Bill Mitchell-en The provenance of the Job Guarantee concept in MMT
(http://bilbo.economicoutlook.net/blog/?p=44754)
(i) DTM eta lan bermea: Bill Mitchell, Warren Mosler… eta Hyman Minsky
As the public scrutiny of the body of work we now refer to as Modern Monetary Theory (MMT) widens there is a lot of misinformation abroad that distorts or otherwise undermines what has been done to date. Most, but not all the misinformation or emphasis comes from those who attack our work. Their criticisms usually disclose an incomplete understanding of where MMT came from and what the core propositions and logic are. They stylise, usually using terms and constructs that are present in mainstream thinking, but inapplicable to an MMT way of thinking, and end up spitting out things like ‘printing money’ etc, which they think represents a devastating rejection of our work. As part of my own work, and I do this in liaison with Warren Mosler, I am interested in documenting the train of events that led to what we now call MMT. I love history and think it is very important in helping us understand things. So today I am continuing to examine archives to trace the provenance of key MMT concepts. And I am continuing to document the idea of a Job Guarantee, which is central to the MMT framework, despite many who claim to be MMTers thinking otherwise. I have noted in the recent press, claims that the origins of the buffer stock employment approach that became the Job Guarantee was the work of Hyman Minsky. Nothing could be further from the truth as you will see. It is important, in my view, to make the provenance very clear and that is what this blog post is about.
(ii) Informazio historikoa: Bill Mitchell-ek Hyman Minsky-z
I have been providing factual historical information over the years to establish the provenance of the body of work.
Please read, for example, the following relatively recent blog posts:
1. Flattening the curve – the Phillips curve that is (April 7, 2020)1.
2. The historical beginning of the MMT team – from the archives (November 27, 2019)2.
In this vein, I was concerned to read in the Financial Times article (April 17, 2020), which reported an interview with Stephanie Kelton3 , that the work of Hyman Minsky was the source of the inclusion of a Job Guarantee in the development of Modern Monetary Theory (MMT).
Whether this was misreporting or not, the contention is false and amounts to historical revisionism.
As a general point, I provided an assessment of the relevance of Hyman Minsky’s work to the development of MMT in this blog post – Hyman Minsky was not a guiding light for MMT (November 9, 2016)4.
I argued that earlier in his career, Hyman Minsky advocated Abba Lerner’s functional finance.
But later in his career, Minsky seemed to shift and started to advocate what we now term to be ‘sound finance’ principles merging with a softer ‘deficit dove’ narrative.
None of his later positions are consistent with the core principles of MMT.
His 1986 book – Stabilizing an Unstable Economy (Yale University Press) – appeared to be a turning point. Minsky’s ‘sound finance’ path really emerged in that book.
Whereas he had previously considered government debt to be a stabilising force (to allow banks to diversify into risk-free assets etc) he changed his view in the 1980s when Ronald Reagan was President.
At this point, he increasingly argued that government debt was at risk of becoming non-credible in the face of non-government bond investors.
In his 1986 book, he wrote (pp.302, 304):
A government can run a deficit during a recession without suffering a deterioration of its creditworthiness if there is a tax and spending regime in place that would yield a favourable cash flow (a surplus) under reasonable and attainable circumstances …
Any deviation from a government budget that is balanced or in surplus must be understood as transitory- the war will be over, the resource development program will be finished, or income will be at the full employment level
His main message was that the fiscal outcome should be in balance or in surplus at full employment. However, that is not the MMT position at all.
He amplified that message in April 1991, when he produced a Working Paper 51 for the Levy Institute – Financial Crises: Systemic or Idiosyncratic – which was a paper presented at a Levy conference in that month.
The paper was about how the financial system could be ‘fixed’ in the face of increasing uncertainty from events such as the Savings and Loan crisis in the 1980s.
In the blog post cited above, I provide detailed analysis of his shift in thinking.
But this quote is representative.
In terms of the government sector, he wrote (p.28):
The government is no different than any other organization in that it needs revenues to validate its debts. This means that the government should have a normal conditions balanced budget, allowing for deficits in recessions and depressions and major wars.
This is not even remotely an MMT position.
But what of the claim that Minsky is the source of the Job Guarantee idea as it is expressed in the MMT literature?
(iii) Hyman Minsky-z enplegu osoaz
Minsky on Full Employment
In 1965, Hyman Minsky contributed a chapter – The Role of Employment Policy – in the volume edited by Margaret S. Gordon – Poverty in America. The download link is provided by the Minsky Archive, maintained at the Bard College. It is a great resource.
This chapter is cited as being the source of Minksy’s advocacy of a ‘job guarantee’.
In that chapter, Minsky correctly noted that a “war against poverty” has to include “a program of job creation” and that required a nation to “sustain tight labor markets”, which, in turn required:
… bolder, more imaginative, and more consistent us of expansionary monetary and fiscal policy to create jobs than we have witnessed to date.
The problem that he recognised was to maintain “tight full employment” without “undue inflation”.
The paper was about how to achieve that goal.
His concept of “tight full employment” required that “at going wages”, firms “would prefer to employ more workers than they in fact do”.
In other words, vacancies outstrip the unemployed, which used be the way we conceived of full employment.
Such a state leads to dynamic efficiencies: higher wages, upgrading of jobs from low wage to higher wages, higher productivity, higher participation and lower unemployment.
