you could offer unemployment insurance for a few months or even up to year at which point the gov’t could remove the insurance in order to create incentive to join the program over free-riding unemployed. The guaranteed job at a low living wage would always be there for them, some could choose to remain unemployed, but it is their choice, thus eliminating all involuntary unemployment.

Make work/sticky jobs

The program is designed to pay workers a minimum living wage, to provide goods and services that would otherwise be unprovided, and to increase the skills and hire-ability of the workers in the program. That is, a major part of the program is getting them back into the private sector by providing them with the skills necessary to do so. So, no, there isn’t a future in the program, the future is out of the program; we really don’t want them in the program and should do what it takes to get them out.

I do think that there may be “lifers”, that is, those who like the job and the pay would never want to leave, but I wouldn't say it is a free-riding issue as might be the case of other welfare programs. It is a guaranteed opportunity to provide for oneself and one's family by working, not a case of getting something for nothing. Other welfare programs should fill any inadequacy of the job guarantee program in providing the minimum level of goods and services necessary to maintain the person's dignity that is his by virtue of him being a person created in the image and likeness of God. So I don't think free-riding will be an issue, and I don't think that "lifers" are a problem, either.

The program should increase their future earnings by preventing the deterioration of skills caused by unemployment and by providing them with new skills in sectors that are hiring.

Inflation

This is a much trickier area of argument and again it gets a little ‘wonkish’ so please stick with me. MMT is very correct in my view on how finances work and what money is, etc., but when it comes to inflation there is much less certainty. Though I do believe MMTers still have a better idea of how inflation works than most mainstream economists.

Darwin provides a neat example of how injecting reserves into an economy via government spending is inflationary. I have no bone to pick there, government spending of its very nature is inflationary. But I think he is ignoring or overlooking the deflationary tendencies/factors. Taxes are deflationary for example. They drain the economy of reserves (money). Net desired aggregate saving is also deflationary. Investment equals saving in the private sector (necessarily), but if the private sector wants to net save financial assets, which is expected to be the normal case, then this is also deflationary (the savings must either come from the public sector through federal government deficits or a trade surplus).

Drops in consumer spending are also deflationary. So when consumers are paying down debts and increasing saving in the wake of a crisis they bring about a deflationary tendency by lowering aggregate demand (note this is no different than saying they desire higher net saving). Also note that this deflationary factor shows up more often as slack in the economy rather than price decreases, that is, firms decrease output more so than they decrease prices.

Increasing aggregate supply also is deflationary as would be the case if unemployed workers are put to work in a job guarantee program.

Inflation is more complicated than ‘too much money chasing too few goods’. There are many tendencies at work. A simple closed economy example cannot nail down all the tendencies and cannot say which will outweigh the others.

Darwin also brings up ‘value’ which is much trickier than inflation to pinpoint. Is it subjective? Objective? Both? Neither? Material? Supernatural? Both? Neither? Valuable in that it serves needs? Wants? Both? Neither?...etc. Value is the question that has flummoxed economists since before Adam Smith. I would argue that the ‘value’ that Darwin introduces here is subjective (as opposed to objective), which is in line with mainstream economics but has some problems, not the least of which is that it is based purely in the mind on the imaginary, incalculable concept of ‘utility’ (hence its subjectivity).

So, I don’t reject Darwin’s argument that net gov’t deficits are inflationary, but I do disagree that the program I propose would bring about inflation let alone hyper-inflation. It is not simply more money chasing a less ‘valuable’ amount of goods. There are other forces at work. The program is designed to work as a buffer stock by fixing the price of low skilled labor and letting quantity float much like the gold standard did except that low skilled labor is a much more pervasive ‘commodity’ in American production and is the ‘commodity’ hit hardest by crises. The fixed wage would temper aggregate demand during booms by anchoring wages and the prices of goods whose production involve low skilled labor and would prevent large drops in aggregate demand during crises by guaranteeing a wage to anyone willing and able to work for that wage.

The nature of a buffer stock would help anchor prices just like the gold standard. The difference between a labor buffer stock and a gold buffer stock is that labor is more pervasive and important and also that it necessarily guarantees full employment just as a gold standard ‘employed’ all gold. So full employment and greater price stability is achieved.

This to me is a great ‘side-product’ of the program, whose main attraction to me is providing an opportunity for men and women to provide for themselves and their families in times when the private sector is unwilling to do so.

Socialist caluculation problem/Administration difficulties

Here I suggest that the jobs that the workers will do be based on their skills and the needs of the community. I recommend a county level administrator who can assess the skills of the workers and the needs of the community and even ask for applications from the community who know their needs better than an administrator would. To me, the biggest problem the job guarantee program faces is administration, much like all gov’t programs. There will no doubt be some politics involved and some skewed motives/incentives on the part of workers and administrators. My opinion, however, is that the administration difficulties are outweighed by the benefits of the program—full employment and price stability.

Discipline of workers is absolutely necessary to prevent shirking as in all private sector jobs. There must be ability to fire workers with conditions placed on re-hiring.

Convicted criminals could also be an issue in the form of limiting what they can do (they couldn’t work in a classroom as an assistant, e.g.), but ex-criminals can provide for society and indeed this program may help rehabilitate criminals who would otherwise not find work in society once outside of prison.

Dignity of the job guarantee program

I disagree with Darwin here that dignity of work is solely tied to a sense of providing value to society. I believe that the dignity of work involves providing value for society, but also in providing for oneself and one’s family and in the spiritual, moral development of the worker. I also believe this is what CST says as well.

I think that there are many, many “make-work” jobs that would provide substantial amounts of ‘value’ to society and provide the worker with dignity. I do think that there might be some that feel they are getting a check to do nothing valuable for society, but I believe that to be the case with some jobs in the private sector as well. I hope that through time and our example they will realize that there is dignity in all kinds of work, even picking up trash.

Structural Adjustment?

I don’t think that the long term unemployment we are experiencing is a structural adjustment; rather, I am strongly convinced that the drop in employment caused by the financial crisis is cyclical and NOT structural. In other words, the roughly 5% unemployed before the crisis are maybe structurally unemployed (mismatch of skills and jobs), but the increases in unemployment caused by the crisis are because of the drop in overall demand, not an Austrian sectoral re-balancing.


I really appreciate Darwin taking on the task of engaging in a debate over a topic I have studied more intensely than he has. He brought up excellent points and I’m glad to debate with someone willing to understand a new/alternative perspective. I, too, have benefited greatly from this conversation.

But now I want to know, what do you think?