Modern Monetary Theory and The Job Guarantee

I recently wrote an oped piece for challenge magazine It is difficult to condense what I had hoped to say into 750 odd words, so here is the ‘extended’ edition.

Modern Monetary Theory (MMT) is an incredibly complex body of work that studies macroeconomics. At its most elemental level it says a currency is a social and legal construct. Currency issuers spend via an appropriation bill and are not financially constrained, though they are constrained by real resources. A monopolist of a currency can purchase whatever is for sale in the currency it issues, including idle labour. Thus unemployment is a political choice.

To understand that statement we need to make a distinction between monetary based and non-monetary based societies. The latter doesn’t have employment or unemployment. So what causes people to become unemployed?

It is the imposition of a tax liability that is the coercive mechanism that creates a desire to earn the governments unit of account. There is a paper Monopoly money: The State as a Price Setter that articulates a ‘tax-driven’ currency from when African nations were colonised. Prior to colonisation those communities consisted of subsistence production, internal trades and didn’t have a need to use a currency. Especially a European currency. It was the imposition of a hut tax in Malawi that forced communities to sell produce to the European colonisers or become labourers.

In the absence of having a good or service to sell that the currency issuer desires you need to sell your labour to earn the currency to pay the tax. So the imposition of the tax liability creates unemployment and spending (in the right area) creates employment.

Spending then gets more complicated and we make distinctions between different types of spending, however – the currency issuers spending is the currency users income. That is an accounting statement. If the government deficit over a given period is $X the non-government surplus has to equal $X. It is a question of whether the government has spent enough and directed the spending into the right areas as to whether we have full employment.

Within the body of work that is MMT it uses a Job Guarantee (JG) as a macroeconomic price anchor and stabiliser which I will explain below.

There have been claims that the Job Guarantee is workfare. It is not. It is a voluntary offer of a job to anyone, anywhere paid at a living wage with access to all the National Employment Standards just like every other worker.

The social policy setting of the JG is the policy manifestation of a technical concept to eliminate the tradeoff between unemployment and inflation. Current orthodox economists identify a link between rising employment and rising inflation and use unemployment to discipline the inflation rate.

That link is known as the Phillips Curve and rising employment is supposed to give rise to rising inflation. When the inflation rate rises above the central banks target range they raise the rate of monetary policy to slow aggregate demand (total spending in the economy) to ‘put the brakes’ on the rate of inflation (causing unemployment). There is a theoretical limit known as the natural accelerating inflation rate of unemployment (NAIRU) that theoretically if employment is to fall below inflation breaks out.

The trade-off clearly has not happened for quite some time. And it is questionable whether the NAIRU concept and natural rates of employment exist at all. We don’t very well go down to the river and stare at a school of fish and say ‘look at that pool of unemployed fish’ Employment is a social construct and it is hard to think we have run out of things for people to do.

Inflation is a continuous rise in the general price level. Which is different to a price rise. A price rise can lead to inflation if a conflict ensures and eventually you need a way to ameliorate the conflict.

Imagine all the workers on a small island. And they work producing widgets. At the end of the year you measure the widget output as X. The X is just the measure – whether it is one million or one billion doesn’t matter. The questions are; Is there enough widgets to satisfy everybody’s needs? Does everyone have access to all the widgets they need? How do we ensure equitable access to widgets?

The general price level itself is an abstract concept. There is a curiosity in saying that total output is X but the general price level compared to one year or ten years ago is higher or lower.

Imagine labour and capital fighting over those widgets. As one increases the price, the other seeks higher wages. Inflation gets more complex than that but the point is that labour or capital will end up with a higher share of GDP as a result of inflation.

It is a question as to whether total output is enough to satisfy our domestic needs, whether we are producing that output in an environmentally and socially sustainable way and whether we have equitable access to all the real resources we need. Are we as workers getting a fair share of our productive output?

I can appreciate there is a politically unacceptable level of inflation because people don’t like it. MMT economists say you can achieve a stable rate of inflation by using a ‘buffer stock of employed’ rather than a ‘buffer stock of unemployed’. This is what the Job Guarantee is.

