Paying for Economic Solutions to Unemployment and Accompanying Social Problems

Paying for Economic Solutions to Unemployment and Accompanying Social Problems.  I'm just responding to various economic posts here and elsewhere. We should all be tired of the hand wringing. 80% of our social and economic problems would disappear in a few months with a:

        • Federal Job Guarantee, as part of a      
        • Full Employment Fiscal Policy      

Here's how:

Step One:   Rename your Political Party: "The No Excuses - Get to Work Party". "We want YOU to get to work!" (Not technically, just a new tag line) (No handouts will be involved.)

2)   Make the first plank: Full Employment: A Job Guaranty: "You want a job, we'll give you a job, come hell or high water. No Excuses"

3)   Revise Federal Reserve Act so Federal Reserve Bank reports to the Treasury.

4)   Execute on national "To-Do List" (infrastructure; alternative energy; high speed rail; rehire every teacher, fire fighter, cop laid off in last 8 years; quintuple trade school and community college staff - free tuition.) Fund through securities purchased by the Fed - either a loan or just have Fed "gift" it to the Treasury. Hiring people directly or through contractors. Minimum guaranteed wage: $10/hr w benefits. (40 hours or 20 hours per week.) Eliminate private sector minimum wage.

Added spending by newly employed workers producing public sector goods and services induces business people to hire MORE workers to produce private sector goods and services. 

5)   Track wage inflation monthly, If it starts getting out of hand (say, approaches 5%), take action:   

 • Fed sells securities,   
 • Fed increases interest paid on reserve deposits at the Fed,   
 • Congress increases tax rates across the board, and/or
 • Congress slows spending. But everyone is still guarantied a job at $10/hr full time or part time, plus benefits.

Inflation should not be an issue since newly issued money is offset by both public sector and private sector goods and services produced.

6)    Result: Everyone's working and income inequality will diminish. Expenditures for unemployment insurance: zero; food stamps: zero; Medicaid: virtually zero; all sorts of welfare for this or that: zero. If we really want to be punitive, cut welfare benefits for able bodied folk not taking guarantied job.

7)   What's for dessert? "Now let's get to work!"

8)   Talk to Stephanie Kelton on the nuts and bolts. She was appointed to the Senate Budget Committee in 2014 and is now at the Economics Department at Stony Brook University. Also Pavlina Tcherneva, Head of the Economics Department at Levy Institute, Bard College. They know the drill. 

Not that hard kids!!


"HOW DO YOU PAY FOR IT!!!!!??????" In order to implement a Full Employment Fiscal Policy and a Job Guaranty, its important to understand a few points of how the economic system works.  Perhaps it’s time to consider a model that reflects the ways things are as opposed to the way things were before 1971.

Modern Monetary Theory is: first i) an examination of how our monetary and fiscal economy works, and second, once that is understood, ii) the implications of policy prescriptions for solving our economic problems. In terms of our monetary system, four assertions are made:.

1) The US government is unlike a:
       a. state,
       b. municipality,
       c. business, or
       d. household,
   in that it can issue its own currency.

2) A sovereign (Treasury combined with the Federal Reserve Bank), like the US, that:
       a. issues,
       b. borrows in, and
       c. floats
its own currency, can NEVER run out of cash.

3) The sovereign, like the US, can:
       a. issue currency to spend and buy anything the economy produces,
       b. up to the productive capacity of the economy (adjusted for turnover/velocity),
       c. without creating inflation.

In other words the US government can issue currency and hire any and all unemployed and underemployed folk. The constraint is the productive capacity of the economy, as measured by wage inflation. If prices do rise above an acceptable level, they can be controlled by i) selling government securities, ii) raising interest paid on deposits at the fed, iii) raising taxes across the board, or iv) a cut in spending.

4)   The US government debt is not a problem in any way shape or form. In fact, it can be repaid tomorrow without a negative repercussion. That would simply involve replacing government bonds with deposits at the Federal Reserve Bank with similar interest and maturities. The similar or even better risk/reward terms assure no change in investor savings/spending preference or desire to hold dollars.  We're not recommending this course of action, just pointing out that it is possible.

Private Debt, by the way, can be a problem and is largely responsible for many of our recessions.


The policy implications of these assertions are many.

Here are some resources to learn about Modern Monetary Theory (MMT is a name that stuck with this field of study. It’s a misnomer, however, in that it’s not necessarily Modern – it’s been around since the 1940s; it’s not just monetary - it involves both monetary and fiscal operations; and it’s not just a theory – it involves an explanation of how our monetary system works since we went off the gold standard in 1971.) YouTube some intro lectures from:

 Bill Mitchell:  Demystifying Modern Monetary Theory
-  Stephanie Kelton -The Angry Birds Approach to Understanding Deficits in the Modern Economy
-  L. Randall Wray - Modern Money Theory: Intellectual Origins and Policy Implications
-  L. Randall Wray -- MODERN MONEY: the way a sovereign currency "works"
-  Modern Money Network
-  Warren Mosler's Soft Currency Economics


Some helpful blogs / twitter feeds:
-  Bill Mitchell - Billy Blog
-  New Economic Perspectives
-  Twitter - Stephanie Kelton
-  Real Progressives

The foundations of MMT are John Maynard Keynes, Abba Lerner, and Hyman Minsky. Recent proponents are: Randall Wray, Stephanie Kelton, Warren Mosler, Jamie Galbraith, Bill Mitchell, and Steve Keen. Stephanie Kelton was appointed to the Senate Budget Committee by Bernie Sanders in late 2014 and she and Jamie Galbriath and Bill Black advised Sanders during his campaign. Collectively, they are a New Hope!