Arthur Okun talked about this in his ‘upgrading hypothesis’.
Minsky, however, argued that pursuing “tight full employment” would “lead to a cost push inflation” arising from the wage upgrading effects.
However, that inflation would be a once-off adjustment to the new wage relativities.
His paper then focused on the “barriers” to achieving “tight full employment” and it is hear that he talked about the ‘gold standard’ and “our balance of payments problem”. This related to the idea that in a fixed exchange rate system (as it was then), monetary policy had to target the exchange rate.
He concluded that:
Thus, the only really available devises for expanding aggregate demand are fiscal.
And the problem then, in a Phillips curve world, was ensuring the fiscal expansion didn’t create inflationary bottlenecks – in other words, it had to be tailored to “have the largest primary and secondary impact upon the present poor.”
He criticised past spending initiatives as being “biased against the poor”. And he thought it was accurate to say that “the cross that the American poor bear is made of gold” – in reference to the balance of payments constraint which forced the government to eschew tight labour markets.
He clearly thought the US should abandon the gold standard but understood that would not happen at that time.
After rejecting the traditional “public works” approach to public sector job creation, he proposed several policy interventions to target the poor (such as, training, relocation, etc).
Among these interventions, Minsky wrote the following:
Work should be made available to all who want work at the national minimum wage. This would be a wage support law, analogous to the price supports for agricultural products. It would replace the minimum wage law; for, if work is available to all at the minimum wage, no labor will be available to private employers at a wage lower than this minimum … To qualify for employment at these terms, all that would be necessary would be to register at the local public employment office.
On the face of it, this proposal has similarities with the Job Guarantee.
But Minsky’s motivation was quite different – as a war on poverty. There was no mention of the scheme being an ‘automatic stabiliser’ or a redistributive mechanism to shift workers from inflating to the fixed price sector.
Indeed, Minsky was all about creating conditions where “low wages in the private sector would be pushed up, hopefully more quickly than high wages” once the scheme was introduced.
But even if Minsky had elaborated the full concept of what we call the Job Guarantee at that time, it would still not make the claim valid.
(iv) DTM eta lan bermea, Minsky eta Stephanie Kelton. Bill Mitchelll eta Warren Mosler
The provenance of the Job Guarantee concept in MMT
The FT article brought up the question of the Job Guarantee, which goes to the heart of the provenance of the concept within MMT and prompted me to write this response.
This is the relevant section (the interviewer writing in the first person):
I have always wondered why Kelton ties modern monetary theory explicitly to the policy of a federal jobs guarantee — a minimum pay cheque, for anyone who wants one. “It’s all in Minsky,” she says. A job guarantee is an “automatic stabiliser”, she explains. It stabilises growth by pushing money into the economy during a downturn in the most straightforward way: as firms cut staff, people still have a salary to spend.
Let us be clear – the contention that the concept of the Job Guarantee, a core MMT construct, is “all in Minsky” is false.
I will not attempt to impute motivation for the comments reported in the Financial Times here. Perhaps, there is some misquoting going on. Who knows?
But anyone familiar with the beginnings of MMT would not impute Minsky as a valuable source of motivation.
What I can say, with the authority of two (Warren Mosler and myself) is that the concept of the Job Guarantee as it entered the body of work which we now call Modern Monetary Theory (MMT) had nothing to do with the work of Hyman Minsky.
Minsky was in no way an intellectual source of the ideas that have become known as the Job Guarantee.
To say otherwise is to reinvent history and deny the basic provenance of the concept within the MMT framework.
And clearly, Warren and I are interested in preserving the provenance of the foundations.
To be absolutely clear, Warren and I have discussed this issue at length.
I have documented in the past the evolution of my own thinking that led to the proposition I called the Buffer Stock Employment (BSE) approach to full employment and price stability.
I won’t repeat that here but I recently discussed that, again, in some detail, in this blog post – Flattening the curve – the Phillips curve that is (April 7, 2020)5.
What I didn’t say then is that at the time, even up to the point that I met Warren and we more or less agreed that the BSE and his Employer of Last Resort (ELR) approach were the same, is that I had never really read any of Minsky’s work. That includes the 1965 article or any later work where he elaborated his poverty approach.
I had certainly not read his work on employment but had a familiarity with his ideas on financial instability, which have nothing to do with the topic in focus here.
I knew Warren also had come up with the ELR idea, independently of any reading of Minsky. But to ensure that recollection was accurate, I also sought specific clarification from him before I wrote this response.
The following interchange in the last 24 hours between us is relevant:
Q (me): When you were coming up with the original ELR idea, had you read Hyman Minsky’s 1965 article on full employment?
A (Warren): No, never even heard of him until somewhat later Randy brought his name up and said he’d set up a meeting. I asked Randy if he thought Minsky would take it in and he wasn’t all that optimistic.
Q (me): Was Minsky the motivation for your thinking at any point in those days?
A (Warren): No. The few parts I was directed to showed some possibility of an understanding of monetary operations, but others showed the opposite.
In this blog post – The historical beginning of the MMT team – from the archives (November 27, 2019)6 – I traced the beginnings of my relationship with Warren Mosler as contributors to the – Post Keynesian Theory E-mail Discussion List – which was an early Internet list server that began life in July 1994.