The reason for the fixed wage in the JG is the anchor. It sets the general price level for an economy. We as a society set a floor for wages that says one hour of labour is equal to $X and guarantee it.

All prices within an economy are a function of government spending. The initial spend determines the price level.

The automatic spending triggered by those entering the JG mean the governments spending is directed when and where it is needed most – the unemployed. It allows for the governments fiscal position to float ensuring that we remain at the very least at ‘loose’ full employment and price stability.

The Government via its legislative powers has the ability to command real resources as well (such as what it did with private hospitals over the initial covid period and make childcare free) The latter took away a financial cost for households contributing to deflation.

The ABS writes;

The most significant price falls in the June quarter were child care (-95.0%), automotive fuel (-19.3%), preschool and primary education (-16.2%) and rents (-1.3%). 

https://www.abs.gov.au/AUSSTATS/abs@.nsf/mf/6401.0?opendocument&ref=HPKI

Free childcare, cheaper fuel, cheaper education, and falling rents are advantageous to the working class.

The JG chooses to use employment as the anchor for the general price level. If the rate of inflation is deemed politically unacceptable more workers would move into the JG pool. If the rate of inflation was lower than the politically acceptable rate of inflation there is scope to have the pool smaller.

In the event of accelerating inflation the cause of inflation can never be the wages of the JG workers because by definition they are purchased from the bottom and released from the pool when a better offer is made. It is only a small part of a broader full employment agenda.

Ideally you want the pool to be as small as possible. It is not there to replace existing skills based employment. It is there to sit alongside a national skills development framework to assist those that need it in finding future employment.

Similar to the wool price stabilisation scheme in Australia, The Australian Government guaranteed the purchase of excess wool and stored them in redbrick sheds to sell when the demand picked up again. The difference being is that people won’t work to produce excess labourers.

The JG ensures ’loose’ full employment as workers are drawn in and out of the JG pool rather than ending up unemployed. It can be thought of as a trasintionary arrangement for those that need it.

In a similar way to how the Commonwealth Employment Service worked, the unemployed person would have a case manager that held their CV and attempted to match that person to a job but rather than having that individual lay idle, they have the opportunity to maintain and enhance their skillset while seeking better employment working actively with their case manager to match them with an appropriate job.

A Job Guarantee is designed to create work to suit the individual. It is administered at the local level but funded by the federal government. The workers within this program are free to unionise and advocate whether something should be classed as a JG job. They are free to take part in determining what the living wage should be.

The work would be of public benefit and assist the JG worker in up skilling and finding work in the private or public sector. It is there to enhance the individual’s well-being and provide a public purpose. It is not used as a punitive system of punishment.

The types of work that can be done are limited only by our imaginations. We could pay musicians to give workshops on band dynamics, pay them to create and assist in the organisation of community festivals, we can have arts programs where artists can paint murals in public spaces and aid others in their own skill development. Surfers could be paid to pass on surf life safety skills and teach others how to identify and avoid rips. They could take part in sand dune rehabilitation. There is massive potential to enlist thousands of unemployed in ecological restoration and plant trees along with other flora to mitigate against climate change while they undergo study in a related area.

The advantage workers have, particularly those at the bottom who often hold little, if any bargaining power is that the JG sets the floor for wages. Private employers would be forced to compete with what we as a society determine to be the absolute minimum socially inclusive wage. It allows us to redefine our concepts of productive employment by including jobs that currently go unrecognised but provide value to our communities.

Most importantly the JG allows the most disadvantaged in our society an opportunity to engage in paid employment which would lead to recognition in the community, and vastly improved self perceptions and a more prosperous society.

Understanding Value

I’ve been neglectful of this blogging project as my mind has been pre-occupied with other projects. I finally have one space to get back into writing.

A little while ago I did an interview with US based podcast macro ‘n cheese on a general chat about MMT and an understanding on how we understand and perceive value.

The podcast spoke about value in the sense of valuing forms of employment tied to cultural customs, particularly around different groups of people. I used my experiences of my own observation with my family and some lateral thinking that a similar concept could be applied into a formal Job Guarantee structure.

