Bill Mitchell-en Planning public works – history has a lot to say if we listen properly
(i) Milton Fiedman eta monetaristak1
(ii) Interneteko Artxibategi berria2
(iii) Historia eta aukera ideologikoak ekonomian, Monetarismoa, neoliberalismoa eta mugimendu sozialdemokratak3
(iv) Politika fiskalaren lehentasuna eta plangintzaren beharra
Fiscal policy primacy
My three part series, which included a discussion of the primacy of fiscal policy was4:
(v) AEBko baliabideen plangintzako kontseilu nazionala: Wesley Clair Mitchell6
(vi) Charles E. Merriam eta “A New Bill of Rights”7
(vi) 1941ko txostena eta DTM, job guatantee (lan bermea)8
(a) History tells us that ideas come in and out of favour as ideological shifts occur.
(b) At present, the thoughts embodied in this Report are seen as the anathema of the ruling elite.
But that will change.
(c) Progressives have to familiarise themselves with these sorts of ideas to ensure they are prepared for government when the political sentiment shifts.
The last thing that they should be doing is playing the ball with the neoliberals and buying all their arguments that fiscal policy is ineffective or should be disciplined by balanced fiscal rules etc.
1 Ingelesez: “A few weeks ago, in my three part series answering questions about Modern Monetary Theory (MMT), I addressed the issue often raised about the fiscal policy emphasis in MMT, that it is difficult to time government spending injections to match the cyclical need. These criticisms go back a long way and were used by the likes of Milton Friedman to build up his case against discretionary fiscal activism in favour of monetary rules. Of course, that was an ideological preference, given the Monetarists wanted ‘small’ government and technocrats implementing economic policy. The basic precepts of Monetarism have not stood the test of time and the GFC and its aftermath have showed, beyond doubt, that monetary policy is an ineffective means of stimulating aggregate spending and that fiscal policy is the best way to counter non-government spending collapses. In those blogs, I outlined several ways in which fiscal policy could overcome ‘timing’ issues and deliver prompt stimulus when needed and be able to contract the stimulus in a timely manner once non-government confidence and spending had recovered. The points I raised are not new and have been discussed and made operational many times in the past. “
2 Ingelesez: “A tweet from my MMT colleague Stephanie Kelton last week reminded us of this again when the US National Resources Planning Board (NPP) was mentioned with a link to the The Internet Archive is a “non-profit library of millions of free books, movies, software, music, websites, and more” and is a fabulous resource for researchers. Reading the Report from the NPP is like music to the ears! History has a lot to say if we listen properly.
The Internet Archive “pays particular attention to books”, and make books that are not commonly available in local libraries available to Internet users.
They “scan 1000 books per day in 28 locations around the World” and that gives us access to material that goes way back in time.”
3 Ingelesez: “History tells us is that ideas cycle through time according to ideological preferences at different points in time.
The neoliberal period in economic thinking is really just a hyped-up version of the pre-Great Depression thinking that John Maynard Keynes and others so categorically demolished in the 1930s to create a new orthodoxy.
The resurgence of Monetarism and its microeconomic ‘free market’ narratives (which I lump together and call ‘neoliberal’ for want of a better title) were not new ideas nor based on new evidence.
They became dominant again only because the vested interests (corporate money, conservative thinkers) found a way to usurp the broad appeal of social democratic movements that were the political vehicles for the ideas of Keynes and others to become the mainstream policy framework.
The errors in pre-Keynesian economics, that were exposed in the 1930s, were not fixed or amended by the neoliberals. They were just ‘swept under the carpet’ in an exercise in Groupthink denial.
For example, I asked a group of academic economists last year in Europe who I was presenting to – how many knew about and understood the implications of the Cambridge Controversies in the 1960s. Hardly any admitted any knowledge of this literature.
The fact is that the conclusions from that debate meant that orthodox neoliberal distribution theory (marginal productivity theory) is inconsistent and, basically, fake knowledge.
