Home > Uncategorized > Modern Money Blog Number Forty Six – Responses

Modern Money Blog Number Forty Six – Responses

The Job Guarantee – Program Manageability

Responses to Blog Number Forty Six

by L Randall Wray

New Economic Perspectives (April 19 2012)

Sorry, late yet again. One more week of teaching and then things should be less hectic.

Note: I had planned for 52 MMP blogs and we are nearing the end … But it looks like we’ll need a few more. I’m going to be a bit lazy this week, cutting and pasting the comments and providing brief responses.

Neil Wilson: Since unemployment is a systemic failure, aren’t the only questions that need to be asked (i) how much monetarily are we to compensate these people for the loss imposed upon them by the economic system? (ii) whether it is better to pay them do something useful and add to society or just pay them for sitting around doing nothing much? Otherwise the economic system surely relies on starving some people out of the way (either to an early grave or another jurisdiction).

LRW: Agreed with the sentiments. Just add this: Job Guarantee (“JG”) is a bufferstock so it actually helps the private sector employers, too.

Neil Wilson: Isn’t the management of a JG programme from the federal point of view pretty much the same as the management of a benefits programme? You work out whether somebody is entitled and pay them. Same issues with both really. One is means testing – which requires a lot of checking and rules, the other is whether they are doing some work that is of use. Seems to me that the overhead of both is pretty much the same. Here in the UK we’re implementing the ‘Universal Credit’ system which requires ‘real-time’ (that is, every payroll period) work hours data to be collected from every employer in the country so that top up ‘tax credit’ benefits can be adjusted in real time as well.  Add ‘file a nil paid timesheet from non-private sector organisation and we’ll pay it instead’ to the rule-set and you have a Job Guarantee.

LRW: You can design the JG to minimize federal government overhead, et cetera. But that pushes it onto some other organization such as state and local government, not-for-profits, co-ops, or private firms. It is simpler to pay people to stay home than to organize projects. Of course, as I’ve argued, having them work has many, many social and private benefits over “welfare”.

Justin Holt: I’ve been an advocate of full employment programs since I read Harvey’s book several years ago. But I have a few questions and a comment. Would the counter-cyclical effect of a JG be limited due to a cap on non-wage spending? Do you recommend that a JG also be supported by increased permanent public employment and public skills development programs as recommended in CofEE’s 2008 report “Creating effective local labour markets: a new framework for regional employment policy”?

Also, a comment: by requiring matching funds by local entities this may prevent job creation in areas where the local government is unwilling to match funds. Of course funding to non-profits and worker cooperative would get around this problem. It seems that a JG allows choices for people whose local government is unwilling or unable to employ them. People can by pass their local government and request funds. As opposed to seeing this as circumventing local control it could rather be understood as allowing people the opportunity to liberate themselves from local elites, brute luck, and a local electorate which does not share their opinions. A JG would offer opportunities to people who are not in agreement with the local opinion. Thus, a minority group of people who are not budget hawks could be fully employed while their local government cuts spending to meet the desires of the majority. A JG thus adds options and does not limit them. Of course local business may dislike the competition, but who ever said business liked competition?

LRW: First, yes there are other countercylical programs in addition to the JG. And yes it might be necessary to raise taxes or cut non-JG spending if inflationary pressures arise due to excessive aggregate demand. However as a general observation, virtually all developed capitalist economies operate with excess capacity and so this would rarely be needed.

Second, the matching funds element is only a proposal for the NonWage costs – to prevent, say, a nonprofit from getting lots of new federal government paid-for equipment, buildings, autos, et cetera. If they really need these things, they ought to put up some of the funds. If they cannot do so, they should create jobs with very low nonwage costs. Our first priority is jobs, second is providing community service. We want to keep the incentives aligned.

Third, I do not agree that we should expect local government to undertake every possible project of positive social value using its own local tax revenue. That will not work for fairly obvious reasons. So yes I would let them propose JG projects. If they prove useful then there could be local citizen pressure to convert these to regular public employment. However, I do prefer not-for-profit projects by local community service organizations. It might not prove sufficient.

Golfer1john: The idea that a local government might opt not to participate is interesting. If such a thing is common, maybe the Federal or State government would have to make it an offer they can’t refuse. Tie it to other revenue-sharing programs, for instance. If the overhead allocation is sufficient, I don’t think this would be a big problem. I think most local officials would welcome a cost-free opportunity to expand their empires. The program should not compete with private business, either for workers (except by setting a floor under wages) or for output. It is for people that private business is not willing or able to employ.

LRW: I don’t think any particular government or not-for-profit should be required to participate. Requirements would reduce “buy-in” and lead to poorly run programs. I do agree – as I’ve argued before – that projects should not compete with the private sector.

