The job guarantee continues to draw lively discussion on the various MMT-related blogs. Most of the criticism seems to be motivated by a particular conception of the efficacy of private markets and supposed deficiencies of government. Although in recent posts I have expressed a preference for a combined ‘job or income guarantee’ rather than a job guarantee on its own, it is hopefully clear that my reasoning has been along completely different lines. I won’t revisit that reasoning here other than to reiterate that my focus has been on how, as a society, we can enable a transition to a freer society. In this post, I instead want to remark briefly on the more common type of criticism being leveled at the job guarantee proposal.
Opponents of Full Employment Need to Justify their Position
The impetus for this post was a brief but interesting exchange at Mike Norman Economics between Matt Franko and Tom Hickey. In his comment, Matt made a point that I very much agree with:
Why is it that WE have to always defend our position of advocating Full Employment?
We should start to demand that these morons have to defend their advocacy of forcing millions of their fellow citizens into UN-employment!
In this comment, I think Matt is justified in suggesting that the onus should be on those who are opposed to full employment to make their case.
I think this for a number of reasons:
1. Unemployment is a macro problem. It is not due to shortcomings of individuals. MMT makes clear that the problem occurs whenever the non-government intends to net save more than is possible given the government’s fiscal settings. Unless markets can induce a change in non-government net saving behavior consistent with full employment, unemployment will persist. Past theoretical attempts to demonstrate such a capacity of the market mechanism have failed, and so no automatic tendency to full employment has been established.
Earlier neoclassical economists did claim such a tendency, but the work of Kalecki and Keynes showed that they had succumbed to a fallacy of composition. The capital debates further undermined the notion of a full-employment tendency, and aggregation problems uncovered by general equilibrium theorists ended the efforts of the neoclassical orthodoxy to make its case.
The bottom line is, arguments that depend upon the price mechanism having systematic effects on aggregate output and employment are without legitimate foundation. Those who oppose both a job guarantee and a basic income guarantee need to explain how this is morally justifiable given that unemployment is beyond the control of the individual.
2. The frequent, loose claims made by many orthodox, Austrian and even MMT economists along the lines that markets do a good job of evaluating productiveness are unconvincing, because:
a) Even if markets allocated resources in the “efficient” manner many seem to presume, all this would mean is that the assessment of productiveness reflected the prevailing income distribution. The measure of productiveness would reflect “one dollar, one vote” instead of “one person, one vote”. Unless the prevailing income distribution can be convincingly defended, there would be little reason to prefer the verdict of the market to the verdict of democracy.
b) In any case, markets do not perform in the manner so many seem to presume. Even the neoclassical orthodoxy recognizes that externalities cause a divergence between private and social costs and benefits. In orthodox terms, that means we are in the realms of second best. Once this is the case, government intervention cannot be said, in general, to move the economy further away from the “optimal” outcome rather than closer to it.
3. Ultimately, the question of what is productive can only be determined socially. What one person considers productive, another considers a boondoggle. The market is one social mechanism for evaluating productiveness, and it is not necessarily a good method, especially if the prevailing income distribution is considered undesirable. Democracy is another method, and it also has its limitations, especially when the rich and powerful enjoy undue influence over democratic processes. It seems likely that both markets and democracy will tend to work better when the distribution of income is more equal.
One benefit of a job guarantee that Bill Mitchell identified in a recent post is that it would be less susceptible to cronyism than generalized fiscal expenditure. The expenditure associated with the job guarantee would be targeted specifically at direct employment creation. The task of determining what work should be done by those employed in the job-guarantee program could to a large extent be performed by local communities.
In my view, the most serious challenge for those who reject both a job guarantee and a basic income guarantee is the moral one. The principle that a person should not be held responsible for events beyond his or her control is widely held. It should be clear to everyone by now that unemployment is caused by demand deficiency. It is outside individual control. Certainly, by applying more effort, one unemployed worker might obtain a job ahead of another, but if there is a demand deficiency, some workers are going to remain unemployed. There is nothing workers can do to eliminate it. Nor do I find the claim of a supposed payoff – a superior determination of productiveness – convincing. Supporting the deliberate maintenance of unemployment punishes the victims without necessarily providing any upside.