You can read the snippets from the archives in that blog post which helps to establish the provenance of the concept.
I used the term BSE to describe the ‘buffer stock employment’ model that I had developed in my undergraduate years in 1978. Warren introduced his Employer of Last Resort (ELR) model to the PKT list around then as well.
At this time, during the first two months of 1997, it became clear that the two conceptions were of the same thing and we started referring to the BSE/ELR approach.
In January 1997, I gave a ‘seminar’ to the discussion list (this was a process where one person would submit a paper and it would be discussed by the list for the next month).
In February 1997, it was Warren’s turn to give his seminar.
During those two months, there was a lot of push-back to the ideas from the list members including outright hostility from a few.
On Thursday, February 13, 1997, Warren Mosler wrote to the list and among other things said:
I wrote ‘Soft Currency Economics’ several years ago to outline why sovereign debt in local currency is always money good. It goes into the essence of why myself and several other hedge fund managers felt secure in purchasing Italian government lira debt at libor + 1.50% when most others were in fear of default. I had never heard the term ‘endogenous money;’ did not know the names Moore, Wray, Goodhart, and Kaldor; and knew nothing of Post Keynesian monetary economics.
Which reinforces the point that he was operating outside of the economics literature.
It was also clear that the majority of Post Keynesian economists (and the list was comprised of all the leading members of that school of thought, however, one wants to define it), were not particularly supportive of the BSE/ELR approach and failed to see the way in which a buffer stock would work.
After extensive criticism was aired, on Sunday, February 23, 1997, I wrote a detailed comment to support Warren where I reiterated the way in which the BSE model would work and noted among other things:
I cannot speak for Warren but my BSE model (which is equivalent in mechanics to ELR) certainly does see these jobs as regular day to day jobs providing dignity, security, and an attachment to the LF that i might currently have.
We were focusing on the place of the BSE/ELR in the monetary system.
Warren wrote later that day (February 23, 1997) in response:
This is exactly the type of dialogue all would be engaging in if they understood modern money and desired 0 unemployment and price stability. The political process would come up with a program and then modify it over time.
Our partnership was forming.
Paul Davidson, who was editor of the Journal of Post Keynesian Economics, and a lifelong supporter of Keynes’ own work, offered his summary of the main themes of the ‘seminar’ on February 23, 1997.
In part, he wrote:
… the ELR or what Bill calls the buffer stock of labor proposal. Here I think Bill and Warren have shown the best of the argument.
As an aside, to demonstrate the cognitive dissonance that was going on, even within this community of progressives, one member of PKT wrote (February 20, 1997):
… Mosler, Mitchell, Davidson and Wray are living somewhere else.
On February 24, 1997, Warren Mosler responded to a largely favourable rendition of his seminar paper with this:
… The traditional approach also works, but it takes an understanding of Bill Mitchell’s or Basil Moore’s last papers, for example to explain it. This is complicated enough so the man in the street votes to balance the budget. Including the most intelligent men in the street. The few econs against balancing the budget can’t get through with current logic.
On March 1, 1997, Randy Wray made his first intervention into the debate and wrote a long piece in support of the ELR approach.
He made the point at the outset:
I have long been interested in govt as employer of last resort because this was something advocated by Minsky (eg in his 1986 book). However, in Minsky it always seemed a bit utopian; there were a few gaps in the argument. When I saw Warren’s paper, however, he seemed to provide a way to fill the gaps
On March 7, 1997, the notion that BSE/ELR was intrinsically related to the broader Phillips curve debates in macroeconomics were made explicit.
I wrote (with edits for spelling and grammar):
In the development of my BSE model (which is similar to ELR) the important thing I am working on right now is the relationship between this option and the Phillips curve (PC).
Without the BSE in practice, there is a NAIRU – which is a reflection of a conflict between labour and capital over real income shares – that level of the unemployment rate, which temporarily renders the claims for real income compatible. It is not a harmonious or natural rate of unemployment rate – it might last, conceptually, for a day before some change to the bargaining relations sets the rate higher or lower for stable shares.
So there are a multitude of steady-state unemployment rates, each defined in terms of the past history of the economy (state dependence …) and each as unstable as the next.
The PC then is defined by a particular state-dependent path.
With a BSE policy, there is no unemployment so there can be no NAIRU in the broadest sense. There is only a private sector NAIRU …
The reality is with the BSE/ELR, wage-price conflict can still occur and so you can still get inflation. You cannot get macroeconomic unemployment though emerging from it.
But you can still get shifts between the private sector and the public sector … When the inflation spiral is eating into AD (as the govt does not accommodate the pressure), jobs are lost in the private sector but not overall. So we can still define some unemployment rate in terms of a current steady state (or compatible) bargaining relations. This unemployment rate is a private sector rate only. Significantly different inflation-unemployment rate (overall) dynamics emerge.
Warren responded on the same day and placed that conceptualisation within a micro-oriented monopoly:
Yes. I would add that fundamentally this stems from the government, as monopolist, setting (budgeting) q (spending and lending, and manipulating desired H(nfa) through monetary policy) and letting p (prices paid by govt.) be at market.
On March 9, 1997, Randy Wray reentered the conversation, saying:
… glad to see the elr seminar is carrying on; bill m. and warren have made some interesting contributions, but i want to print them so i can examine bill’s exposition in detail.