Yet it still is taught in universities as if nothing ever happened in the 1960s. And you will still hear economists tell you that real wage increases will cause unemployment if they exceed the marginal product of labour.
And you will still read that the distribution of income broadly conforms to the ‘contribution’ of different income recipients to production (measured by marginal products).
All shown in the 1960s to be logically inconsistent and unsustainable assertions.
But Groupthink denial is a powerful force as I have written about many times.”
5 Ingelesez: “I noted that significant forward planning is required to ensure that the fiscal policy can be relatively responsive to the cycle.
MMT economists are fully aware of the technical, legislative and implementations lags that can accompany large-scale public spending.
But well thought out preparation and well planned projects can allow the government to turn on spending fairly quickly in a downturn and turn it off (or restrict it) in times of high pressure.
For example, the decision by Norwegian authorities to fast-track the construction of Oslo Airport at Gardermoen was a highly effective fiscal intervention to ease the pain of the 1992 recession.
While the location of the airport was controversial, the intervention was effective and finite. It also carried scale such that components could be expanded or restricted at fairly short notice to meet with the changing cyclical conditions.
Another good example is the highway projects in Japan. The Japanese government has a well-designed infrastructure plan in place that allows it to expand and contract government spending to extend the highway and related infrastructure (bridges, waterways etc) to suit cyclical conditions.
This type of spending can be highly responsive with minimal lags.
These insights have been known about for a long time and it is only the imposition of ideological blinkers that have led to them being discouraged in the public debate.
The neo-liberal era has also been marked by a major reduction in Departmental capacity to design and implement fiscal policy – given the obsession with monetary policy and the major outsourcing of “fiscal-type” government services to the private sector.
Many of the major government policy departments in the advanced nations are now just contract managers for outsourced service delivery.
So this diminution in the overall capacity of the government machine to implement efficiently and speedily complicated nation-wide infrastructure programs has to be addressed as a matter of urgency by progressive politicians.
As a result of what we learned during the GFC, we can no longer deny that fiscal policy is required to address serious swings in non-government spending.
Monetary policy has been proven – categorically – to be ineffective in dealing with aggregate demand failures of the sort we have witnessed in that crisis.
In that context, governments must develop forward-looking capacity to ensure that it has project implementation skills when they are required.
That was exactly what the US National Resources Planning Board concluded in 1941. The wheel turns.”
6 Ingelesez: “The US National Resources Planning Board
In 1933, the Committee on Recent Social Trends (chaired by economist Wesley Clair Mitchell), established by the then US President Herbert Hoover released a report – Recent Social Trends in the United States.
Wesley Clair Mitchell was awarded a PhD from the University of Chicago but his work was anything like what emerged from that institution when Milton Friedman and his ‘boys’ ruled a bit later. Mitchell’s mentors there were strongly opposed to the Classical doctrines (such as the Quantity Theory of Money), which later became the building blocks of Monetarism.
For one thing, Mitchell was “one of the founders of the New School of Social Research” in New York, hardly a neoliberal institution.
One of its recommendations in the 1934 government publication – A Plan for Planning (National Planning Board) was that Committee was that the nation could benefit from the creation of a “National Advisory Council”, which really was a proposal to make its own work more permanent.
The National Planning Board was established in July 1933.”
7 Ingelesez: “There is an excellent article in The American Political Science Review (Vol 38(6), December 1944, pp.1075-1088) describing the operations of the National Resources Planning Board by one of its founding members, Charles E. Merriam – The National Resources Planning Board; A Chapter in American Planning Experience.
The link is to JSTOR if you have library access.
Hoover had established the Committee using emergency legislation to meet the meltdown associated with the Great Depression.
Its “primary function … was that of advice to the President on problems of long-range planning” (p.1076).
Merriam is clear that “I do not recall any instance of partisan politics entering into any of the many conferences and discussion”.