A book you can read is Modern Money Theory, A Primer on Macroeconomics for Sovereign Monetary Systems (L. Randall Wray) It’s a little technical but very clear.

There is considerable pushback from the mainstream on MMT. Folks can’t wrap their brains around it. (I’m talking the vast number of mainstream economist, including so called “liberal economists”.)  I attribute it to people not being able to unlearn stuff they learned in their 20s. Especially if you based your career on it.

Hope that helps.

Comments

  1. What's that yellow stuff on my snout?

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  2. This will lead to hyperinflation! Debasement of the currency! Wheelbarrows of currency for a loaf of bread! Zimbabweeeee!!!! Weimer Republiccccc!!!!!!

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    1. Inflation is a variable that needs to be managed but the key is that if there is excess capacity in the economy (unemployed folk) the goods and services they produce after getting hired (both by public sector and private sector) offsets whatever new currency is issued. So if inflation is too much cash chasing too few goods, the amount of goods increases to offset the increased currency issued to hire them. So no added inflation.

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    2. If I'm a business owner and my biggest expense is wages, I am only going to raise the price of my services if wages are rising. If wages are not rising, it doesn't matter what the Federal Debt or Deficits are -- there will be no inflation.

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  3. This is theft! Taxpayers pay now or pay later for the make-work jobs.

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    1. - A sovereign does not have to tax or borrow in order to spend. And hiring otherwise unemployed folk should not increase inflation as the pie of goods and services increases to offset the added money.
      - Are these "make-work" jobs?: pulling your children out of a burning building, forming the thin blue line between your wife and getting raped, building and repaving the roads and bridges you drive over, cleaning the toxic waster dump left by some failed job creator, bringing our infrastructure up to snuff, making sure most folks on the road know the rules of the road and can see straight, winning WW2, making sure your kids are educated and can be functioning adults?

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    2. Taxpayers didn't pay for the Apollo program either. The government set policy and authorized the spending, and created new dollars to pay for it. It was a huge boom to the economy, and the integrated circuit was invented because of it. The space program in the 60s is why we had computers in the 70s and beyond.

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  4. What incentive do the Job Guarantee workers have to do a good job since they can't get fired?

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    1. If you want to get into the weeds: they can definitely get fired from the Job Gty program. If they do, they can reapply, but they wouldn't be entitled to another JG job until they wait 30 days with no benefits. If they get fired a second time in a 12 month period, they have to wait 60 days. If they get fired a 3rd time, they have to wait 90 days, but at this point they are assigned a counselor to suss out the problem. Nobody likes getting fired and having to start a new job. If they wait or work a year, they're back to 30 days.

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  5. But if the govt pays a minimum of $10/hour, if the output is worth less than that, you are destroying wealth.

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    1. Valuing public sector tasks is tricky but in calculating the marginal cost of a Jog Gty task, you have to subtract the savings from currently supporting unemployed workers, since with implementation of the program, these costs could conceivably approach zero. By reducing these costs ($10/hour) by the overall savings (unemployment insurance payments, Medicaid, Food Stamps, some disability payments) the hurdle for a public sector Job Gty program is probably pretty low.

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    2. In what way would wealth be destroyed if the monetarily sovereign federal government was paying someone a wage to do a job and they weren't doing it well or at all? All this means is that the treasury issued their paycheck and the federal reserve cleared it, creating new dollars. Because the federal government is the currency issuer, no one's wealth is destroyed. The worker might not be acting in good faith, but no wealth or dollars are destroyed. This is a different situation than having an employee in a private job who costs the employer time or money in greater amounts than their wage. I've fired people for that. The difference is the company I worked for was not the currency issuer. They were not monetarily sovereign, and in that case, you would have been right. But it does not apply to the federal government. #LearnMMT

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    3. Barry: The Crypto would respond that the new currency issued was "unbacked" in that the pie of goods and services did not increase enough to match the monies paid to the inadequate worker, i.e. the quantity of money increased without a corresponding increase in goods and services, hence everybody pays through inflationary higher prices. What the Libertarians/Monetarists/Conservatives/Crypto Gold Bugs always miss is that when there are excess resources in the economy (unemployed folk) the increased spending induces business people to go waky waky and produce more goods and services - offsetting the increased money supply and resulting in no added price increases.

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    4. Exactly. All of them are nuts. The free market economy will *always* respond to an increase in demand with an increase in production rather than with an increase in price because that is how maximum profit is obtained. And that never causes inflation.

      The only time any inflationary pressures can exist is when real resources are scarce or run out, i.e. full employment and there are no more people to hire, or we've run out of a commodity (like copper during WW2 or in the 70s when banks paid $1.10 for 100 pennies).

      We are so far off the maximum output point, there are no words.
      Maybe all the inflation mongers and debt hawks' parents and grandparents died off and forgot to tell them about the 12 million people working on the war effort and how the government needed to sell war bonds to get money people were spending (since they had it because of good paying jobs) out of the economy.
      MMT is really not that difficult... that cognitive dissonance aside.

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  6. The government expenditures are taking resources/capital away from private sector and "crowding out" private investment.

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    1. In terms of the real economy: What are resources? What is capital? Both consist of PEOPLE and DIRT. And when there are unemployed folk in the economy, there are plenty of both. So the fact that they are unemployed - by definition - means they are not being taken away from private sector. So there is no "crowding out". In terms of money: there is always enough money in the bank, available to be invested if business people think there is demand for a product or service they can produce. And if there isn't, banks can create it out of thin air by making loans.

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