On March 16, 1997, Warren’s seminar, which had ‘raged’ for 6 weeks, was formally closed with a summary statement from Warren, which said, in part:
This will officially end the ‘Full Employment AND Price Stability’ (FEAPS) seminar. The focus was the elr proposal, which is not materially different from Bill Mitchell’s BSE proposal … Perhaps what was added were reasons that an elr policy can allow the budget deficit to float while maintaining price stability as defined, much like various incomes policies have been designed to do. And that the key is for the Government to constrain the prices it pays, in this case for the elr wage, to maintain a stable value of its currency.
Once again, pitching the BSE/ELR in terms of the Phillips curve debate.
Once we (Warren, Randy and I) started working together and Warren had recruited others to the project (Mathew, Pavlina etc) we debated the terminology that we would use to describe the buffer stock approach.
As I have previously noted, this period coincided with the outbreak of the mad cow disease, principally in the UK, and so I thought it unwise to continue calling my approach the BSE model
I also didn’t like the terminology ELR for reasons I have explained elsewhere.
Around that time, I had read the paper of Wendell Gordon – Job Assurance — The Job Guarantee Revisited – which had just been published in the Journal of Economic Issues – and I proposed we unify the BSE/ELR under the name Job Guarantee.
Again, Minsky’s name or work, ever came into the deliberations.
Ondorioak
Conclusion
The point is that:
1. The concept of a Job Guarantee that is now core MMT was entered into the discussion at that time by Warren Mosler (ELR) and myself (BSE). This was the provenance of the concept within MMT.
2. Minsky was never mentioned. Only his former PhD student, Randy Wray, once exposed to the BSE/ELR ideas, noted some overlap between the BSE/ELR approach and Minsky’s own, earlier ideas. But that was well into the PKT debate about the concept.
3. Anyone with knowledge of the history and the beginnings of the MMT work would not reasonably say that the reason that MMT considers a Job Guarantee to be an essential part of the body of work was due to anything that Hyman Minsky had written or said.
It is important to render history as accurately as we can.
Iruzkina:
Hi Bill,
Nice to see this quote from Randy:
“I have long been interested in govt as employer of last resort because this was something advocated by Minsky (eg in his 1986 book). However, in Minsky it always seemed a bit utopian; there were a few gaps in the argument. When I saw Warren’s paper, however, he seemed to provide a way to fill the gaps.”
And the critical understandings that fills these ‘gaps’ includes ‘sequencing’ (gov spends first and only then can taxes be paid and bonds etc. purchased) which obviates ‘solvency/sustainablility’ type issues, and that the mainstream has had ‘the interest rate thing’ backwards which reverses notions of monetary policy.
Best!
Warren
4 Ikus Bill Mitchell-ek Hyman Minsky-z; Bill Mitchell-ek Hyman Minsky-z (gehigarri berezia). Beste iritzi batzuk hemen: DTM-ren erroak.
5 Ikus Aro Berrirako erreminta berriak.
6 Ikus DTM: hasiera historikoa.
joseba says:
Setting things straight about the Job Guarantee
http://bilbo.economicoutlook.net/blog/?p=45487
We need to get a few things straight. And this is partly for those out there who seem to think that the extent of literature on Modern Monetary Theory (MMT) or the Job Guarantee within MMT is confined to collections of Tweets that allow 280 characters or Unicode glyphs. One doesn’t become an expert on ‘full employment’ or ‘political economy’ because they have suddenly realised there is a major crisis in the labour market and have decided to strategically place their organisations for self-serving purposes to be champions of full employment. There is an enormous literature on the Job Guarantee and I have been a major contributor along with my valued colleagues. This is a crucial time in history and one of the glaring deficiencies in the current crisis and economic management in general is the lack of an employment safety net. This is what MMT has to say about that safety net and stabilisation framework.
Some recent high profile Op Eds in the mainstream Australian press that I have written in partnership with indigenous leader Noel Pearson have apparently inflamed the so-called progressives out there who seem to:
1. Object to me writing in the Murdoch press.
2. Object to me writing with Noel Pearson.
3. Object to me saying that I would scrap the current unemployment benefits system in Australia and replace it with a Job Guarantee.
4. Conclude that I have a naive grasp on the ‘political economy’ in Australia and are essentially pushing MMT towards a hard right political position.
Most of the objections come from people who have a past history with the Australian Labor Party in one way or another.
Lecturing someone about their grasp on political economy when they belong to organisations that spent millions of dollars at the last federal election in an attempt to get rid of the worst conservative government we have had, only to see the government returned with an increased majority is not very smart.
Further, spending considerable dollars targetting certain Ministers and then seeing them getting increased votes is not a very good indication of a sound grasp on political economy. In one case, in Brisbane, the Minister was totally unelectable but increased his majority such was the toxity and incompetence of the campaign that the organisation in question pursued.
Apples and oranges
Then there was a Tweet informing the world that all the MMT scholars other than me supported retention of the unemployment benefits if a Job Guarantee was introduced.
The message was that I was alone in that view and no longer represented the MMT position.
While it is not clear that the names quoted in that Tweet would have supported being named in that way, the point is that even if the statement was true, they were all US-based economists.
Why is that important?
The US unemployment benefits systems are not remotely comparable to the Australian system.