Golfer1john:  “… there is no justification for believing that the market can ‘do everything’ and that the market test is the only test of value”. STRAW MAN ALERT !!! Even the most ardent free market advocates acknowledge a role for government, and the existence of social costs and benefits not reflected in market prices. Only anarchists want no government. If you want to start a campaign against anarchy, you have my support.

LRW:  We will see how many ideologically motivated commentators will object that the market test is the only one that matters. In my experience, it is always a major claim made. Am waiting for Ralph’s response  (-). I find it necessary to continually point out that narrow “market efficiency” is not the only test. And I never hear our free marketeer friends acknowleding that most new firms fail – that is to say that most “market experiments” are failures … thus, that a few government failures should be accepted. Rather, they seize on every single government failure as “proof” government can do nothing right

Joe Firestone (LetsGetitDone):  “… there is no justification for believing that the market can ‘do everything’ and that the market test is the only test of value”. I don’t think it’s straw man. I’ve seen conservative politicians and pundits claim this or something similar many times. Economists are more careful about this, but there’s no way the Federal Government would have done all the outsourcing it’s done over the past thirty plus years at a cost much in excess of what civil servants would have cost if people didn’t believe something like the above proposition.

LRW: I agree with Joe. It may not be so in every country in the world, but this is the reality in the US.

Golfer1john: Something similar? Yes, I would say that most things the free market can do acceptably should be done by the free market. The price mechanism is the most efficient and effective way to allocate resources to their highest use. I hear politicians say that often, too. This is not the same as advocating EVERYTHING to be done by the free market. I have never heard a politician advocate doing away with the police and the courts, and allowing free market vigilantes to enforce the law and mete out penalties. (Maybe the SEC would be a good beta test candidate, though national defense is another, and there are others. The Constitution lays out several powers delegated to the Federal government. I know of no proposed amendments to remove any of them. In fact, the trend has been a transfer of power from the people and the States to the federal government, ignoring the nineth and tenth amendments. If I may be allowed a criticism of Professor Wray’s style, I think he sometimes weakens his arguments by over-generalizing, using absolutes when clearly the absolute is false, and the truth is writ in shades of gray. My comment is more about his style than about whether central planning is better or worse than a free market.

LRW: I disagree with much of that. There is no such thing as a “free market” to leave things to be done by. All economies are planned. The only questions are: by whom, for whom. Truth is not writ in shades of grade. I admit truth is hard to divine, however. And of course we all need to be suspicious of anyone who claims to have found it.

Golfer1john: It’s not clear to me who are the “project managers” to whom you refer, or that matching funds (from where?) should be required for non-wage costs. If you’re thinking of current local government managers, I would not want them “creating projects” because of this program. If the local government wants to do a project, they should do it regardless of the existence of a JG, and it should be justified and funded like all their other projects. I have in mind existing organizations already doing the projects, but struggling to do more for lack of volunteer labor. If they are properly vetted, I’m not worried about giving them funding for the overhead of the additional JG workers and activities. As for matching funds, remember we are talking about a program to be funded by a monetarily sovereign government but carried out by monetarily non-sovereign entities. They have not the option to simply spend more money, they must have an income from somewhere else, either taxes in the case of a local government, or donations in the case of a non-profit. Requiring them to (net) spend money to implement this program surely will reduce their willingness and ability to participate, and more so when funding is harder to come by, which is when the program is most needed. Matching funds is a pro-cyclical idea, tending to defeat the effect of a counter-cyclical program. Independent audits would be a better way to monitor for fraud, and as a side effect would eliminate any requirement for public disclosure of the names of JG participants. The auditors should be paid by the Federal government, not by the auditees, as is the common practice in commercial audits, so as not to duplicate the conflicts of interest in that system.

LRW:  I thought I made this clear: I’d let local, state government plus not-for-profits and possibly worker co-ops propose projects. Once approved, federal government provides wages to JG workers. There will be supervisory staff plus materials costs. The question is how much of that the federal government ought to cover. I’d put a limit – say, 25% (the number used in Argentina and in the US New Deal), with the rest “matching funds” from the project manager. I see no easy way to separate what a local government would do “anyway” versus what it will do with JG workers funded – since the main barrier to local projects is money.