Planning was not a dirty word in those days. It was understood that if the government was to use its spending capacity, which would have impacts over many generations (in the case of infrastructure) then it should be done in a considered manner.
Merriam writes that (pp.1079-1080):
The underlying philosophy of the Board was expressed in wha was called “A New Bill of Rights,” supplementing earlier and existing rights already accepted … (1) the right to work usefully a creatively through the productive years; (2) the right to fair play adequate to command the necessities and amenities of life in exchange for work, ideas, thrift, and other socially valuable service; (3) the right to adequate food, clothing, shelter, and medical care; (4) the right to security, with freedom from fear of old age, want, dependency, sickness, unemployment, and accident; (5) the right to live in a system of free enterprise, free from compulsory labor, irresponsible private power, arbitrary public authority, and regulated monopolies; (6) the right to come and go, to speak or be silent, free from the spyings of secret political police; (7) right to equality before the law, with equal access to justice in fact; (8) the right to education for work, for citizenship, and for personal growth and happiness; and (9) the right to rest, recreation, adventure, the opportunity to enjoy life and take part in an advancing civilisation.
That was the vision for the US … something has gone horribly wrong in recent times, no?
The Board recognised that the US government was responsible (p.1080):
(1) to underwrite full employment for employables; (2) to guarantee a job for every man released from the armed forces and the war industries at the close of the war, with fair pay and working conditions; and (3) to guarantee and, when necessary, underwrite access to security, equal access to education for all, equal access to health and nutrition for all, and wholesome housing conditions for all.
Merriam goes on to describe the way in which the National Resources Planning Board would achieve these objectives that were considered at the time to be uncontroversial and intrinsic to the conduct of government.
He countered the claim – that is common these days – that “planning will interfere with the development of free industrial society”.
He called those fears “groundless” (pp.1086-1087):
The very purpose of planning is to release human abilities, to broaden the field of opportunity, and to enlarge human liberty. We plan primarily for freedom; the ways and means and instruments are secondary to the main purpose. The right kind of planning – democratic planning – is a guaranty of liberty and theonly real assurance in our times that men can be free to make a wide range of choices. Every progressive nation is now actively engaged in plannning for the development of its natural nad human resources, on the highest and best level.
The Board’s first major report was A Plan for Planning made its intent clear (pp.36-37):
… a general staff gathering and analyzing facts, observing the interelation and administration of broad policies, proposing from time to time alternative lines of national procedure, based upon inquiry and mature consideration.
How different is that from the sort of rubbish that emanates from politicians these days about leaving it to the markets and deregulation etc?
The US government was not exceptional in this regard. Many governments during the Depression and afterwards knew they had the fiscal capacity to create full employment but wanted to ensure their spending capacity could be used effectively, which required some sort of planning across sectors, regions and labour types.
These planning agencies were very focused on ‘evidence’. They used the statistical tools of the day combined with solid research to advised the governments who bore ultimate responsibility.
If you applied the standards that were common in those days to the development of the Eurozone, then it is clear that the Delors Report would have been rejected as poorly reasoned and empirically deficient analysis.
The National Resources Planning Board were linked in closely with the major research communities like the Social Science Research Council, the Public Administration Clearing House and the National Bureau of Economic Research (which Mitchell had founded).
Compare that to the Delors Committee, which was deliberately constructed to ensure its membership was of the one mind and that outside ‘difficult’ views would not get aired.
In the 1934 Report A Plan for Planning we read that (page 32):
… the cooperation of scientists … should make possible a wiser and sounder adaptation of technology to economic and social advancement, while the cooperation of the social scientists with their research in the field of human behavior should correspondingly facilitate the making and perfecting of social inventions.”
8 Ingelesez: “The NRPB 1941 Report
The National Resources Planning Board released another major report in January 1941 which encapsulated the way that governments were working on the implications of the theoretical ideas from Keynes and others.