They are mostly decentralised systems (state based) with some Federal additions, the policies are not uniform across the states, and the systems tend to exclude workers who are deemed to have been fired for ‘misconduct’.
This BLS fact sheet – State Unemployment Insurance benefits – is instructive.
The US systems are mostly funded by “a tax imposed on employers”.
You have to have worked a “base period” (a minimum amount of time earning wages before being eligible).
Once on benefits, which are finite, your obligations is to answer questions about “continued eligibility” (mostly whether you have been working or not or have had job offers).
Whether a person has to “register for work with the State Employment Service” varies and is not uniform.
The benefits are computed “on a percentage of an individual’s earnings over a recent 52-week period” – so they are not uniform nor progressive.
The benefits run out after a “maximum of 26 weeks in most States” and Federal income taxes are levied.
Conversely, the Australian system is federal and provides a uniform payment to workers who are deemed eligible. It is not an insurance system nor does it base the payment on any past earnings.
The current unemployment benefit (ignoring the short-term pandemic supplement) is well below the adult poverty line and the gap has been getting worse in both real and nominal terms.
But most importantly, unemployment benefit recipients are subjected to harsh work tests, are case managed within the sociopathological privatised ‘unemployment industry that pockets millions of dollars from federal payments but does very little to help the unemployment reenter the paid work force.
This privatised system punishes unemployment workers by reporting them to government who then ‘breaches’ them – which means they lose their miserable unemployment benefit.
In that context, I would doubt whether any of my US-based MMT scholars (those names in the Tweet referred to above) would advocate the retention of such a system that the unemployed have to tolerate in Australia.
So trying to ‘divide-and-conquer’ by asserting views that might apply within one nation as being applicable to another nation, which has a completely different system of unemployment benefits is not very smart.
It is like talking about the US going broke because Greece can!
And then the question is why would any Australian progressive want to keep our pernicious unemployment benefits system when a guaranteed job was provided at a socially-inclusive minimum wage supplemented by social wage benefits (a service guarantee if you like) and workers had the right to choose the hours they worked in the Job Guarantee?
I will come back to the Job Guarantee pay and conditions argument presently.
But let’s tease this out a bit.
These so-called progressive champions of full employment might reasonably say they don’t support the pernicious nature of the current system.
Good.
So then what have we left?
Drum roll.
Effectively a UBI or some version of it.
So we are back to that – they would want a UBI to be run parallel with the Job Guarantee.
I noted a Tweet from someone claiming to be an MMT proponent saying exactly that.
Well none of my American MMT economics colleagues support the introduction of a UBI.
The fact is that once you go down the UBI route you are diluting the inflation anchor provided by the Job Guarantee – which is a central proposition within MMT, and, is one of the features, that sets it apart from mainstream macroeconomics.
And once you dilute the inflation anchor, then you are effectively back in a NAIRU world where unemployment is used as a policy tool to discipline any inflationary processes.
You cannot have it both ways as an MMTer.
If you support a UBI then you should not hold yourself out as a proponent of MMT.
Simple as that.
I recommend reading this blog post – The provenance of the Job Guarantee concept in MMT (April 20, 2020) – where I explain the foundations of the Job Guarantee with MMT and how Warren and I approached that issue when we set out on the MMT journey.
In that blog post, I discuss the debates about inflation control and the role of the Job Guarantee – as being much more than a meagre job creation program, a point not well understood by those who come late to our work in a time when inflation is of no consequence.
When I came up with my version of the Job Guarantee in 1978, the problem to be addressed was high unemployment and high inflation and a mainstream profession that was claiming the high unemployment was ‘natural’ and that the government could do nothing about it.
Workfare on steroids?
Some other person who is apparently trying to position their organisation as the champion of full employment claimed to be appalled by my work and asserted that:
The Pearson-Mitchell proposal which is basically WFTH on steroids, and exactly what many of us warned would happen to Mitchell’s JG.
Really.
And exactly what literature has this person read? A highly word-constrained Op Ed in The Australian that I wrote with Noel Pearson? More?
Where in the millions of words I have written over the last 42 years on unemployment, employment guarantees, work-for-the-dole (WFTD), and all the rest of the topics would she be justified in saying that I endorse a Workfare approach to unemployment support?
It would be impossible to find that sort of inference from my work.
In Australia, Work-for-the-dole has the following characteristics:
1. As stated by the government in Senate Estimates some years ago, it is a compliance program.
2. It pays below the hourly legal minimum wage – effectively forcing workers to engage in work but at below poverty line and legal wages.
3. It does not allow any choice over hours of work.
4. It does not allow a worker to engage in extended training nor does it provide training ladders.
5. It is finite in time period.
6. It requires the worker to participate in the pernicious work test and case management system described above.
7. It offers no additional benefits such as holiday and sick pay, superannuation, and other social wage benefits.
8. No allowance is made for workers with mental health problems etc.
9. The State takes no responsibility for the failure of the economy to generate enough jobs.
Compare that with the Job Guarantee that I have consistently advocated over my career, which could not be conceived of being a more elaborate form of Workfare.
I advocate:
1. A guaranteed job for anyone who wants to work and cannot currently find a job.
2. They would receive a socially-inclusive minimum wage.
3. They would receive holiday and sick pay entitlements, superannuation contributions from the employer, and other special leave entitlements that are common in the permanent workforce.