Golfer1john:  “I do not agree that we should expect local government to undertake every possible project of positive social value using its own local tax revenue”. Nor do I. Local governments operate, like our Declaration of Independence says, “with the consent of the governed”. Just as I cannot afford every possible product of benefit to my family, local governments will not have consent to raise taxes enough to afford every possible project of positive social value. People will prioritize, and do what they feel are the most beneficial and, yes, cost-effective projects. I have a feeling that even with JG and full employment, there will still be a list of project proposals of positive social value that aren’t getting done, because they lose out to other projects of greater social value that can be done with the same resources. My Economics 101 teacher said that economics is the science of unlimited wants and limited resources.  My Economics 101 teacher was a huge free marketeer, and he often pointed out that four out of five new businesses fail in the first five years. The only thing he said more often was “there is no free lunch”. This is creative destruction, and is the essence of capitalist free market advancement. It is not a failure of the system, any more than the hundreds of light bulb designs that failed before Edison invented a light bulb that worked. I’m having trouble picturing a “failure” of a JG project. Okay, if you build a bridge and it falls down, maybe, but I don’t think bridge building is an appropriate JG project anyway. Since the main objective is to employ people, the only way to “fail” is if you gave a project and no workers showed up. I guess it comes down to the idea of what projects should be part of JG. It’s difficult to fail if your objective is sending JG “volunteers” out to work with Habitat for Humanity, or the food bank. Corruption, I suppose, could be considered a failure.  I was thinking we would still need lower taxes, even with JG. If we lost five million $50,000 jobs in the recession, replacing them with fiev million $8 an hour jobs is not enough to get back to where we started.

LRW:  Golfer: please sue your Economics 101 teacher. Looks like sheer unadulterated nonsense was taught to you. That explains a lot! (-) Free lunches and low hanging fruit are everywhere. Grab them. That is what Economics 101 ought to teach. Economics is NOT the study of scarce resources and unlimited wants – indeed both of those get it backasswards. The most important resource, labor, is always nonscarce and unemployed in all capitalist economies. And in any case resources are socially created, not given by nature. Wants are also socially created, not innate in “homogenous globules of desire” as Veblen put it.

Failure – Yes, corruption, unfinished projects, projects that are not seen by the community as useful, projects that do not allow for improvement of worker skills and advancement, et cetera. Our ultimate objective is to make JG workers more employable, and to provide the community with useful projects. So failures are possible and indeed will occur.

Greg Bickley: What do you know about the corruption surrounding India’s JG program? That was a topic on one of the blogs I read the other day. I can’t remember exactly where right now. Every other JG program and their troubles will be used against the idea here at home. I like the idea of direct pay via Social Security Number. No middle men touch the money.

LRW: Read papers about India’s program at http://www.levy.org. One of my students is completing her dissertation on the program – she did field visits so will be reporting detailed studies. Just to quickly summarize: It depends greatly on the village; those that are better run, with the interests of villagers in mind, do a good job in organizing useful projects and providing the labor hours promised. Watch on New Economic Perspectives for announcement when the dissertation is done.

Trixie: Like Greg Bickley above, I’d like to get any insights you may have India’s JG. The article I think he is referring to is: http://ipsnews.net/news.asp?idnews=107379. Obviously, reports of corruption come as no surprise. And I understand India’s economic and political environments are not comparable to the US, but any information or links you may have would be helpful.

LRW: See my answer above. Yes, there will be cases. However you must also understand that the mainstream media is ALWAYS going to hype failures. After all, it is a for-profit sector and always hates the competition.

Joe Firestone (LetsGetitDone): Randy’s look at the JG is in this post is very realistic, I think. But when considering the problems that will certainly arise, it’s very important to always have in mind the costs of using an unemployment buffer stock. Bill Mitchell’s very good on this here: http://bilbo.economicoutlook.net/blog/?p=17740 and in other links in the above post. The cost is just staggering and there’s no way the possible costs of the JG that come to mind even begin to approach in severity the costs Bill describes.

LRW: Thanks Joe. Agree completely, and thanks for links to Bill.

Ralph Musgrave: I have a few comments. First regarding dealing with embezzlement, I agree that plenty of use can be made of the internet. Use can possibly also be made of cell phones and mobile phones. In Nigeria every other person has a mobile phone now, and much of the embezzlement of social security money has been cut by crediting peoples’ phones with social security money. However, another undesirable practice (or form of “embezzlement”) is using productive JG employees for long periods as substitutes for regular employees whose wage would normally be funded by the non-profit sector. That was a problem under CETA as I mentioned a few days ago. I don’t think your post said much about that. A way round that problem is to prevent any given JG employee staying with a given employer for more than a few months (though there are plenty of refinements to that “few months” rule that could be added).

Next: your point near the end of your post about public goods, social benefits and costs, market prices, social efficiency, et cetera. Obviously the market does not value public goods correctly, as you say. But we already have a system for dealing with that: it’s called democracy. That is, anyone can campaign for, and/or vote for having a bigger proportion of GDP allocated to public spending. So I have doubts as to whether those setting up JG systems have a right to overrule those democratic decisions: that is, assume that the electorate has voted incorrectly and that public goods are STILL UNDERVALUED. That’s why I’ve always assumed when discussing JG that the marginal product of labour in public and private sectors are the same. And that in turn is just one of the arguments for having JG operate as much in the private as public sector. Though obviously you oppose JG operating in the private sector.