For example in the podcast I discussed ways family members interacted with each other at a social level and how that interaction brought meaning and provided for their families. I recall my grandmother would pick broadbeans with friends and prepare them for dinner but this activity was done as a social task amongst a group. The labour input required brought about other socially beneficial outcomes. Conversations were had, food was prepared, people felt a sense of purpose and meaning.

That sort of activity and outcome is similar to the lived experiences from the Jefe’s program in Argentina. The income aspect was a secondary benefit by the participants who valued the sense of self and community the employment program brought about. Many of the participants then used those skills to develop further projects such as bakeries, textiles – making clothes etc…

The program has allowed local and municipal governments who are most familiar with the economic needs of their communities to administer the program. In addition, it has recognized certain kinds of activities as socially useful, thereby helping redefine the meaning of work

http://www.levyinstitute.org/pubs/wp_732.pdf

If we use some lateral thinking the sorts of tasks described above that this communities value, such as agriculture/permaculture, cultural services – such as crocheting and sewing can be brought into a JG structure alongside a skills development framework and can be used to create ‘public value’. Things like community gardens, arts workshops etc…

Adapting that thinking to bring about employment to communities that are heavily disadvantaged (such as indigenous communities in Australia) a voluntary JG – democratically run at a local level, could have those communities deciding what they consider productive employment.

I draw that from the paper The Uluru Statement: “A First Nation’s perspective of the implications for social reconstructive race relations in Australia.”

“…we believe that Aboriginal people and Torres Straight Islanders will be able to refocus their energies on the everyday requirements for self-determination. Importantly this will include participation in the labour market and, for many, forms of employment that occur on Country in ways that strengthen and add contemporary value to Indigenous forms of knowledge.”

https://ijcis.qut.edu.au/article/view/532/704

That understanding of value that contributes to our well-being is neglected when studying economics. It’s not really something you can measure. How do measure the social impact children gain by seeing a parent go to work each day? How do you measure the social and community relations people develop by going to work? How do measure the impact employment brings on someone’s sense of self?

In today’s societies a sense of self is largely tied to employment and the institutions you belong to. I use the sociological definition of the term institutions. An institution in this context is an entity that a collective belongs to. For example education, law, family, religion, politics, economics all are institutions or contain institutions within them.  

What it means to be a person is anchored in your belonging to an institution.  An institution is lasting. (e.g  A widow belongings to the institution of marriage even though her partner has passed away.  They’ve participated in an institution that has approval of the collective consciousness and this forms part of their identity.)

Using that same structure our identities are intrinsically linked to our occupations. We already know the devastating effects unemployment and underemployment brings on an individual’s physical and mental health and the social implications that not being able to provide for yourself or family and participate in society brings.

The institutions we belong to bring about a ‘social solidarity’. Durkheim outlines this in his Division of Labour that “being imbedded in a group that provides cohesion, a sense of participation, togetherness” is how societies provide for integration and regulation. By virtue of being employed it brings about a sense of self identity and being gainfully employed allows one to participate in a meaningful way in society.

By implementing a Job Guarantee with an emphasis on changing the definition of productive employment we can bring about valuing different forms of cultural knowledge and practice that currently go unrecognised or unpaid.

By way of example I’ll recite my examples above, activities such as community gardens, arts workshops, flora rehabilitation, surfing can all be included within a JG framework provided they allow for a public purpose.

It may be that a group of people participate in a community garden and sand dune rehabilitation while studying horticulture with an goal of becoming a Ranger for a National Park. Indigenous forms of land management can be incorporated into this program. Out on country it may be that a community wishes to teach the ways in which they care for country. Learning about this cultural practice and partaking in the program can be a Job Guarantee. It is our imaginations that are the limit to what type of activities are included.

Conclusion

There is a lot more I wish to write and a lot more research I wish to delve into. I should conclude by saying a JG is not there to replace work to lower wages in the public sector. It is there to value forms of work that currently go unrecognised in our society.