4. They would be entitled to undergo training (on-the-job or in outside environments, including going back to school, college or university).
5. They would receive social wage benefits – what some might call guaranteed levels of services – such as health care insurance, free child care, transport allowances, access to legal aid supplements, etc.
6. Family Income Supplements: The Job Guarantee is not based on family-units. The Job Guarantee wage (available to anyone over working age) would be supplemented with benefits reflecting family structure. In contrast to workfare there would no pressure on single parents to seek employment.
7. They could choose whatever hours they desired to work – effectively eliminating time-based underemployment.
8. IMPORTANTLY, a worker would be given a grace period on accessing the Job Guarantee. Their wage would start immediately but they could have 3-4 weeks before having to start work where they could sort out their affairs, ‘take a breather’, engage in job search if they wanted, etc. During this period they would be paid the standard wage rate.
9. The job would be permanent if they chose.
10. The job design can be flexible to help workers with special difficulties enjoy a productive working life (for example, the provision of clinical support within the workplace to help people burdened with episodic illnesses)
We have developed this concept based on extensive national surveys of Local Governments.
I have been involved in a major, long-term project with mental health professionals running pilots providing work for youth with psychosis and seeing how flexible workplaces can reduce the problems that such a cohort face.
I have worked in developed countries on major work projects and helped design a minimum wage framework for workers in South Africa.
And more.
What does a socially-inclusive minimum wage mean?
I have regularly written analytical reports for trade unions who are defending industrial matters on behalf of the members in the Fair Work Commission in Australia. That often requires me to appear as an expert witness in the relevant matter.
My view has always been the same as it was when I was helping in the South African situation.
I do not consider minimum wages should be set on private sector capacity to pay principles. The employers should adjust not the workers.
The minimum wage as a statement of how sophisticated you consider your nation to be or aspire to be. Minimum wages define the lowest material standard of wage income that you want to tolerate.
Accordingly, it should be a wage that allows a person (and family) to participate in society in a meaningful way and not suffer social exclusion or alienation through lack of income.
That means being able to go out for dinner sometimes, go to sporting or other major events, have a holiday somewhere.
A socially-inclusive minimum wage should be a statement of national aspiration.
In any country it should be the lowest wage that society considers acceptable for business to operate at. Capacity to pay considerations then have to be conditioned by these social objectives.
If small businesses or any businesses for that matter consider they do not have the ‘capacity to pay’ that wage, then a sophisticated society will say that these businesses are not suitable to operate in their economy.
Such firms would have to restructure by investment to raise their productivity levels sufficient to have the capacity to pay or disappear.
This approach establishes a dynamic efficiency whereby the economy is continually pushing productivity growth forward and allowing material standards of living to rise.
I consider that no worker should be paid below what is considered the lowest tolerable material standard of living just because some low wage-low productivity operator wants to produce in a country and make ‘cheap’ profits.
I don’t consider that the private ‘market’ is an arbiter of the values that a society should aspire to or maintain. That is where I differ significantly from my profession.
The employers always want the wages system to be totally deregulated so that the ‘market can work’ without fetters. This will apparently tell us what workers are ‘worth’.
The problem is that the so-called ‘market” in its pure conceptual form is an amoral, ahistorical construct and cannot project the societal values that bind communities and peoples to higher order considerations.
The minimum wage is a values-based concept and should not be determined by a market.
Anyway, those principles govern the way I have operated as a professional over many years.
I have not seen too much analysis coming over the years on these topics from those so-called progressives who are now slinging the mud about what Noel Pearson and I are trying to achieve by way of improving the lives of unemployed workers.
Coercion
My position has always been the same.
A progressive society is one based on collective aspiration.
Neoliberalism is based on the promotion of individual aspiration even if it is at the expense of the collective.
That is why we are in the mess we are in now (health issues aside but connected).
I think the state has a duty to use its fiscal capacity to ensure there are jobs for all those who desire them.
In general, if there is something that is useful for the public sector to provide then I would create those jobs in the public sector in the standard way.
But there is also flux and uncertainty in private spending patterns and that requires a buffer stock either of jobs or unemployment.
Clearly, the costs of using unemployment to meet the flux and uncertainty of the private capitalist spending patterns are massive and extend well beyond the income (GDP) losses.
Using an employment buffer stock approach as an automatic stabiliser has to be superior to that approach.
So what are the responsibilities of people within that society?
I consider that persons who are able to work should to be required to take a Job Guarantee position to gain the income support if they are unable to find a job elsewhere.
They don’t have to take the Job Guarantee job. It is not a work camp approach.
But to receive the state socially-inclusive minimum wage under the conditions specified above they should be prepared to contribute back to society.
That is the progressive collective approach.
I argue that this possession of a job is a crucial source of self-determination for the typical worker in a capitalist system and the core of regional community development.
Please be clear – persons unable to work would be provided with a ‘living income’. This includes the aged, the sick, the disabled, the young.
They would have generous material support.
Tweets that claim that I support the abolition of all welfare are just plain straight out lies.
I don’t consider a healthy society is one that does not take responsibility to encourage young people to develop skills and engage in paid work, rather than be passive recipients of social security benefits.
There is strong evidence linking long-term unemployment and social exclusion, where the latter is manifested in economic deprivation, the absence of institutional support, and social, cultural and spatial isolation.
This is Noel Pearson’s concept of ‘passive welfare’.