The 432-page Report – Development of resources and stabilization of employment in the United States – has many beautiful pieces of analysis and reasoning, which buttress the core MMT propositions with respect to the primacy of fiscal policy.
A reading of that Report will leave you in no doubt as to how a national currency-issuing government can implement effective fiscal policy to meet both longer-term needs of its people but also counter-cyclical responses in a time when recession threated as non-government spending was in retreat.
Exactly an answer to the concerns that people have that fiscal policy cannot be implemented in a timely manner.
I will leave it to your interest to read or study the entire Report.
But I draw your attention to ‘Chapter C. Public Works for Employment Stabilization’ commenting on Page 14, which outlines how government spending can be planned over time to meet longer-term objectives and ensure cyclical stabilisation functions are served.
1. “The provision of the physical facilities needed for the service of the community as a whole has traditionally been considered a proper responsibility for government finance and administration” – they even cite Adam Smith in this regard.
It is interesting that the Right consistently quote Smith as an authoritative reference for their ‘free market’ babble, but do so selectively and miss the broader message of his work which clearly assumes a major role for the state in providing public infrastructure and using public works to generate employment.
2. It is recognised that US economic development would not have occurred without the activities “by government since our earliest days”.
3. “It was recognized long ago that activities such as these presented opportunities for job creation during recurring periods of widespread unemployment.”
4. Most importantly:
Jurisdiction over the work is wholly in the hands of public bodies, a large proportion of the labor required needs no special skills, and the work is widely spread geographically.
This is a basic principle of the Job Guarantee.
It also underpinned my introduction of the term ‘Spatial Keynesian” in a paper I published in 2007 with James Juniper – Towards a Spatial Keynesian economics’.
The Job Guarantee is a spatially-consistent policy in that it provides jobs (economic settlement) to accord with the social settlement (where people live).
It also enhances the capacity of people to move regions should they desire that.
5. After notating a series of projects that have delivered long-standing benefits to US cities, regions etc, the Report says:
All these efforts were largely in terms of providing jobs for needy people, rather than in terms of attempting to influence the forces that had caused the unemployment in the first place.
You cannot solve unemployment unless you create jobs.
The current obsession with supply-side activation (training, CV preparation, threats to cut income support, etc) all miss the point – mass unemployment is about a systemic lack of jobs.
To solve it you – repeat 100 times – have to create work for people.
That is what the Job Guarantee ensures – there will always be enough jobs as a base case for the nation.
The Report then continued to discuss the idea of “Public Works for Cyclical Stabilization”.
… proposals had been made by legislators, business men, publicists, and economists that the downswing of the business cycle be subjected to some degree of control by adjustments in the level of pubUc construction activity.
They discuss “precisely how that control should be exercised” and conclude that:
1. “in general the proposals focused on the normal construction operations of government and contemplated timing of activities so that expenditures would be low during periods of business prosperity and high during depressions”.
Oslo airport! Japan’s highway system! Australia’s Great Ocean Road! etc
2. They quote a 1905 report from the British Poor Law Commission that this timing requires:
… scheduling of regular public works and regular government purchases in such a way that a larger amount would be done when private business was less active and a smaller amount when private business was more active, with the idea that this would serve as a regulator and stabilizer of the total economic activity of the nation.
Pretty basic really.
3. They document how the US government already had in place cooperative arrangements with State and local agencies to accomplish such scheduling “in times of depression”.
4. They note that these plans “provided for advance preparation of engineering plans by the various departments of the Federal Government and gave broad powers to the President in retarding or expediting projects.”
Forward thinking and action – “advance plans”.
Not waiting for the ‘market’ to solve all problems but setting in place all the required planning to allow government spending to be turned on and off when required yet providing for socially beneficial output.
6. Public infrastructure spending was always understood in this way. Apart from large projects that allowed for technological shifts – such as telephony, etc – governments knew that they could:
… arrange the construction of public works so far as practicable in such manner as will assist in the stabilization of industry and employment through the proper timing of such construction, and that to further this object there shall be advance planning, including preparation of detailed construction plans, of public works by the construction agencies and the board.