Regarding the millions of jobs which non-profits et cetera can allegedly produce, CofEE once did some research into this (I can’t quote chapter and verse). The response they got from non-profits, local government, et cetera was that there were strict limits to the amount of relatively unskilled and temporary labour they could use. The response of the CofEE researchers was bizarre: instead of accepting the empirical evidence that they themselves had collected, they accused the non-profits et cetera of not being imaginative enough. Personally I live in the twenty first century, not the thirteenth: that is I accept what empirical research shows, unless it is contradicted by other empirical research. You could argue that the above evidence is contradicted by the experience of Jefes under which very large numbers were put onto JG type work without too much difficulty. But my answer to that is that given catastrophically high levels of unemployment, there is an ample supply of entrepreneurial and skilled labour amongst the unemployed. So getting people to run JG projects is no problem. However, given catastrophically high levels of unemployment, much the best solution is a straight rise in aggregate demand, not JG. That is because regular jobs (public and private sector) are more efficient than ELR/JG jobs.

LRW: Agree on use of internet. CETA could “hang on” to employees only because they had no other options. Unemployment was high and there was severe competition to get a CETA job (as I can attest) precisely because it was not a JG. Further, pay varied by job so if you were lucky enough to get one of the high paying jobs, it was hard for the private sector to attract you. I would not add any time rule to JG – no need for it. JG does not overrule democracy. It supports a human right. I see no good argument here for JG jobs in the private sector, but if anyone ever comes up with some I will listen. I am not inalterably opposed. I am somewhat familiar with the CofEE research you mention as I knew the student who undertook it – and I do not think you have accurately reported the results. In any case, that is a matter for Bill, not me. If the unemployed have “entrepreneurial skills”, I’d let them form worker co-ops, probably with a time limit to demonstrate profitability. Your last statement is just plain false unless you mean for it to apply in the narrow “market” sense of profitability – but then it cannot apply to regular public sector jobs. As usual, the reference to “efficiency” is nothing but a handwave.

Golfer1john:  “… using productive JG employees for long periods as substitutes for regular employees whose wage would normally be funded by the non-profit”. I’m not familiar with the nuts and bolts of CETA funding and operation, although I vaguely remember the acronym. Perhaps it allowed more opportunities for embezzlement than JG would do. People who would be in JG for a long time mostly need training, not just any old thing to do. They are not likely to be coveted as regular employees by non-profits. I can’t imagine a JG employee staying for a long time in a JG job if he is a suitable substitute for a regular employee. He would be one of the first to be hired out of JG by a regular employer, at a higher wage. I guess he could be paid extra “under the table”, but that behavior seems more likely for a private sector employer than for a non-profit.

LRW: Golfer’s last point is the obvious one. JG does not want to retain workers – it “sells” to a higher bidder.

Ralph Musgrave Golfer, There would certainly be a TENDENCY for relatively productive JG employees to quit fairly quickly for regular work. On the other hand, in many countries, unemployment benefit and various “in work” benefits for the lower paid are so high, that that those in the bottom third or so of the pay scales have little incentive to seek more productive work than they are currently engaged in. So my guess is that rules need building into the system that dissuade employers from holding on to JG employees for too long.

LRW: No. JG takes “workers as they are” and enhances their skills and employability. But it does not kick them out so long as they follow the work rules.

Golfer1john:  “… given catastrophically high levels of unemployment, much the best solution is a straight rise in aggregate demand, not JG. That is because regular jobs (public and private sector) are more efficient than ELR/JG jobs.” No, it’s because you want a vibrant economy with a small pool of JG workers, where more people can get jobs they aspire to, and not be relegated to work that employers are not willing to pay for.

LRW: And you don’t want to stoke inflation, which you will do long before you ever get to full employment through pump priming.

Ralph Musgrave: Golfer, Valid point. But it doesn’t contradict my point, namely that efficient jobs are better than inefficient ones, all else equal. That is, if unemployment can be reduced by simply raising demand, that’s the best way to do it rather than create JG jobs because (1) the jobs created are more efficient, and (2), your point, you get a bigger variety of jobs which as you say, enables more people to get the jobs they aspire to.

LRW: Looks like “efficient hand waves” to me. Efficiency is ill-defined and over-rated. How “efficient” is it to leave 25 million unemployed? Or, almost as bad, to employ them on Wall Street?

http://neweconomicperspectives.org/2012/04/responses-to-mmp-blog-46-the-job-guarantee-program-manageability.html

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