If you are interested in this concept and how it relates to the Job Guarantee, please see – Conversation with William Mitchell and Noel Pearson, Newcastle, December 15, 2019.
The failure to engage in paid work, for whatever reason, cannot be narrowly construed to be merely an inability to generate disposable income which can be compensated for through a benefit, but entails a much broader form of exclusion from economic, social and cultural life.
Accordingly, the State would be evading its social responsibilities by providing an UBI or other form of benefit.
Conclusion
I think language loses all meaning if you think my work is ‘right-wing’ in nature or leaning, or that the Job Guarantee we propose is just nasty workfare or worse.
There will be more from Noel Pearson and myself in the near future as we launch a series of Live Streaming sessions promoting our work together.
But I hope that this blog post has clarified things for those who cannot be bothered researching our work in detail.
joseba says:
warren mosler
Tuesday, August 4, 2020 at 3:41
They must have had the wrong Bill Mitchell in mind:
https://www.historynet.com/william-billy-mitchell-an-air-power-visionary.htm
William ‘Billy’ Mitchell was a crusader who had the vision to understand the potential of air power long before his contemporaries. The name Billy Mitchell brings different images to mind. To most, he was a hero, without whose dire warning the United States might never have been able to field the world’s largest air force in time to fight …
Also, I believe that a gov who’s tax policy has created more unemployed than it desires to employ has a responsibility to either employ them or transition them to the private sector employment.
😉
joseba says:
Tracing the roots of progressive views on the duty to work – Part 7
(http://bilbo.economicoutlook.net/blog/?p=46035#view_comments)
(…)
The theme today is to report on early concepts of the right to work, which in Modern Monetary Theory (MMT) are expressed, in part, by a commitment to a Job Guarantee.
I often see commentary in the social media from those who are apparently sympathetic to the idea of a Job Guarantee that would lead one to conclude that MMT economists think the buffer stock capacity will solve all unemployment issues.
The way we conceived of the Job Guarantee from day 1 was to be a relatively small, steady-state pool of jobs which would expand in the relatively rare times that inflation became a problem and/or private spending collapsed.
Typically the Job Guarantee pool would be very small and provide work for the most disadvantaged workers in the society.
When confronted with say a major downturn in private spending, while the Job Guarantee pool will expand, the most valuable intervention a government can make is to create career-based, high skilled jobs in the economy rather than passively sit back and allow the Job Guarantee pool to expand.
Warren Mosler constructs the Job Guarantee as a transition job – transiting the work back in the private sector.
I do not give it that emphasis for my own reasons and am happy to see the a worker permanently occupy a Job Guarantee job if that is the best outcome for them.
But the difference in that construction does not alter the fact that we both conceive of the pool of jobs as being very small when economies are operating at higher pressure levels.
The Job Guarantee is not a panacea for all ills.
As an aside, I keep getting E-mails with statements about the Job Guarantee and links to articles about it, which continue to repeat the assertion that the Job Guarantee is derived from the work of Hyman Minsky.
One recent Op Ed even claimed the idea was “first put forward” by Minsky. The author followed that statement claiming that this idea was “now promoted by” yours truly (and Noel Pearson) insinuating that I was promoting the work of Minsky.
The initial statement is factually wrong and demonstrates an ignorance of history or a willingness to revise history to fulfill some agenda.
The second statement – insinuating I am promoting Minsky’s work – is equally in contradiction with reality and the historical record.
I dealt with these matters in these blog posts:
1. The provenance of the Job Guarantee concept in MMT (April 20, 2020).
2. The historical beginning of the MMT team – from the archives (November 27, 2019).
3. Flattening the curve – the Phillips curve that is (April 7, 2020).
The point is this.
At the outset when the MMT work began, the concept of a Job Guarantee was the outcome of input from myself and Warren Mosler to an early E-mail discussion list (PKT) in mid-1990s.
I document those discussions in the blog posts cited above.
The historical record is clear.
Neither of us were influenced in any way by the work of Hyman Minsky. Warren and I came to the same point from quite different angles and those insights were then developed within the body of work we now know as MMT.
It is true that Randy Wray, who was a participant in the discussions on that E-mail discussion list was very influenced by Hyman Minsky (having had him as a doctoral supervisor) and saw similiarities in what Warren and I were inputting to the List with early work that Minsky had published.
And subsequently, it is true, that Randy and those that were influenced by his work built further connections with Minsky and the unfolding body of MMT work.
But that doesn’t allow one to conclude that the concept of the Job Guarantee as it became a central part of MMT was derived from Minsky. It categorically was not!
And an interesting question one might ask in this context is whether one could have extrapolated the body of work we now call MMT from Minsky’s earlier work.
My answer is that there is no possible way that sort of evolution would have occurred.
I considered those sort of issues in this blog post – Hyman Minsky was not a guiding light for MMT (November 9, 2016).
Just before I came into contact with Warren Mosler on the PKT list, Hyman Minsky was expressing deep concern about deficits and inflation, which I document in that cited blog post.
In 1991, he was advocating what we call ‘sound finance’ the anathema to the ‘functional finance’, which underpins aspects of Modern Monetary Theory (MMT).
He says things such as:
1. “the government must validate our debt with taxes”.
2. In the context of rising government deficits in the 1980s, he claimed that “the quality of the government’s debt in international markets is deteriorating”.