7. In that regard, “six-year programs” should be prepared “of their construction projects, which the President would be empowered to accelerate or retard to meet the cyclical situation encountered.
The objective “to aid in preventing unemployment”.
The Report then documented how this sort of thinking was used to combat the Great Depression – the creation of the Federal Emergency Administration of Public Works (PWA), which initially was constrained by politics but by 1936 was in full swing.
The Board reflects on “What 10 Years of Experience Have Shown” (remember it was published in 1941).
They conclude that:
1. All levels of government must coordinate closely in the area of public works – which is an essential principle of the design of the Job Guarantee.
2. Local projects should not be hampered by federal political stoushes about ‘federal finances’.
3. It was only when the Federal government realised that its “expenditure … [represented] … entirely a net addition to what such expenditures otherwise would have been” that the PWA started to function effectively to generate jobs.
4. “Emergency programs of public works construction may be self-defeating in achieving the aim of employment stabilization” because they lack the administrative and planning experience and capacity.
They also led meant that, often “community value had to take second place” as politicians scrambled to quickly solve rising unemployment with ill-thought out projects.
The lesson is that:
A continuing policy … would have made it possible to plan a public works program for a considerable period in advance, projects could have been made ready with the care that important undertakings require, they could have been chosen in accordance with the community values represented by their completion, administration could have functioned smoothly, and the deflationary effects of periodic work curtailment could have been avoided.
The Job Guarantee is not a temporary ‘make work’ program but rather part of the basic, on-going policy infrastructure that a currency-issuing government implements.
It is a permanent capacity and is supported by appropriate administrative and technical experience and capacity within the operational government departments.
5. Projects should not seek to ‘pay for themselves’ with user charges, tolls etc. The public benefit is the goal not revenue generation.
6. What about delay? There are inevitable delays in operationalising projects – but “it is possible to shorten or telescope some of these time elements”.
The Report lists how a forward-looking government can prepare many aspects of a project in advance to minimise delays – for example land can be pre-purchased if it is known that highway or train developments, or new drainage systems etc will be required over time.
Technical skills within the government avoid delays in tendering.
Further, “It is entirely possible to reduce to a minimum the delays that so far have been caused by the necessity of carrying our preliminary surveys, studies, and investigations and in making detailed plans and specifications” notwithstanding the prospect of technology changes etc.
Many of the delays noted relate to ‘funding’ and the politics surrounding that. The Report recommends that governments have “advance provision of funds” to ensure preliminary work is accomplished even if a Project is not implemented in the immediate period ahead.
And, in terms of the MMT Job Guarantee, the principle is that the wage flows as soon as the person seeks work with the relevant JG agency, whether they are put to work immediately or not.
So the major part of the counterstabilisation occurs even if there are delays in actual productive activity.
7. Finally, the Report considered “Flexibility and Commitments” in terms of “difficulty of bringing … [projects] … to a close.”
This is another oft-heard criticism – that capture by various vested interests make it hard for governments to withdraw spending at appropriate times (in the cycle).
This particularly relates to large projects which involve many different interests.
In part, this is a problem of indivisibility.
In the Report’s words:
Once a large and important public improvement is put under way, there is usually a virtual commitment to carry it through to completion. It is entirely possible, even, that the level of operation on big projects would be in an increasing stage at the time when general policy would demand program curtailment.
In other words, fiscal policy would overshoot the cycle and become pro-cyclical – stimulating when non-government spending had recovered and was booming.
The Board recommended a “well-balanced program” should be maintained in this regard so that the stimulus does not rely exclusively on some large project.
Highway construction is also noted as a good example of a series of sequential, smaller projects that can be used to advantage in cyclical episodes.
This is exactly what the Japanese government has done over a long period.”