3. “we lack the will to tax ourselves so that the government liabilities are fully validated by receipts”.
His public comments amounted to a rejection of basic MMT propositions.
While early in his career he was supportive of Abba Lerner’s functional finance ideas, by the time his 1986 book came out – Stabilizing an Unstable Economy – (Yale University Press), he was articulating the ‘sound finance’ principles.
This was the first book or article of Minsky’s that I had read in detail and it marked a change in his position after the election of Ronald Reagan.
At this point, he increasingly argued that government debt was at risk of becoming non-credible in the face of non-government bond investors.
His main message became that the fiscal outcome should be in balance or in surplus at full employment, which of course is not the MMT position at all.
His later work build on these non-MMT propositions, which I discuss in detail in the blog post cited.
The point is that by this time, a natural evolution of his ideas would never have yielded the insights that have become integrated in MMT.
Buffer stocks and the Job Guarantee
Further, I included that brief clarification because it actually bears on what I was going to write in this Part 7 of the series.
It is simply untrue to say that the idea of employment guarantees was first proposed by Hyman Minsky. A short research effort would disabuse anyone of that idea.
My evolution that led me to outline a Job Guarantee scheme, first, in 1978 and then later during the early discussions on the PKT List, was influenced by my research into the commodities literature on buffer stock schemes, which were common in pre-Second World War Australia and later.
It was well-understood that these schemes could provide a framework for macroeconomic stability (redress market movements that would lead to price and income instability).
And I was influenced by the work of Benjamin Graham (particularly his 1937 book ‘Storage and Stability: A Modern Ever-normal Granary’) which laid out a price stability plan based on the use of commodity buffer stocks (storage in the ‘Ever-normal Granary’), which he morphed into a derivative scheme he proposed to create a commodity reserve currency, that would reflect some weighted composite from 21 raw material stocks in the Granary.
I am skating through detail here because this is not the primary emphasis today and I could write a lot about Graham (as I did in my PhD thesis).
I had also read John Maynard Keynes’ 1938 paper – The Policy of Government Storage of Foodstuffs and Raw Materials – (published in the Economic Journal, Vol. 48, No. 191, September, pp.449-460) – link is to JSTOR which requires library access.
Keynes was impressed by Graham’s work and saw it as a way of stabilising prices amidst market fluctuations in commodity supply.
He refers to his 1937 book and Graham’s contention that government storage would be relatively low cost (see discussion in J.M. Keynes, ‘Activities 1931-1939: World Crises and Policies in Britain and America’, published in the Volume 21 The Collected Writings of John Maynard Keynes.
In his 1938 Economic Journal article, Keynes observed (p. 450):
… the fluctuations in the prices of the principal raw materials which are produced and marketed in conditions of unrestricted competition, are quite staggering …
An orderly programme of output, either of the raw materials themselves or of their manufactured products, is scarcely possible in such conditions.
He saw this problem as contributing to instabilities in export trade, which was a major issue for Britain at the time, given its export prominence.
He also saw that (pp. 451-52):
… nothing can be more inefficient than the present system by which the price is always too high or too low and there are frequent meaningless fluctuations in the plant and labour force employed.
While he considered that “measures to stabilise the aggregate of effective demand” (p.451) could be of help here, he considered a ‘storage’ approach could supplement.
He considered the government had a responsibility to facilitate this storage solution (a buffer stock manager) given that the competitive firms had no incentive to hold inventories in this way.
H.M. Treasury would fund the “warehouse costs and interest”, which he considered would be a modest expense.
He wanted to extend the scheme to the British Empire nations which provided raw materials – “sugar from the West Indies, jute from India, wool from Australia, vegetable oil products from West Africa, non-ferrous metals, and all the endless variety of Empire products which must be stored somewhere”.
I refer to the influence that Benjamin Graham had on my thinking as a student in this blog post: Modern monetary theory and inflation – Part 1 (July 7, 2010).
The point was that the principle that buffer stock mechanisms funded and administered by government could provide for market stability (volumes and prices) was well established in the commodities literature.
My departure came from an idea I had 1978 when I was studying agricultural economics at the University of Melbourne as part of my fourth-year studies.
It was a time when unemployment was rising sharply in Australia and inflation was high (as a result of the OPEC oil crises). I was trying to work out a way to advocate for continued full employment but address the issues that economists were raising about inflation.
I was also very interested in the Phillips curve literature which I saw as the major battleground for the emerging dominance of the NAIRU approach (using unemployment buffer stocks to discipline inflation) – that sort of research became my Phd research program.
So it came to be that if the government could buy and sell wool at will to correct shortfalls (or surpluses) of wool production relative to demand, which allowed it to stabilise prices and incomes, then why could it not do the same with labour.
And, for me the Job Guarantee idea was formed. Minsky was nowhere to be seen!
But I had also been reading historical literature that first introduced me to the idea of employment guarantees and the government as ’employer of last resort’.
The buffer stock approach allowed me to tie together full employment and price stability.
But that earlier literature reinforced my thinking about the centrality of government in maintaining a ‘right to work’ through employment guarantees.
So far from Hyman Minsky being the “first to propose” employment guarantees, we now head back to the early C19th. We could have gone back earlier but it is the early C19th literature that I first became acquainted with state-run employment guarantees.
(…)